Fitch U.S. MMF Monitor: 4Q25
Fitch Ratings recently published, "U.S. Money Market Funds Monitor: 4Q25." It states, "Total taxable money market fund (MMF) assets increased by $386.5 billion, a 5.1% rise since the prior quarter, and grew by $918.2 billion over the year to a record high of $7.95 trillion, representing a 13% YoY increase, according to Crane Data. Government and Treasury MMFs gained $213.9 and $159.8 billion in assets during the quarter, while Prime MMFs saw more modest inflows of just $12.8 billion. These flows continue the trends seen in the first three quarters of 2025, reflecting investors' appetite for safety and liquidity amid mixed economic signals, geopolitical risks, and spread compression in credit alternatives." Fitch's update continues, "Taxable MMFs increased exposure to Treasuries by $290.8 billion and Repos by $219.2 billion over the quarter. FICC-cleared repos accounted for $155.2 billion of repo volume, reaching a record high of $1.3 trillion in December. Meanwhile, commercial paper decreased by $24 billion, according to Crane Data. This shift in allocations reflects managers' preference for liquidity and credit quality, even as two Fed rate cuts in Q4 provided incentives to capture higher yields. Increased Treasury allocations allowed MMFs to lock in yields as rates declined, while repos offered flexibility and access to liquidity during seasonal, year-end flows and narrower spreads muted appetite for credit." It adds, "Throughout 2025, the Federal Reserve implemented three rate cuts totaling 75 basis points, bringing the federal funds target down to 3.50-3.75% by year-end. These actions, driven by moderating inflation and a softening labor market, set the stage for declining money market fund yields. Institutional government and prime MMF net yields dropped by 36 basis points in Q4, ending the year at 3.59% and 3.69%, respectively. Looking ahead, further but more gradual easing is expected in 2026. This will likely keep MMF yields on a downward path, though investor demand is expected to remain strong given expectations for a moderate neutral rate range."
