S&P on Q3'22 Money Fund Trends
S&P Global published the brief, "U.S. Domestic 'AAAm' Money Market Fund Trends (Third-Quarter 2022)," earlier this month, writing, "Growth in rated U.S. government and prime money market funds (MMFs) were mixed during the third quarter of 2022. Assets under management (AUM) in government fund strategies saw a de-minimis decline, resulting in a 0.23% quarter-over-quarter decrease. While prime fund net assets had a modest increase from the previous quarter of 4.46%, this, driven by an increase in prime institutional funds, make money funds more compelling than other asset classes in a rising rate environment." They explain, "Government and prime funds are benefiting from higher-yielding assets. During the third quarter, the seven-day and 30-day net yields for government funds grew to 2.64% and 2.25%, respectively. The seven-day and 30-day net yield for prime funds jumped to 2.75% and 2.378%, respectively. The spread between government and prime funds continued to be in a range of 10bps–15 bps. Repo exposure in government funds continues to see a greater allocation by fund managers. During the quarter, the Fed's reverse repurchase facility exceeded the prior quarter month end at $2.4 trillion. Government funds also had a modest increase in agency and Treasury floaters, while Treasury bills had lower allocation in the funds, primarily because of lower supply." S&P adds, "Managers of government and prime strategies continue to remain short. Although predictions on where the terminal rate will end up and the exact level of rate hikes vary, the funds' maturity profiles remain conservative until they are convinced that the Fed is closer to the end of its tightening cycle. Weighted average maturities moved downward by eight days for government funds and five days for prime funds. Despite the rapid rise in rates by the Fed's tightening by 150 bps during the quarter, the distribution of net asset values (NAV per share) for funds has been narrower, with only one rated fund pricing below 0.9985. As a result, we increased our surveillance to daily for this fund. It has remained within all of our metrics for 'AAAm' principal stability fund ratings (PSFRs) during the observed period. Funds appear to be mitigating the price volatility by remaining shorter in duration and higher in credit quality."
