(Editor's Note: For insights on rated local government pools, see " 'AAAm' Local Government Investment Pool Trends", published Jan. 31, 2025.)
Key Takeaways
- Rated money market funds (MMFs) sustained asset growth momentum in the fourth quarter.
- The yield spread between rated prime and government MMFs has increased.
- Managers have shifted to extending the maturity profiles of rated government and prime MMFs.
'AAAm' MMF Indicators
S&P Global Ratings' 'AAAm' 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 PSFR criteria. An individual fund's metrics below 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 'AAAm' PSFR constraints.
MMF Flows Continue
Similar to the prior quarter, rated MMF assets grew by roughly 7% in Q4 2024, driven by flows into government funds. Rated MMF assets grew 15% overall for 2024, with most of the growth occurring during the second half of the year. We observed a modest reduction in the level of institutional prime fund assets, largely following the latest SEC rule 2a-7 reforms going into effect. Despite numerous fund sponsors consolidating or eliminating their institutional prime offerings, rated prime fund assets only declined 2% year over year. Certain investors moved to government strategies, but others routed assets into the remaining existing prime funds, demonstrating a continued desire for a variety of liquidity tools.
Chart 1
Seven-day net yields decreased for rated government and prime MMFs following two 25 basis points (bps) rate cuts by the Federal Reserve during the fourth quarter. S&P Global Ratings economists believe the pace of cuts will be slower than previously thought due to excess inflation in the system, with the terminal rate landing at 3.50%-3.75%, instead of 3.00%-3.25%, by the end of 2025 (see "Economic Outlook U.S. Q1 2025: Steady Growth, Significant Policy Uncertainty" published Nov. 26, 2024, on RatingsDirect). Seven-day net yields for rated government and prime MMFs dropped 70 bps and 49 bps, respectively. Rated prime fund yields declined at a slower pace, increasing the spread between government and prime funds. By the end of the fourth quarter, the spread was 0.33% for seven-day net yields and 0.35% for 30-day net yields.
Table 1
'AAAm' principal stability funds seven-day net yield (%) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Index | Mar-24 | Jun-24 | Sep-24 | Dec-24 | ||||||
S&P Global Ratings 'AAAm' government MMFs | 5.17 | 5.17 | 4.84 | 4.14 | ||||||
S&P Global Ratings 'AAAm' prime MMFs | 5.36 | 5.30 | 4.96 | 4.47 | ||||||
MMF--Money market fund. |
Chart 2
Chart 3
Credit In Context: Exposures In MMFs
Government portfolio composition
The decrease in average repurchase agreement (repo) exposure in rated government MMFs was more pronounced relative to the previous quarter. Average repo allocation declined from 41% to 35%. Managers reallocated into treasury bills, where there was higher supply. Within agency exposure, which moved minimally, there was a continued preference for floating-rate paper over fixed.
Chart 4
Chart 5
Prime MMF portfolio composition
Managers of rated prime funds purchased fewer corporate floaters and bank deposits during the quarter. Average exposure decreased from 4% to 2% for corporate floaters and from 20% to 13% for bank deposits. These positions were reallocated fairly evenly between commercial paper and repurchase agreements. Some funds utilized the Federal Reserve's Reverse Repo Program but generally only at quarter-end, when dealer repo supply tends to be more limited. Managers also picked up a small amount of additional treasury bill exposure.
Chart 6
Chart 7
Effective 'A-1+' credit quality in rated government funds increased slightly, reflective of higher exposure to treasury bills. Prime funds experienced a decrease in effective 'A-1+' credit quality, from 67% to 64% by year-end. Effective 'A-1+' credit quality was biased upward in the third quarter due to certain prime funds rolling completely into overnight securities in preparation for fund closures.
Table 2
'AAAm' principal stability funds 'A-1+' credit quality (%) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Index | Mar-24 | Jun-24 | Sep-24 | Dec-24 | ||||||
S&P Global Ratings 'AAAm' government MMFs | 97 | 96 | 96 | 97 | ||||||
S&P Global Ratings 'AAAm' prime MMFs | 66 | 68 | 67 | 64 | ||||||
MMF--Money market fund. |
Chart 8
MMF Managers Extending
Managers of rated government and prime MMFs were expected to extend maturity profiles at some point in 2024 based on the trajectory of rates and normalization of the yield curve. The shift into longer-dated securities eventually occurred in the fourth quarter. Average weighted-average maturities (WAMs) increased by roughly seven days for rated government funds and four days for rated prime funds.
Table 3
'AAAm' principal stability funds weighted average maturity (in days) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Index | Mar-24 | Jun-24 | Sep-24 | Dec-24 | ||||||
S&P Global Ratings 'AAAm' government MMFs | 40 | 37 | 32 | 39 | ||||||
S&P Global Ratings 'AAAm' prime MMFs | 31 | 24 | 31 | 35 | ||||||
MMF--Money market fund. |
Chart 9
Stability In MMFs
The distribution of net asset values (NAVs) per share for rated MMFs narrowed since some fund NAVs moved slightly downward. At quarter-end, the range for rated fund NAVs was 0.9996-1.0011.
Chart 10
Top 10 U.S. Domiciled 'AAAm' Government And Prime MMFs--By Assets--Key Statistics
Table 4
S&P Global 'AAAm' U.S. dollar principal stability funds--government | |||||
---|---|---|---|---|---|
S&P Global PSFR | Fund name | Net assets (mil. $) | Portfolio maturity (days) | Portfolio credit quality (%) | |
WAM (R) | WAM (F) | A-1+' | |||
AAAm | JPMorgan U.S. Government Money Market Fund | 304,261 | 39 | 100 | 91 |
AAAm | Goldman Sachs Money Market Funds-Goldman Sachs Financial Square Government Fund | 270,143 | 45 | 119 | 92 |
AAAm | JPMorgan 100% U.S. Treasury Securities Money Market Fund | 226,729 | 50 | 93 | 100 |
AAAm | Fidelity Investments Money Market Government Portfolio | 209,151 | 31 | 93 | 96 |
AAAm | Morgan Stanley Institutional Liquidity Funds-Government Portfolio | 187,011 | 46 | 119 | 96 |
AAAm | BlackRock Liquidity Funds FedFund | 180,423 | 45 | 100 | 98 |
AAAm | State Street Institutional U.S. Government Money Market Portfolio | 175,383 | 41 | 103 | 98 |
AAAm | Federated Hermes Government Obligations Fund | 172,128 | 32 | 92 | 94 |
AAAm | BlackRock Liquidity Funds Treasury Trust Fund | 157,292 | 52 | 98 | 100 |
AAAm | Dreyfus Government Cash Management | 133,893 | 41 | 109 | 94 |
Table 5
S&P Global 'AAAm' U.S. dollar principal stability funds-–prime | |||||
---|---|---|---|---|---|
S&P Global PSFR | Fund name | Net assets (mil. $) | Portfolio maturity (days) | Portfolio credit quality (%) | |
WAM (R) | WAM (F) | A-1+' | |||
AAAm | Federated Hermes Prime Cash Obligations Fund | 86,953 | 44 | 57 | 61 |
AAAm | JPMorgan Prime Money Market Fund | 84,568 | 48 | 67 | 57 |
AAAm | BlackRock Liquidity Funds TempCash | 21,660 | 30 | 54 | 70 |
AAAm | Federated Hermes Institutional Prime Obligations | 14,846 | 48 | 62 | 65 |
AAAm | Morgan Stanley Institutional Liquidity Funds-Prime Portfolio | 13,638 | 47 | 73 | 79 |
AAAm | State Street Money Market Portfolio | 9,973 | 19 | 26 | 81 |
AAAm | Invesco Premier Portfolio | 8,274 | 34 | 59 | 75 |
AAAm | Western Asset Institutional Liquid Reserves | 6,693 | 6 | 25 | 82 |
AAAm | Western Asset Institutional Cash Reserves Ltd. | 4,961 | 40 | 65 | 59 |
AAAm | Morgan Stanley Institutional Liquidity Funds-Money Market Portfolio | 3,278 | 48 | 78 | 75 |
This report does not constitute a rating action.
Primary Credit Analyst: | Marissa Zuccaro, Englewood + 1 (303) 721 4762; marissa.zuccaro@spglobal.com |
Secondary Contact: | Michael Masih, New York + 1 (212) 438 1642; michael.masih@spglobal.com |
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