S&P Global Ratings published "U.S. Domestic 'AAAm' Money Market Fund Trends (Fourth-Quarter 2024)" earlier this week, which tells us, "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."
They write, "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.... 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."
S&P says, "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."
They comment, "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."
The piece adds, "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."
S&P also published, "European 'AAAm' Money Market Fund Trends (Fourth Quarter 2024)." It states, "Europe-domiciled MMFs concluded 2024 on a strong note, with significant asset growth. By December 2024, euro-denominated funds reached a record €262 billion, while U.S. dollar-denominated funds hit $680 billion. Sterling-denominated funds ended the year at £239 billion, just below the November peak of £243 billion. Over the past year, net assets increased across all three currencies: euro funds rose 31%, sterling funds 9%, and U.S. dollar funds 11%."
They write, "Following [rate] cuts, seven-day yields fell by 53 basis points (bps) for euro MMFs, 24 bps for sterling MMFs, and 49 bps for U.S. dollar MMFs.... The decline in seven-day net yields prompted U.S. dollar MMFs to extend their weighted average maturity (WAM) profiles during the fourth quarter, while euro and sterling MMFs remained stable.... However, any WAM extension must be considered against ongoing geopolitical and economic uncertainties."
Finally, S&P also posted, "'AAAm' Local Government Investment Pool Trends (Fourth-Quarter 2024)," which summarizes, "LGIPs concluded 2024 with record-high asset levels. The noteworthy growth is driven by various factors, such as attractive yields, increased tax proceeds, and residual federal stimulus balances post COVID-19, which continue to elevate pool assets. Throughout 2024, LGIPs generally maintained competitive yields compared with alternative short-term liquidity options as they outpaced bank deposits and, at times, institutional money market funds."
The ratings agency's report says, "Rated pools received inflows throughout the fourth quarter, particularly in the prime sector. Overall rated LGIP assets climbed to $390 billion. Government LGIPs increased to $99 billion (up 3.6% from prior quarter) and prime LGIPs increased to $291 billion (up 4.3% from prior quarter). Prime LGIPs are those that have the ability to invest in corporate and bank credit securities--similar to prime money market funds."
It explains, "LGIPs generally see an asset influx approaching year-end due to seasonal trends related to tax revenue. We anticipate additional inflows throughout the first quarter of 2025, in line with historical trends. Following the Federal Reserve's 25 basis point (bps) December rate cut, government and prime yields fell to 4.41% (58-bps decline) and 4.58% (50-bps decline), respectively.... Like institutional money market funds, average prime LGIP yields decreased at a slower rate than government pools, resulting in a marginally expanded spread."
S&P adds, "The NAV per share averaged 1.000151 in fourth-quarter 2024. Fourth-quarter NAV ranges were tighter than past quarters, likely due to seasonal inflows and an increased allocation to U.S. Treasuries. In our view, the NAV resiliency in rated LGIPs demonstrated pool managers emphasizing liquidity and high-quality investments, even while seeking opportunities to extend average maturities."
