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European 'AAAm' Money Market Fund Trends (First-Quarter 2023)

Index Data
Index Name 7-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' euro MMFs 2.82 2.38 19 €127.7 69/31
S&P Global Ratings 'AAAm' sterling MMFs 3.82 3.71 32 £232.2 68/32
S&P Global Ratings 'AAAm' U.S. dollar MMFs 4.72 4.59 20 $540.6 79/21
WAM (R)--Weighted average maturity to reset.

 

Market Comment

Europe-domiciled MMFs we rate had mixed results during the first quarter of 2023 since those denominated in euro and sterling had outflows of 3.6% and 8.6%, respectively. By contrast, rated U.S. dollar funds saw inflows of 6% from Dec. 31, 2022. Despite the quarter-over-quarter decline, euro and sterling net assets ended 2022 in a position of strength with the highest year-end euro level observed since 2011 and largest year-end balance on record in sterling. U.S. dollar funds continued their momentum, with assets of $540.6 billion as of Mar. 31, 2023, being the largest month-end total recorded since we began tracking quarterly metrics. By comparison, since the first quarter of 2022, MMFs in all three currencies showed asset growth: 12.7% in euro, 3% in sterling, and 14.7% in U.S. dollars.

Central bank interest rates rose steeply in 2022. The hiking cycle continued in the first quarter of 2023 when the European Central Bank, Bank of England (BOE), and U.S. Federal Reserve Bank (the Fed) raised rates in February and March. With interest rates rising, average seven-day net yields of euro, sterling, and U.S. dollar MMFs have hit highs not observed since the global financial crisis. Euro-denominated MMFs ended the quarter with seven-day net yields of 2.82%, sterling MMFs at 3.82%, and U.S. dollar MMFs at 4.72%. With yields reaching multi-decade highs, MMFs remain an attractive investment vehicle for investors looking for stability and liquidity.

In the first quarter, weighted average maturities (WAM) for euro-denominated funds declined, while for sterling and U.S. dollar funds, WAMs increased. Euro-denominated WAMs decreased slightly to 19 days in March from 21 days in December. The WAM of U.S. dollar-denominated funds showed a slight uptick, to 20 days as of Mar. 31, from 18 days in December. The increase in WAM was more substantial in sterling-denominated funds, increasing to 32 days at the end of the quarter from 24 days at the end of December 2022. Increasing WAMs in sterling and U.S. funds may signify that portfolio managers are anticipating the rate hiking cycle by the BOE and the Fed might be coming to an end.

The average exposure to 'A-1+' investments increased across all three currencies in the first quarter of 2023. Euro-denominated funds' credit quality improved 11%, ending the period with 69% of 'A-1+' rated investments; the share of 'A-1+' assets in sterling funds increased 6% to 68%, while U.S. dollar MMFs had 'A-1+' exposure of 79%, an increase of 8% from Dec. 31, 2022.

We consider credit quality to play a key role in the stability of the net asset value (NAV) and view higher-rated assets as reflecting higher price stability. The percentages of 'A-1+' investments in euro, sterling, and U.S. dollar MMFs are well above the 50% minimum threshold for a 'AAAm' rating.

MMFs' use of a high credit quality approach, diversified issuer base, and goal of providing daily liquidity to investors are playing an important role in the investment universe. Each week, we analyze surveillance data, including credit metrics on asset levels, NAV per share, portfolio credit quality, and diversification, duration, and redemption patterns.

Table 1

AAAm' Principal Stability Funds Seven-Day Net Yield (%)
Index Dec. 2021 Mar. 2022 Jun. 2022 Sep. 2022 Dec. 2022 Mar. 2023
S&P Global Ratings 'AAAm' euro MMFs (0.76) (0.62) (0.52) 0.53 1.59 2.82
S&P Global Ratings 'AAAm' sterling MMFs 0.02 0.45 0.98 1.80 3.00 3.82
S&P Global Ratings 'AAAm' U.S. dollar MMFs 0.03 0.20 1.30 2.82 4.23 4.72

Table 2

AAAm' Principal Stability Funds Weighted Average Maturity (In Days)
Index Dec. 2021 Mar. 2022 Jun. 2022 Sep. 2022 Dec. 2022 Mar. 2023
S&P Global Ratings 'AAAm' euro MMFs 45 41 28 26 21 19
S&P Global Ratings 'AAAm' sterling MMFs 48 35 34 27 24 32
S&P Global Ratings 'AAAm' U.S. dollar MMFs 42 29 22 18 18 20

Table 3

AAAm' Principal Stability Funds 'A-1+' Credit Quality (%)
Index Dec. 2021 Mar. 2022 Jun. 2022 Sep. 2022 Dec. 2022 Mar. 2023
S&P Global Ratings 'AAAm' euro MMFs 63 64 63 61 58 69
S&P Global Ratings 'AAAm' sterling MMFs 63 67 67 72 62 68
S&P Global Ratings 'AAAm' U.S. dollar MMFs 75 76 73 75 71 79

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Top 10 European-Domiciled 'AAAm' MMFs--Euro, Sterling, And U.S. Dollar--By Assets--Key Statistics

Table 4

'AAAm' Euro Principal Stability Funds
Rating Fund name Net assets (mil. €) --Portfolio maturity (days)-- Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm Institutional Cash Series plc - BlackRock ICS Euro Liquidity Fund 41,409 15 37 74
AAAm BNP Paribas Insticash EUR 1D 18,121 46 75 61
AAAm Goldman Sachs Funds, plc - Goldman Sachs Euro Liquid Reserves Fund 17,624 7 15 75
AAAm HSBC Global Liquidity Funds PLC - HSBC Euro Liquidity Fund 11,407 5 47 63
AAAm MS Liquidity Funds - Euro Liquidity Fund 10,210 12 23 69
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Euro Fund 8,149 17 20 56
AAAm State Street Liquidity plc - State Street EUR Liquidity LVNAV Fund 5,484 17 40 64
AAAm Aberdeen Standard Liquidity Fund (Lux) - Euro Fund 4,417 28 30 64
AAAm Insight Liquidity Funds PLC - ILF EUR Liquidity Fund 2,904 20 19 71
AAAm Northern Trust Global Funds PLC - The Euro Liquidity Fund 2,318 20 30 63
WAM (R)--Weighted average maturity to rest. WAM (F)--Weighted average maturity to final.

Table 5

'AAAm' Sterling Principal Stability Funds
Rating Fund name Net assets (mil. £) --Portfolio maturity (days)-- Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm LGIM Liquidity Funds PLC - LGIM Sterling Liquidity Fund 41,659 39 54 64
AAAm Institutional Cash Series plc - BlackRock ICS Sterling Liquidity Fund 41,414 39 46 71
AAAm Insight Liquidity Funds PLC - ILF GBP Liquidity Fund 25,328 35 39 75
AAAm Aviva Investors Liquidity Funds PLC - Aviva Investors Sterling Liquidity Fund 17,849 39 62 61
AAAm JPMorgan Liquidity Funds - GBP Liquidity LVNAV Fund 14,929 26 44 68
AAAm Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund 13,745 41 49 70
AAAm Goldman Sachs Funds, plc - Goldman Sachs Sterling Liquid Reserves Fund 13,388 21 25 70
AAAm HSBC Global Liquidity Funds PLC - HSBC Sterling Liquidity Fund 11,924 20 37 62
AAAm Northern Trust Global Funds PLC - The Sterling Fund 9,255 29 38 62
AAAm DWS Deutsche Global Liquidity Series PLC - Deutsche Managed Sterling Fund 7,194 42 56 69
WAM (R)--Weighted average maturity to rest. WAM (F)--Weighted average maturity to final.

Table 6

'AAAm' U.S. Dollar Principal Stability Funds (EU-Domiciled)
Rating Fund name Net assets (mil. $) --Portfolio maturity (days)-- Portfolio credit quality (%)
WAM (R) WAM (F) A-1+
AAAm JPMorgan Liquidity Funds - USD Liquidity LVNAV Fund 109,897 26 52 69
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Treasury Liquid Reserves Fund 61,811 3 14 94
AAAm JPMorgan Liquidity Funds - USD Treasury CNAV Fund 55,415 1 8 94
AAAm Institutional Cash Series plc - BlackRock ICS US Dollar Liquidity Fund 53,187 33 45 73
AAAm Goldman Sachs Funds, plc - Goldman Sachs US$ Liquid Reserves Fund 41,266 32 71 81
AAAm MS Liquidity Funds - US Dollar Liquidity Fund 37,214 25 38 69
AAAm HSBC Global Liquidity Funds PLC - HSBC US Dollar Liquidity Fund 34,389 28 49 83
AAAm State Street Liquidity plc - State Street USD Liquidity LVNAV Fund 22,622 19 62 65
AAAm Institutional Cash Series plc - BlackRock ICS US Treasury Fund 18,463 2 8 100
AAAm BNY Mellon Liquidity Funds, PLC - BNY Mellon U.S. Treasury Fund 15,674 2 2 96
WAM (R)--Weighted average maturity to rest. WAM (F)--Weighted average maturity to final.

This report does not constitute a rating action.

Primary Credit Analyst:Michael Mango, London + 44 (0) 207 176 048;
michael.mango1@spglobal.com
Secondary Contact:Andrew Paranthoiene, London +44 20 7176 8416;
andrew.paranthoiene@spglobal.com

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