Liquidity Fund Monthly - October 2021


October was marked by an uplift in market rates as inflationary pressures amid strong demand, sustained supply chain congestion and shortages raised the potential for quicker tightening by major central banks. In fixed income markets, this was generally reflected in flatter yield curves as shorter-dated bond yields typically rose more sharply.

Central bank tightening has been on the horizon for a while and in October the US Federal Reserve indicated it would soon start to slow, or “taper”, its monthly asset purchases. The Fed also acknowledged high inflation would be less transitory than it expected. Elsewhere, markets moved to price in a rate hike by the Bank of England at its November meeting. And while the European Central Bank flagged that rate hikes are a long way away, markets began to price in the potential for a move before the end of 2022 – euro short-term rates were largely unchanged, unlike in the UK where LIBOR reflected increased rate hike expectations.

EUR Liquidity LVNAV Fund

European Central Bank: The Governing Council kept rates unchanged while stating it will “moderately lower” the pace of bond purchases.

Market Rates: The EURIBOR curve barely changed with the three-month rate averaging -0.55% in October. *

Macro: Eurozone headline inflation jumped from 3.4% to 4.1% in October, with the core rate up to 2.1% from 1.9%.

ECB Deposit Facility Rate: -0.50%
1-month Fund Yield (Gross): -0.57%
1-month Fund Yield (Net): -0.72%**

GBP Liquidity LVNAV Fund

Bank of England: Policy rates were unchanged, but the market increasingly expected the Bank to raise rates in November.

Market Rates: The LIBOR curve steepened, with the 3-month rate up 15bps to 0.23% while the 12-month rate leapt to 0.82% from 0.37%. *

Macro: Headline annual inflation edged down from a nine-year high to 3.1%, with the core rate down from 3.1% to 2.9%.

Bank Base Rate: 0.10%
1-month Fund Yield (Gross): 0.07%
1-month Fund Yield (Net): 0.00%**

USD Liquidity LVNAV Fund

Federal Reserve: Although there was no FOMC meeting in October, the Fed signaled it would soon start to slow bond purchases.

Market Rates: The US LIBOR curve steepened – 3-month rates rose 1bp to 0.14%, while the 12-month rate climbed from 0.23% to 0.36%. *

Macro: US headline inflation in September ticked back up to its decade-high of 5.4%, with the core rate unchanged at 4.0%.

Fed Fund Target Rate: 0.00% - 0.25%
1-month Fund Yield (Gross): 0.14%
1-month Fund Yield (Net): 0.00**

USD Treasury Liquidity Fund

Federal Reserve: With the Fed flagging that bond purchases may end in mid-2022, markets priced in up to two rate hikes by end-2022.

Market Rates: Short-dated rates were range-bound, with the 1-month Treasury bill yield down 1bp to 0.06% in October.

Macro: Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, rose 4.4% in September – a three-decade high.

Fed Fund Target Rate: 0.00% - 0.25%
1-month Fund Yield (Gross): 0.05%
1-month Fund Yield (Net): 0.01%**