Liquidity Fund Monthly


The final month of 2022 reflected a change in the mood music on financial markets. With inflation coming off recent peaks, central banks generally followed through with less aggressive rate hikes in December. The Federal Reserve, European Central Bank and Bank of England each raised their key interest rates by 50 basis points (bps), a smaller rate hike than the 75bps announced at prior meetings. However, the Fed and ECB remained hawkish and flagged more rate hikes to come in 2023. A surprise came from the Bank of Japan, which unexpectedly raised the yield cap to 0.50% under its yield curve control policy.

Market reaction saw yields broadly rise in December, particularly in Europe, where additional 50bps hikes are expected in February and March. German two-year Bund yields rose to 2.73% from 2.12%, while 10-year yields increased 64bps to 2.57%. Short-dated market rates tracked higher, with the exception of the US where rates were generally steadier.

State Street EUR Liquidity LVNAV Fund

European Central Bank: The bank’s Governing Council raised policy rates by 50bps, a smaller increase than that in October.

Market Rates: One-month EURIBOR increased from 1.51% to 1.88%, with the three-month rate up to 2.13% from 1.97%. *

Macro: Inflation moderated for a second month, with the headline rate down to 9.2% from 10.1%. However, core inflation unexpectedly rose to a new high of 5.2%.

ECB Deposit Facility Rate: 2.00%
1-month Fund Yield (Gross): 1.52%
1-month Fund Yield (Net): 1.37%**

State Street GBP Liquidity LVNAV Fund

Bank of England: The Monetary Policy Committee voted 6-3 to raise the bank rate by 50bps, with two members preferring the status quo and one voting for a 75bps hike.

Market Rates: The 1-month ICE Term SONIA rate rose from 3.22% to 3.44%, with the 12-month rate up 9bps to 4.46%. *

Macro: Although headline annual inflation fell back from its 41-year high of 11.1% in October to 10.7%, the MPC expressed concerns about the persistence of inflation.

Bank Base Rate: 3.50%
1-month Fund Yield (Gross): 3.14%
1-month Fund Yield (Net): 2.94%**

State Street USD Liquidity LVNAV Fund

Federal Reserve: The Federal Open Market Committee announced a 50bps rate increase after four consecutive 75bps hikes.

Market Rates: The USD LIBOR curve was lower; 3-month LIBOR was just 1bp down at 4.77%, with the 12-month rate down from 5.57% to 5.48%. *

Macro: US headline annual CPI inflation fell for a fifth month to 7.1%, a one-year low. The core rate fell to 6.0% from 6.3%.

Fed Funds Target Rate: 4.25% - 4.50%
1-month Fund Yield (Gross): 4.34%
1-month Fund Yield (Net): 4.14%**

State Street USD Treasury Liquidity Fund

Federal Reserve: Although the 50bps hike in December represented a slowing in the rate hike pace, the Fed flagged that rates could go higher than previously expected.

Market Rates: The 1-month US Treasury Bill yield edged marginally higher from 3.97% to 4.00% in the month.*

Macro: Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, fell from 5.2% to 5.0% in November.

Fed Funds Target Rate: 4.25% - 4.50%
1-month Fund Yield (Gross): 4.20%
1-month Fund Yield (Net): 4.00%**

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