Liquidity Fund Monthly - December 2021


In a busy month for rates markets, there were notable fluctuations amid concerns around the potential impact of the omicron variant, a more hawkish tilt to central bank activity and as investors generally adopted more risk-off portfolio positions heading in the year-end period. While evidence indicates the latest COVID strain has milder effects, the soaring infection rate still put pressure on health services and prompted governments, particularly in Europe, to tighten mobility restrictions.

The Bank of England defied many market expectations by raising the Bank rate as inflation continued to rise and the jobs market tightened. US interbank rates increased as the Federal Reserve announced a more aggressive tapering of asset purchases and markets began to discount a faster rate-tightening pace. The ECB remained more dovish than its UK and US counterparts, but it did make changes to asset purchase plans and referenced upside risks to its inflation forecasts.

EUR Liquidity LVNAV Fund

European Central Bank: Policy rates were unchanged. The ECB will now end the Pandemic Emergency Purchase Program in March, while increasing asset purchases in another program.

Market Rates: The EURIBOR curve shifted slightly lower with the three-month rate averaging -0.58% in December. *

Macro: Eurozone headline inflation edged up to a new high of 5.0% in December, topping consensus market expectations.

ECB Deposit Facility Rate: -0.50%
1-month Fund Yield (Gross): -0.64%
1-month Fund Yield (Net): -0.79%**

GBP Liquidity LVNAV Fund

Bank of England: Speculation that omicron might stay the Bank’s hand was misplaced as it raised rates 15 bps to 0.25%.

Market Rates: The LIBOR curve moved higher, with the 3-month rate up 17 bps to 0.26%, while the 12-month rate rose from 0.62% to 0.81%. *

Macro: Headline annual inflation surged from 4.2% to 5.1% in November, with the core rate rising from 3.5% to 4.0%.

Bank Base Rate: 0.10%
1-month Fund Yield (Gross): 0.09%
1-month Fund Yield (Net): 0.00%**

USD Liquidity LVNAV Fund

Federal Reserve: Policy rates were unchanged, but the Fed slowed the pace of bond purchases, targeting an end to purchases by March.

Market Rates: The LIBOR curve steepened, with the 3-month rate up 4 bps to 0.21%, while the 12-month rate jumped 20 bps to 0.58%. *

Macro: US headline inflation in November hit a 39-year high of 6.8% amid higher energy, food and housing price pressures.

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: The ‘dot plot’ of FOMC members’ rate views revealed expectations of three Fed rate hikes in 2022.

Market Rates: Having risen to 0.11% in November, the 1-month Treasury bill yield fell back to 0.03% by year-end.

Macro: Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, rose 5.0% in October.

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

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