S&P Global Ratings published its latest "U.S. Domestic 'AAAm' Money Market Fund Trends (Second-Quarter 2025)," which tells us, "Rated MMF assets were unchanged quarter over quarter for both government and prime funds. As expected with tax season, rated MMF assets dipped beginning in April. They have slowly rebounded since and, following historical patterns, should build throughout the remainder of the year. Seven-day net yields for rated government and prime MMFs fell slightly. The Federal Reserve has held its policy rate at 4.25%-4.50% since December 2024, resulting in modest declines in yields since the last rate cut. During the quarter, seven-day net yields for rated government and prime MMFs fell 2 basis points and 3 basis points, respectively. Seven-day net yields should remain stable until the Fed decides to cut rates again." (Note: Register soon for our European Money Fund Symposium show, which will be held in just over a month, September 22-23, 2025 in Dublin, Ireland.!)
They write on Q2, "Rated government MMFs continued adding repurchase agreements (repo) to their portfolios, coinciding with a decline in Treasury bills. Average repo allocation increased to 42% from 39%, and average Treasury bill exposure fell to 31% from 35% the previous quarter. With the debt ceiling raised due to the recent passage of the Trump administration's budget, portfolio managers will not need to manage through an X-date scenario this time around. The Treasury Department announced it will issue additional Treasury bills in the coming months, which MMFs will undoubtedly help absorb, likely resulting in a shift back into Treasury bills. Allocations to U.S. agency securities in rated government MMFs increased slightly, driven by additional purchases of fixed agency paper."
S&P says, "Rated prime MMFs demonstrated a similar trend to government MMFs, where more repo was purchased while Treasury bills rolled off. Treasury bill exposure by quarter-end was the lowest this year so far, at less than 1%. Allocations to other asset classes were stable overall, with minor decreases in corporate floaters, commercial paper, and bank deposits. There was a continued increase in asset-backed commercial paper (ABCP), a sector where supply is experiencing sustained growth amid a rise in alternative ABCP programs."
The update adds, "Managers of rated MMFs remained cautious around adjusting weighted-average maturities (WAMs) amid rate and policy uncertainty. Average WAMs for rated government MMFs were unchanged at 38 days. Rated prime funds shortened WAMs by 3 days on average, to 32 days. The distribution of net asset values (NAVs) per share for rated MMFs was stable, with some movement on the downside. The range for rated fund NAVs widened slightly to 0.9990-1.0013."
S&P also posted "European 'AAAm' Money Market Fund Trends (Second-Quarter 2025)." This summary tells us, "Money market funds continued to be attractive to investors in the second 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 €1.25 trillion as of June 30, 2025. In the quarter, net assets in euro-denominated funds increased by 1.4% to €275.2 billion, and U.S. dollar-denominated funds grew by 3.1% to more than $725.6 billion. Sterling-denominated funds remained stable at £245.2 billion."
It explains, "This marks the fifth consecutive period of quarter-on-quarter growth for MMFs. Net assets in all three currencies increased over the 12 months ended June 30, 2025, with euro-denominated funds up 31.4%, sterling-denominated funds up 8% (see chart 5), and U.S. dollar denominated funds up 16.4%. The European Central Bank (ECB) and the Bank of England (BoE) both cut interest rates in the second quarter of 2025."
S&P writes, "Following the two rate cuts by the ECB, euro MMF seven-day yields fell 45 bps in the quarter, averaging 2.01%. Sterling MMF yields decreased by 24 bps and averaged 4.19%, while U.S. dollar denominated fund average seven-day yields were 4.25%, a decline of 4 bps on the previous quarter."
The brief tells us, "Weighted-average maturities (WAM) increased slightly in euro and U.S. dollar MMFs, while the WAM for sterling MMFs shortened. In the second quarter, we saw WAMs in euro and USD funds extend by six days and one day, respectively, while sterling fund WAMs decreased by one day. The rise in inflation in the U.K. in April prompted fund managers to reassess the likelihood of future interest rate cuts and evaluate their duration strategy, either by maintaining or shortening the duration of their funds."
Finally, S&P Global also published, "'AAAm' Local Government Investment Pool Trends (Second-Quarter 2025)," which explains, "Rated prime LGIPs recorded continued, albeit minimal, inflows in second-quarter 2025, with assets up 2.49% from the prior quarter to $318 billion from $310 billion. Rated government pools, on the other hand, faced moderate net outflows, with assets down 16.7% to $92 billion from $109 billion. Despite the recent flow divergence between the two respective strategies, we note that total LGIP assets rated on S&P Global Ratings' PSFR scale were generally unchanged at $410 billion, which reflected a 2.41% decline from the prior quarter."
The ratings agency says, "Looking ahead, we anticipate a consistent trend in asset levels for the third quarter based on our historical observations of LGIP flow patterns. Generally, participant redemptions are observed in the second and third quarters, resulting in a decline in rated pool assets. However, in recent years, while withdrawals have still occurred during these quarters, total rated pool assets have been stable. This stability is attributed to elevated asset levels, which reflect appealing yields, increased tax revenue, and federal stimulus balances."
They write, "Net LGIP yields have steadily declined for the fourth consecutive quarter, given the Federal Reserve policy rate has remained at 4.25%-4.50% since December 2024. Government LGIP yields fell to 4.24% (down 3 bps from the prior quarter), and prime LGIP yields fell to 4.37% (down 4 bps). In addition to the policy rate, managers’ cautious approach and shorter weighted-average maturities have contributed to the decline in yields."
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. Unlike money market funds registered with the Securities and Exchange Commission (SEC), LGIPs are not regulated by the SEC and therefore not subject to SEC rule 2a-7."
