Remember money market strategies? They’re back!
Once the latest rate hike is incorporated, money market strategies can offer yields above 4%!
A record path and close to a record return in money market strategies since 2001.
Money market strategies have regained their popularity as central banks have hiked rates in their fight against inflation.
In a market context of slowing growth, sticky inflation, tighter credit and inverted yield curves, money market strategies offer an attractive return and an opportunity for investors. Money markets have been transformed from just a safe place to a land of potential return.
Such market conditions proved to be favorable for Money Market strategies and holders of Floating Rate Notes / Bonds (floaters), who seized the opportunity to improve their return during the hikes. In addition, floaters offer a natural protection against interest rate volatility and upside inflation surprises.
Policy makers acknowledge the downside risks to growth but remain confident in the resilience of the economy and seem to prefer to err on the cautious side, taking the risk of overtightening rather than ‘not going the distance’. Given the stickiness of core inflation and the persistent inflation risks on the upside, current market pricing of 70 bps of rate cuts over 2024 seems optimistic on inflation or assumes a severe economic slowdown that would force the hand of the ECB.
Read more here: Money Matters Again | Candriam
