News Archives: June, 2025
Dreyfus posted a brief titled, "Moody's Downgrade of US Long-Term Ratings," which states, "On May 16, Moody's Corporation downgraded the United States of America's long-term issuer and senior unsecured ratings to Aa1 from Aaa. Moody's released a statement on the downgrade, noting 'This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.'" (Note: Register ASAP for our upcoming Crane's Money Fund Symposium, which is in just 3 weeks -- June 23-25 -- in Boston!)
The Dreyfus piece continues, "With the downgrade, Moody's adjusted its outlook to 'stable.' 'The US economy is unique among the sovereigns we rate. It combines very large scale, high average incomes, strong growth potential and a track-record of innovation that supports productivity and GDP growth. While GDP growth is likely to slow in the short term as the economy adjusts to higher tariffs, we do not expect that the US' long-term growth will be significantly affected.'"
It says, "Moody's cut the US long-term issuer senior unsecured rating one level from Aaa to Aa1. There was no change to the short-term rating. All three rating agencies maintain the highest short-term rating at P-1 (Moody's), A-1+ (S&P) and F1+ (Fitch); This downgrade was roughly 18 months in the making, as Moody's lowered the US outlook from 'stable' to 'negative' in November 2023; Moody's was the last of the three major credit rating agencies to downgrade the US from its highest level. Fitch and S&P downgraded the US in 2023 and 2011, respectively."
Dreyfus comments, "Currently, all of the agencies' ratings are aligned at Aa1/AA+/AA+ with 'stable' outlooks; It is expected that certain issuers' ratings will follow the downgrade shortly, including direct rating impacts on US government-sponsored enterprises and agencies (who have direct credit linkages), and indirect impact on some US banks and insurers, infrastructure issuers, and state and local governments."
They add, "We do not expect any impact on Dreyfus Aaa/AAA money market fund (MMF) ratings as a result of the downgrade. We expect limited market reaction similar to the anticipated Fitch downgrade in 2023 as opposed to the S&P surprise action in 2011. We do not expect to see any MMF outflows on the back of the downgrade. We do not believe this will have any impact on MMF investments as it relates to changing haircuts in their respective collateral schedules. We believe Dreyfus is well positioned to meet our clients' investment needs with the depth and breadth of experience we bring to this asset class."
For more, see these Crane Data News stories: "Wells Fargo on Govt Debt Downgrade" (5/23/25); "Federated writes 'S&P Downgrade Immaterial to Money Market Funds" (8/9/11); "Standard Poor's Says AAAm Money Funds Unaffected by US Downgrade" (8/9/11); and, "ICI on S&P Downgrade, Reviews Flows During Debt Ceiling Debate" (8/8/11).
In other news, J.P. Morgan writes in a "JPM Mid-Week US Short Duration Update" that, "April showers low-duration bond funds with inflows." They state, "Low-duration bond funds posted another solid month of inflows in April, pulling in $13bn and bringing total AUMs across the funds we track to $868bn. This marks the fourth straight month of net inflows, with year-to-date totals reaching $43bn, a roughly 5% increase since the start of the year."
The update tells us, "Most strategies across the low-duration space saw inflows during the month, but short-term government funds stood out. These funds took in $3.6bn in April alone, accounting for 58% of their YTD inflows. So far in 2025, short-term government funds have garnered $6.2bn, already surpassing full year inflows in comparison to any of the past six years outside of 2020."
JPM continues, "Performance likely contributed to the increased flows into low-duration funds in April. In fact, during the month, the 2-year Treasury yield fell by 29bp, ending at 3.62%, which pushed the 1m/2y curve to -62bp, compared to -33bp on March 31, as markets aggressively repriced in anticipation of additional policy rate cuts throughout the year.... Notably, short-term government strategies with effective durations of 1.5-3.5 years generally outperformed comparable strategies, including other short-term funds, ultra-short funds, and MMFs. This outperformance is particularly evident over the 1 month and 3-month periods."
They state, "On the positioning side, the trend toward Treasury securities has also moved higher so far this year. Based on our estimates, low-duration funds have increased their Treasury holdings by $11bn YTD, bringing total exposure to $214bn as of April month-end.... Allocations to ABS also rose by $10bn over the same period. Additionally, low duration funds continued to maintain around $35bn in CP/CD holdings, with a modest $1bn increase year to date."
Finally, the article adds, "While the macro backdrop remains uncertain, with concerns ranging from fiscal dynamics to policy expectations and trade tensions, we expect low-duration funds to continue attracting steady inflows through the year. Should inflows across these funds persist, especially if short-term and ultra-short government funds maintain their momentum, this could also add incremental demand for front-end Treasuries on the margin."
