Fitch Ratings' Q4'25 LGIP Update
Fitch Ratings published "U.S. Local Government Investment Pools Monitor: 4Q25," which tells us, "Fitch Ratings' two local government investment pool (LGIP) indices experienced asset increases in the fourth quarter of 2025 (4Q25). Total assets for the Fitch Liquidity LGIP Index and the Fitch Short-Term LGIP Index were $661.1 billion at quarter end, marking an increase of $34.7 billion QoQ and $13.9 billion YoY. While total assets for the indices continue to reach new highs, YoY percentage growth rates have continued to slow, dropping from double-digit increases in pre-2024 to low single-digit growth as of year-end. The Fitch Liquidity LGIP Index rose by 5.2% QoQ and the Fitch Short-Term LGIP Index by 6.2% QoQ, consistent with average fourth quarter increases of 6.8% and 10.3%, respectively, over the past three years." The update continues, “Both Fitch indices ended the quarter with decreased average yield profiles, as net yields averaged 3.84% for the Liquidity Index and 3.99% for the Short-Term Index, a decline of 34 bps and 10 bps, respectively. This drop reflects the impact of the Federal Reserve's cumulative 75-basis point rate cuts in October and December, which lowered the target range to 3.50%-3.75% by year end. Weighted average maturities (WAMs) remained largely stable in 4Q25, as managers responded to ongoing rate cuts by moderately extending durations in an effort to preserve current yields ahead of anticipated further declines. The WAM for the Fitch Liquidity LGIP Index eased to 39 days in Q4 from 40 days in Q2, remaining above prime '2a-7' money market funds (MMFs) at 31 days. The Fitch Short Term LGIP Index ended the quarter with a duration of 1.30 years, down 2% since last quarter." The brief adds, "The Fitch Liquidity LGIP Index increased exposure to repurchase agreements by 3.1% while reducing exposure to Commercial Paper by 4.5% QoQ. This is consistent with allocation shifts in prime '2a-7' MMFs in Q4, driven by investor flows and supply in the repo market, as well as tighter spreads and lower supply in commercial paper, at year-end. These allocation changes highlight LGIPs' active approach to maintaining liquidity."
