S&P Global Ratings published "U.S. Domestic 'AAAm' Money Market Fund Trends (First-Quarter 2025)" recently, which tells us, "Rated MMF assets were stable quarter over quarter. Government and prime MMFs experienced modest growth early in the year, which was partially related to institutional investors building up cash amid the uncertainty around the U.S. administration's policies. Near the end of the first quarter, rated MMFs saw outflows in line with seasonal patterns. We expect that MMF assets will experience limited growth until the tax season settles."
They write, "Seven-day net yields for rated government and prime MMFs continued to decline. The Federal Reserve didn't change its policy rate in its January or March meetings; accordingly, seven-day net yields for rated government and prime MMFs fell 15 basis points and 11 basis points, respectively -- smaller declines than in the prior quarter. In the past 12 months, seven-day net yields for rated MMFs have fallen roughly 100 basis points overall."
The piece continues, "In contrast with prior quarters, repurchase agreement (repo) exposure in rated government MMFs increased in the first quarter, and Treasury bill exposure decreased correspondingly. Average repo allocation moved to 39% from 35% the previous quarter, which included additional usage of the Fed's reverse repo program. The shift into repo was a response to lower Treasury bill supply. The Treasury Department is expected to suppress Treasury bill issuance until there's a resolution with respect to the federal debt ceiling. Allocations to U.S. agency securities in rated government MMFs were relatively unchanged."
It states, "Rated prime MMFs relied less on repo in the first quarter, with average repo exposure decreasing to 18% from 24%. Managers reallocated mostly into commercial paper and bank deposits. We observed managers also adding corporate floaters and asset-backed commercial paper (ABCP) as a function of higher supply during the quarter. According to Federal Reserve Economic Data, ABCP outstanding reached $375 billion, the highest level recorded in the past five years. Treasury bill exposure decreased to 2% from 3% over the quarter."
S&P tells us, "While the norm of the last 12 months has been larger movements in average weighted-average maturities (WAMs), both rated government and prime funds moved little in the first quarter. Rated government MMFs reduced WAM by one day on average, and rated prime MMFs held steady. Managers will likely remain hesitant to move WAMs meaningfully until there's more certainty with respect to policy and the markets.... The distribution of net asset values (NAVs) per share for rated MMFs was stable in the first quarter. At the end of March, the range for rated fund NAVs was 0.9995-1.0009."
S&P also published, "European 'AAAm' Money Market Fund Trends (First Quarter 2025)." This update says, "Money market funds continued to be attractive to investors in the first quarter of 2025, as Europe-domiciled MMFs rated by S&P Global Ratings reached an all-time high in terms of assets under management (AUM), totaling €1.2 trillion as of March 31, 2025. In the quarter, net assets in euro-denominated funds grew 3.2% to €271.5 billion, sterling-denominated funds were up 2.6% to £245.2 billion, and U.S. dollar-denominated funds saw growth of 3.4% with net assets totaling over $704 billion. This marks the fourth consecutive quarter-on-quarter growth for MMFs across the three currencies. When comparing net assets to the first quarter of 2024, MMFs in all three currencies have seen double-digit growth with euro funds (37.1%), sterling funds (10.3%), and U.S. dollar funds (15.5%)."
It explains, "The European Central Bank (ECB) and the Bank of England (BoE) cut interest rates in the first quarter of 2025, while the U.S. Federal Reserve (the Fed) left the federal funds rate unchanged with a target range of 4.25% to 4.5%. The ECB cut rates by 25 basis points (bps) at both its February and March policy meetings, lowering the deposit rate from 3.0% to 2.5%. The BoE reduced its bank rate by 25bps to 4.5% in February. Following the two rate cuts by the ECB, euro MMFs seven-day yields fell 49bps in the quarter, averaging 2.46%. Sterling MMFs yields dropped by 24bps, averaging 4.43%, while U.S. dollar-denominated funds average seven-day yields were 4.29%, a decline of 14 bps from the previous quarter. Weighted-average maturities (WAM) increased slightly in euro and sterling MMFs by two and three days, respectively. For U.S. dollar MMFs, their WAMs decreased by three days."
Finally, S&P posted "'AAAm' Local Government Investment Pool Trends (First-Quarter 2025)," which states, "Rated pools experienced typical inflows during the first quarter of this year -- mostly because of seasonal tax revenue collections balances invested within these funds -- and rated LGIP assets overall rose to $419 billion, a new high. Government LGIPs grew to $109billion (up 10.3% from the prior quarter), and prime LGIPs increased to $310 billion (up 6.7%). We expect assets to plateau in the second quarter, since state and local governments' spending patterns may lead to drawdowns, consistent with historical trends."
The update says, "LGIP yields continued to decline in the first quarter and are roughly 100 basis points (bps) lower than where they were in early 2024. After the Federal Reserve's rate cut in December, government LGIP yields fell to 4.27% (down 14 bps from the prior quarter), and prime LGIP yields fell to 4.41% (down 17 bps from the prior quarter)."
It adds, "Pools have been cautious in their approach to investment allocation, with minimal change. As mentioned, both prime and government funds have slightly reduced their exposure to U.S. government securities, possibly because of market volatility and rate policy uncertainty. We expect that managers will be strategic with respect to certain government maturities later this year as expectations evolve regarding congressional action related to the debt ceiling. Government funds experienced a small increase in their exposure to repurchase agreements and agency floaters, whereas prime funds increased their allocation to commercial paper."
