Liquidity Fund Monthly – August 2021


August was a largely steady month for global financial markets, although a divergence in fortunes related to COVID-19 was evident in economic data. Key developed economies continued to re-open and grow at a healthy rate with manufacturing and labor market activity largely remaining intact, while many emerging and Asia Pacific economies with low vaccination rates and high Delta variant case numbers employed restrictive measures that hit activity and exacerbated supply chain woes.

Risk assets rallied with some stock market indices registering new record highs. Suggestions the US Federal Reserve could start to taper bond purchases before the end of 2021 stoked the prospect of higher rates, although a more dovish late-month speech by Fed chair Jerome Powell dampened speculation that a rate hike was near. In Europe, longer-dated UK rates edged higher as the Bank of England was perceived as adopting a slightly more hawkish stance; European market rates barely budged with few signs the ECB was planning to tighten policy.

EUR Liquidity LVNAV Fund

European Central Bank: With no Governing Council meeting in August, policy rates were unchanged; markets are not anticipating higher rates until at least 2024.

Market Rates: The EURIBOR curve was stable through the month, with the three-month rate averaging -0.55% in August. *

Macro: Eurozone headline inflation rose to a 10-year high of 3.0% in August, with the core rate more than doubling to 1.6%.

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 left unchanged although the Monetary Policy Committee’s statement was more hawkish than expected.

Market Rates: The LIBOR curve was 1 basis point lower out to nine months compared to July, but the 12-month rate fix was 3bps higher amid the potential for higher policy rates. *

Macro: Headline annual inflation fell more than expected from a three-year of 2.5% to 2.0% in July on lower energy prices.

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: No policy meeting took place in August, but July’s meeting minutes revealed considerable debate around when to start tapering asset purchases.

Market Rates: US cash rates were largely stable in August, with three-month LIBOR barely changed at 0.12%. *

Macro: US annual headline inflation stayed at its decade-high of 5.4% in July, although the core rate dipped from 4.5% to 4.3%.

Fed Fund Target Rate: 0.00% - 0.25%
1-month Fund Yield (Gross): 0.15%
1-month Fund Yield (Net): 0.00**

USD Treasury Liquidity Fund

Federal Reserve: While Fed officials signalled support for a start to tapering, Fed Chair Jerome Powell’s speech at Jackson Hole indicated rate hikes were some time off yet.

Market Rates: Short-dated rates were steady, with the one-month Treasury bill yield ending August at 0.05%.

Macro: Core Personal Consumption Expenditures (PCE) – the Fed’s favoured inflation measure – rose 0.3% month-on-month in July, with the annual rate unchanged at 3.6%.

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