S&P on Q3 Local Govt Inv Pool Trends
S&P Global Ratings recently published "'AAAm' Local Government Investment Pool Trends (Third-Quarter 2024)," which tells us, "Both prime and government LGIPs' assets slightly declined, which is typical for the third quarter because of cyclicality. State and local government spending trends typically lead to drawdowns in the second and third quarters of each year. Government LGIPs fell to $92 billion (1.5% decline) while prime LGIPs decreased to $282 billion (1.66% decline). Prime LGIPs are those that have the ability to invest in corporate and bank credit securities -- similar to prime money market funds." They explain, "In recent years', LGIPs' assets have seen significant growth, driven by various factors such as attractive yields, increased tax receipts proceeds, and stimulus funds post COVID-19. Although there was a slight decline in the third quarter, LGIPs have maintained overall growth from recent years'.... We anticipate higher asset levels in the fourth quarter as participants receive tax revenues. Following the federal funds 50 basis point (bps) rate cut, government and prime yields declined to 4.99% (28-bps decline) and 5.08% (32-bps decline).... The swift drop in yields reflects managers remaining short, perhaps due to drawdowns and limited value in extending until the yield curve normalizes. The net asset value (NAV) per share averaged 1.00043 in third-quarter 2024.... Weekly liquid assets approached 50% for government funds while prime funds remained unchanged at 41%." S&P adds, "Unlike money market funds registered with the SEC, LGIPs are not regulated by the SEC and therefore not subject to SEC rule 2a-7. However, LGIPs typically benefit from the purview of state statutes, which provide guidelines on LGIPs' investment policy and objective, as well as from the standards and guidance of the Governmental Accounting Standards Board, where standard 79 allows the use of amortized cost to value an LGIP's portfolio assets."
