Fitch Ratings' Q1'26 LGIP Update
Fitch Ratings published "U.S. Local Government Investment Pools Monitor: 1Q26" recently. They tell us, "Fitch Ratings' two local government investment pool (LGIP) indices reflected asset declines in the first quarter of 2026 (1Q26). Total assets for the Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index were $661.5 billion at quarter end, down $4.56 billion QoQ but up $6.9 billion YoY. The 1.1% YoY growth rate from 1Q25 to 1Q26 was the slowest recorded to date since Fitch created the indices in 2017. This extends the trend of decreasing single-digit YoY growth seen in recent quarters. The Fitch Liquidity LGIP Index declined 0.2% QoQ and the Fitch Short-Term LGIP Index declined by 1.5% QoQ, compared with average first quarter changes of a 5.3% increase and a 1.6% decline, respectively, over the past three years." The update continues, "Both Fitch indices ended the quarter with lower average yield profiles, as net yields averaged 3.70% for the Liquidity Index and 3.93% for the Short-Term Index, a decline of 13 bps and 6 bps, respectively. The decline reflects the lagged effect of the Fed's rate cuts in late 2025, as well as a lower-rate environment during 1Q26, when the Fed held policy rates steady. As reinvestment opportunities reset at lower levels, LGIP managers faced continued pressure on portfolio yields. The WAM for the Fitch Liquidity LGIP Index rose to 45 days in Q1 from 39 days in Q425, remaining above prime '2a-7' money market funds (MMFs) at 33 days. The Fitch Short-Term LGIP Index ended the quarter with a duration of 1.38 years, up 10% since last quarter. With the Fed on hold, managers selectively extended along the curve to lock in available yields despite expectations for additional easing becoming less certain amid persistent inflation and broader economic uncertainty, resulting in modestly longer portfolio profiles." The brief adds, "The Fitch Liquidity LGIP Index increased exposure to commercial paper by 3.8% while reducing exposure to asset-backed securities by 3.5% QoQ, consistent with stronger CP issuance and supply during the quarter. Total outstanding CP grew to $1.42 trillion, representing a $99 billion increase over the quarter. These allocation shifts reflect managers' active response to evolving market supply conditions and continued focus on liquidity and yield."
