S&P Global Ratings published, "U.S. Domestic 'AAAm' Money Market Fund Trends (Second-Quarter 2024)," which tells us, "Rated money market fund (MMF) assets rose from the previous quarter, reaching $3.6 trillion between government and prime funds. Managers again shortened the maturity profiles of rated government and prime MMFs. Fund sponsors announced the closure of certain prime funds." (Note: Register and make hotel reservations soon for our European Money Fund Symposium, which takes place Sept. 19-20, 2024 in London, England. Registration is $1,000.)
They comment, "Flows into rated MMFs were net positive for another consecutive quarter. Rated government MMFs picked up 1% of inflows, and prime MMF assets were flat. While rates remain elevated, asset growth in government MMFs may persist from institutional investors placing excess cash. We see less certainty for flows for rated prime funds, but think they will likely experience declines as the new SEC 2a-7 rules are implemented, with a number of fund sponsors electing to reduce or eliminate their offerings of prime MMFs via conversions to government strategies and fund closures. Since the final rules were announced in 2023, the mandatory liquidity fee rule has posed the highest hurdle for fund sponsors. Outside of the operational challenges of calculating and applying a liquidity fee, investor appetite was another consideration for closing certain prime funds."
S&P says, "Seven-day net yields were stable for rated government MMFs and decreased slightly for rated prime MMFs over the quarter, as anticipated rate cuts priced in by markets became more realistic.... Repurchase agreements (repo) were more heavily used in rated government MMFs during the quarter. Average repo exposure increased to 43% from 40%.... With reduced Treasury bill supply, managers of rated government MMFs moved mainly into repo and partially into Treasury floaters. Managers utilized the Fed's Reverse Repo Program (RRP) as needed, particularly at quarter-end, but often achieved better rates with other non-RRP repo counterparties."
They add, "Treasury bill exposure was also lower in rated prime MMFs quarter over quarter. With more asset classes available to prime funds, managers moved into commercial paper, bank deposits, and corporate bonds rather than repo. Exposure to certificates of deposits (CDs) decreased slightly, but managers still demonstrated a preference for fixed-rate exposure."
S&P also posted, "European 'AAAm' Money Market Fund Trends (Second Quarter 2024)," which states, "Europe-domiciled MMFs rated by S&P Global Ratings recorded €1.06 trillion in assets under management as of June 30, 2024. In the 12 months to June 30, 2024, net assets in all three currencies covered in this report have seen asset increases, with euro-denominated funds up 49%, sterling-denominated funds up 4.5%, and U.S. dollar-denominated funds up 16%."
It continues, "During the second quarter, the European Central Bank (ECB) lowered its deposit rate by 25 basis points (bps), settling at 3.75%. The subsequent effect is already noticeable on euro-denominated funds with their average seven-day net yield falling 20bps over the quarter. There were no interest rate movements from the Bank of England or Federal Reserve during the second quarter, but interest rates' direction seems clear as inflation continues to decline toward targets. The market anticipation of future rate cuts is already impacting fund yields, with sterling dropping 4bps and the U.S. dollar dropping 2bps."
S&P says, "In response to the ECB's cut, euro-denominated funds extended their weighted-average maturities (WAM) profiles by six days during the quarter, rising to their highest level since March 2022. Over the last 12 months, euro-denominated funds have averaged a 33-day WAM, so the extension to 40 days ... is portfolios' action to navigate the drop in fund returns since the ECB's rate cut. For sterling-denominated and U.S. dollar-denominated funds, WAMs remained flat over the quarter but have extended over the last 12 months by 13 and 15 days, respectively."
Finally, S&P also produced the brief, "'AAAm' Local Government Investment Pool Trends (Second-Quarter 2024)." It explains, "Prime LGIPs continued to grow in second-quarter 2024, while government strategies saw a slight decline, with overall asset growth plateauing. Prime LGIPs expanded to $286 billion (a 2.5% increase from the prior quarter), and government LGIPs fell to $93 billion (a 5% decrease)."
The article comments, "Outflows and stabilization typically occur in the second quarter, owing to the cyclical nature of LGIPs. We think state and local government spending trends could lead to drawdowns and limit growth in the third quarter.... LGIPs yields experienced minimal change.... In second-quarter 2024, there was a minimal decrease in both prime (4-basis-point [bps] decline) and government net yields (1-bps decline). With small to no change in asset allocation, the slight decline can be attributed to a small drop in Treasury yields in addition to a slight decline in yields for other investments (such as commercial paper and deposits)."
It also states, "The net asset value (NAV) per share averaged 0.99991 in second-quarter 2024. NAV strength demonstrates managers continuing to prioritize liquidity and high-quality investments. Weekly liquid assets (assets maturing in less than seven days) remained near 45% for government funds while prime funds remained unchanged at 40%.... We think the decline in WAMs may imply minimal value in extending, or perhaps funds are staying liquid as managers anticipate drawdowns for the third quarter."
S&P adds, "LGIPs are present in many U.S. states where, generally, the state treasurer oversees a pooled investment vehicle that operates in a similar way to a money market fund. Typically a cost-effective investment option, LGIPs allow municipalities and public entities to combine their idle cash and operating balances to obtain economies of scale, through a diversified range of investments, to earn an incremental rate of return."
