Index | Seven-day net yield (%) | 30-day net yield (%) | WAM (R) (days) | Total net assets (bil. $) | Credit quality (%) ('A-1+'/'A-1') | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
S&P Global Ratings 'AAAm' principal stability funds--prime | 0.01 | 0.04 | 43 | 373 | 65/35 | |||||||
S&P Global Ratings 'AAAm' principal stability funds--government | 0.01 | 0.01 | 35 | 2,935.8 | 97/3 | |||||||
WAM (R)--Weighted average maturity to reset. |
'AAAm' Money Market Fund Indicators
The S&P Global Ratings' 'AAAm' money market fund (MMF) indicators are metrics of U.S. domestic managed funds that seek to maintain principal value and limit exposure to principal losses due to credit risk, as defined in our principal stability fund ratings (PSFR) criteria. These MMF indicators provide a benchmarking tool of the 'A-1+' credit quality, portfolio composition, maturity distribution, net asset movements, and yields of 'AAAm' principal stability rated funds.
The MMF indicators demonstrate the investment practices of funds conforming to the principal stability fund rating criteria. An individual fund's metrics below that of the S&P Global Ratings' 'AAAm' MMF indicators may indicate a more conservative approach to investment, while a fund's risk metrics well above the average may signal a more aggressive approach, albeit undertaken within the constraints of a 'AAAm' principal stability fund rating.
Market Comment
The third quarter of 2021 for rated U.S. MMFs continued to see a slow bleed out of prime funds, while government funds maintained a near record level of net assets. Prime fund net assets were down to $373 billion or 18% compared to the previous year, just above March 2020 lows of $362 billion. Government fund assets were up to $2,935 billion or 12% over the previous year, around $300 billion higher compared to the market dislocation period of March 2020.
There continues to be a massive imbalance of supply and demand, and that will likely continue in the near to medium term. The spread difference between prime funds and government funds is only a few basis points (bps).
Across both fund types, yields are flat compared to last quarter. However, there continues to be pressure on yields, driven by the shrinking pool of low-risk assets, debt ceiling noise, the prospect of regulatory reform and continued scrutiny on prime funds. There was some relief through the third quarter following the tweaks to the reverse repurchase agreement (repo) facility in late June by the Federal Reserve.
In terms of portfolio composition, the purchases of Treasury bills in government MMFs saw its lowest allocation going to back to March 2020, as supply diminished following the Department of the Treasury's efforts to reduce its cash balances. Also, agency issuance has been somewhat limited in recent months, which further reduced exposure to very low levels. This has been offset by fund managers increasing their allocation into repos, with most of being overnight. There was also a modest increase to seven-day liquidity due to the increase in overnight positions.
Similar to last quarter, the Federal Reserve's repo program saw a spike in activity. Prime fund managers increased their allocation to repos and slightly reduced their exposure to commercial paper (CP) and asset-backed commercial paper (ABCP) during the quarter, which is reflected in the small increase in overnight and seven-day liquidity within prime funds. Compared to the previous year, there was an increase in time deposits, CP, and ABCP, with a decrease in exposure to sovereigns, supranationals, and agencies (SSA).
Like government funds, supply constraints in the short-term funding markets may have reduced the option to invest in certain asset classes. Yields remained low throughout the quarter. Seven-day and 30-day net yields for government funds were 0.01%, unchanged from the previous quarter and down two basis points (bps) from the previous year. The seven-day net yield for prime funds was 0.01% and the 30-day net yield was 0.04%, unchanged from the last quarter and down 12 bps and 10 bps form the last year, respectively. Fund managers extended their use of fee waivers, which have been a widespread and crucial tool for attracting continued inflows into MMFs.
Table 1
'AAAm' Principal Stability Funds Seven-Day Net Yield (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Sep-20 | Dec-20 | Mar-21 | Jun-21 | Sep-21 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 0.13 | 0.02 | 0.02 | 0.01 | 0.01 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 0.03 | 0.02 | 0.02 | 0.01 | 0.01 | |||||||
MMF--Money market fund. |
Managers shortened the weighted average maturity (WAM) of government funds to 35 days, two days shorter than the previous quarter. This is being driven by the lack of supply in the market and managers favoring short-dated assets like repos to help manage their liquidity. With the flat yield curve, there is very little incentive to extend portfolio WAMs within the prime space, which can be seen modestly shrining by three days to 43 days.
In addition, fund managers are keeping their WAMs relatively short, as the market is expecting updates from the Federal Reserve about future quantitative tightening and adjustments to the repo facility.
Among purchases of floating-rate securities, we observed a very limited use of Bloomberg Short Term Bank Yield Index (BSBY) floaters in some rated funds. Most fund managers are no longer adding LIBOR floaters and are letting their exposure roll off by year-end. Managers have been more active in Secured Overnight Financing Rate (SOFR) and Fed fund floaters, but now they are seeing more value in fixed paper.
Table 2
'AAAm' Principal Stability Funds Weighted Average Maturity (In Days) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Sep-20 | Dec-20 | Mar-21 | Jun-21 | Sep-21 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 44 | 44 | 46 | 46 | 43 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 42 | 43 | 42 | 37 | 35 | |||||||
MMF--Money market funds. |
Government funds maintained heavy weighting in effective 'A-1+' exposure, at 97%. Prime funds also held steady, keeping effective 'A-1+' exposure around 65%. Several government funds continue to hold small positions in 'A-2' overnight repo.
Table 3
'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index | Sep-20 | Dec-20 | Mar-21 | Jun-21 | Sep-21 | |||||||
S&P Global Ratings 'AAAm' prime MMFs | 68 | 68 | 65 | 66 | 65 | |||||||
S&P Global Ratings 'AAAm' government MMFs | 97 | 95 | 96 | 97 | 97 | |||||||
MMF--Money market fund. |
In terms of net asset values (NAV per share) for rated funds, they stayed in a 23 bp range, between 0.9996 and1.0019 per share.
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Top 10 U.S.-Domiciled 'AAAm' MMFs--Government And Prime--By Assets--Key Statistics
Table 4
'AAAm' USD Principal Stability Funds--Government | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
--Portfolio maturity (days)-- | ||||||||||||
Rating | Fund name | Net assets (mil. $) | WAM (R) | WAM (F) | Credit quality 'A-1+' (%) | |||||||
AAAm | JPMorgan U.S. Government Money Market Fund | 238,511 | 35 | 52 | 100 | |||||||
AAAm | Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund | 222,109 | 39 | 99 | 88 | |||||||
AAAm | BlackRock Liquidity Funds FedFund | 175,205 | 18 | 74 | 90 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Government Portfolio | 158,507 | 20 | 33 | 99 | |||||||
AAAm | Wells Fargo Government Money Market Fund | 142,586 | 31 | 91 | 92 | |||||||
AAAm | Federated Government Obligations Fund | 132,096 | 29 | 85 | 99 | |||||||
AAAm | Fidelity Investments Money Market Government Portfolio | 127,994 | 31 | 78 | 97 | |||||||
AAAm | BlackRock Liquidity Funds T-Fund | 120,289 | 18 | 75 | 98 | |||||||
AAAm | Dreyfus Government Cash Management | 117,401 | 17 | 89 | 100 | |||||||
AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 101,817 | 48 | 91 | 100 | |||||||
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final. |
Table 5
'AAAm' USD Principal Stability Funds--Prime | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
--Portfolio maturity (days)-- | ||||||||||||
Rating | Fund name | Net assets (mil. $) | WAM (R) | WAM (F) | Credit quality 'A-1+' (%) | |||||||
AAAm | JPMorgan Prime Money Market Fund | 76,801 | 41 | 65 | 62 | |||||||
AAAm | Federated Prime Cash Obligations Fund | 18,198 | 47 | 56 | 55 | |||||||
AAAm | State Treasury Asset Reserve of Ohio (STAR OHIO) | 18,073 | 41 | 57 | 69 | |||||||
AAAm | Morgan Stanley Institutional Liquidity Funds - Prime Portfolio | 16,866 | 25 | 37 | 71 | |||||||
AAAm | Florida PRIME | 15,455 | 49 | 64 | 67 | |||||||
AAAm | State Street Money Market Portfolio | 13,860 | 40 | 55 | 61 | |||||||
AAAm | Federated Institutional Prime Obligations | 13,528 | 53 | 59 | 51 | |||||||
AAAm | Connecticut State Treasurer's Short-Term Investment Fund | 12,326 | 41 | 64 | 84 | |||||||
AAAm | Texas Cooperative Liquid Assets Securities System | 12,270 | 53 | 88 | 59 | |||||||
AAAm | Colorado Local Government Liquid Asset Trust (COLOTRUST PLUS+) | 11,771 | 57 | 89 | 60 | |||||||
WAM (R)--Weighted average maturity to reset. WAM (F)--Weighted average maturity final. |
This report does not constitute a rating action.
Primary Credit Analysts: | Joseph Zimbalist, New York; joseph.zimbalist@spglobal.com |
Marissa Zuccaro, Centennial + 1 (303) 721 4762; marissa.zuccaro@spglobal.com | |
Secondary Contact: | Andrew Paranthoiene, London + 44 20 7176 8416; andrew.paranthoiene@spglobal.com |
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