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U.S. Domestic 'AAAm' Money Market Fund Trends (Fourth-Quarter 2022)

'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

Money market funds (MMFs) received significant regulatory and market attention in 2022, following indicated U.S. MMF reforms, yet to be finalized, and climbing yields that have spotlighted this asset class for investors. Rated U.S. government MMFs had a slight decline in assets during the fourth quarter, and outflows of 9% for 2022, as some investors moved funds into higher yielding products. Rated prime MMFs benefited from higher yields and attracted flows. Assets under management (AUM) in prime fund strategies grew nearly 15% in 2022, landing at $418 billion in the fourth quarter.

The Federal Reserve policy was at the forefront of formulating investment strategies throughout the year. The Fed raised rates 425 basis points in 2022, to a target rate of 4.25%-4.50%, making rates challenging to predict. S&P Global economists currently expect the Fed Funds rate to peak at 5.00%-5.25% by second-quarter 2023. (See "Economic Outlook U.S. Q1 2023: Tipping Towards Recession" Nov. 28, 2022). As we continue to move through the current rate cycle quickly, the possibility of a recession is becoming more likely, although S&P Global economists, among others, are anticipating a shallow recession in the U.S.

Despite the Fed's aggressive rate path making it difficult to forecast, managers welcomed higher yields not seen in recent history. During the fourth quarter, the seven-day and 30-day net yields for government funds grew to 3.88% and 3.67%, respectively. The seven-day and 30-day net yield for prime funds exceeded those levels, reaching 4.12% and 3.89%, respectively. The spread between government and prime funds continued to widen, reaching a spread of 24 basis points (bps) for the seven-day yield, in the fourth quarter.

Table 1

AAAm' Principal Stability Funds Seven-Day Net Yield (%)
Index 21-Dec 22-Mar 22-Jun 22-Sep 22-Dec
S&P Global Ratings 'AAAm' government MMFs 0.02 0.15 1.1 2.64 3.88
S&P Global Ratings 'AAAm' prime MMFs 0.04 0.26 1.27 2.75 4.12
MMF--Money market fund.

Government MMFs fueled record usage of the Fed's Reverse Repo Program (RRP), which hit $2.5 trillion in December 2022. The RRP remained an attractive avenue to obtain higher rates relative to other counterparties, and to access liquidity, especially at year-end when liquidity is seasonally lean. Consequently, repo exposure in government funds grew to their highest levels in the past 12 months, while allocation to Treasury bills and notes dropped. Elevated concentration in repo may persist in the near-term based on Treasury bill supply, which is affected by Treasury's ability to issue debt. S&P Global sovereign analysts recently commented on the debt ceiling. (See "Credit FAQ: U.S. Sovereign Debt Hits the Ceiling Again" Jan. 20, 2023).

In line with previous quarters, the composition of prime funds changed around the margins. Managers slowed purchases of bank deposits and added to their corporate bond positions. Like government funds, but to a lesser degree, prime funds utilized the Fed's RRP more so than in prior quarters, resulting in heavier weighting in repo and lower Treasury exposure.

Managers of government and prime strategies shortened their maturity profiles materially over the course of 2022, citing lack of clarity around the level of rate hikes as the driving factor. The fourth quarter was the only instance where government and prime funds deviated, with government funds continuing to shorten and prime funds extended slightly. For government funds, RRP usage was among the driving forces of lower weighted average maturities (WAMs), with WAMs decreasing by four days. On the prime side, WAMs increased by three days, likely influenced by typical year-end dynamics. 2a-7 registered funds often receive seasonal corporate tax related inflows and at the same time may encounter market supply challenges, although the RRP certainly mitigated this issue. As it relates to LGIPs, portfolio managers tend to extend slightly after tax payments are due.

Table 2

AAAm' Principal Stability Funds Weighted Average Maturity (In Days)
Index 21-Dec 22-Mar 22-Jun 22-Sep 22-Dec
S&P Global Ratings 'AAAm' government MMFs 36 32 27 19 15
S&P Global Ratings 'AAAm' prime MMFs 41 31 24 19 22
MMF--Money market funds.

Effective 'A-1+' credit quality in government funds was stable quarter over quarter, and there was a decrease in effective 'A-1+' credit quality in prime funds, moving from 70% to 66%.

Table 3

'AAAm' Principal Stability Funds 'A-1+' Credit Quality (%)
Index 21-Dec 22-Mar 22-Jun 22-Sep 22-Dec
S&P Global Ratings 'AAAm' government MMFs 97 98 98 98 97
S&P Global Ratings 'AAAm' prime MMFs 64 64 67 70 66
MMF--Money market fund.

The distribution of net asset values (NAV per share) for funds narrowed during the fourth quarter. No funds reported NAVs below .9985, as was the case the previous two quarters, and several funds moved above .9995. NAVs for government funds increased, as positions affected by the Fed's unexpectedly aggressive rate path rolled off. All rated funds remained within our metrics for 'AAAm' PSFRs throughout the year.

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Top 10 U.S. Domiciled 'AAAm' MMFs—Government And Prime--By assets--Key Statistics

Table 4

S&P Global 'AAAm' U.S. Dollar Principal Stability Funds-- Government
Portfolio maturity (days)
S&P Global PSFR Fund Name Net assets Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm Goldman Sachs Money Market Funds - Goldman Sachs Financial Square Government Fund 235,781 8 79 97
AAAm JPMorgan U.S. Government Money Market Fund 203,945 8 65 94
AAAm Federated Government Obligations Fund 147,997 11 72 99
AAAm Dreyfus Government Cash Management 136,071 3 50 95
AAAm Morgan Stanley Institutional Liquidity Funds - Government Portfolio 134,720 5 57 95
AAAm BlackRock Liquidity Funds FedFund 131,596 10 38 89
AAAm Fidelity Investments Money Market Government Portfolio 116,701 5 51 99
AAAm BlackRock Liquidity Funds Treasury Trust Fund 99,878 46 89 100
AAAm Allspring Government Money Market Fund 97,796 12 51 91
AAAm State Street Institutional U.S. Government Money Market Portfolio 90,408 12 47 99

Table 5
S&P Global 'AAAm' U.S. Dollar Principal Stability Funds--Prime
Portfolio maturity (days)
S&P Global PSFR Fund name Net assets Portfolio maturity (days) Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm JPMorgan Prime Money Market Fund 63,738 15 50 61
AAAm Federated Prime Cash Obligations Fund 32,978 8 45 73
AAAm Florida PRIME 24,505 18 61 58
AAAm Texas Cooperative Liquid Assets Securities System (TX CLASS) 16,668 30 76 61
AAAm State Treasury Asset Reserve of Ohio (STAR OHIO) 16,255 30 65 60
AAAm Morgan Stanley Institutional Liquidity Funds - Prime Portfolio 15,689 15 53 76
AAAm Federated Institutional Prime Obligations 14,841 9 49 73
AAAm Western Asset Insitutional Liquid Reserves 14,584 31 65 54
AAAm Connecticut State Treasurer's Short-Term Investment Fund 14,192 28 85 78
AAAm California Asset Management Trust/Cash Reserve Portfolio 12,206 31 52 56

This report does not constitute a rating action.

Primary Credit Analysts:Marissa Zuccaro, Englewood + 1 (303) 721 4762;
Joseph Zimbalist, New York +1 8045231867;
Secondary Contact:Andrew Paranthoiene, London + 44 20 7176 8416;

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