Short term money markets-liquidity risk ?

C_Mababejive

Hello,

Like many people i have parked cash in Short term money market investments.

Mine is here

Royal London Short Term Money Market Y Acc Fund factsheet | Trustnet

I do not think that there will be any significant base rate cuts in the near to middle future purely because rates are not high, they are normal.

If however there are cuts in rates and people start to pull money from investments such as these, is there a significant liquidity risk?

Much of its holdings are bonds issued by other banks and financial institutions.

Thanks

wmb194

C_Mababejive said:

Hello,

Like many people i have parked cash in Short term money market investments.

Mine is here

Royal London Short Term Money Market Y Acc Fund factsheet | Trustnet

I do not think that there will be any significant base rate cuts in the near to middle future purely because rates are not high, they are normal.

If however there are cuts in rates and people start to pull money from investments such as these, is there a significant liquidity risk?

Much of its holdings are bonds issued by other banks and financial institutions.

Thanks

No. When cuts come they’ll be slow and probably won’t go below 4.x% anyway.

Swipe

No one really knows. Maybe move any amount from there you need fairly quick access to, just in case.

Hoenir

BOE only influences rates it's doesn't control them. Still in the foothills of a high mountain that's going to be climbed. 

eskbanker

Hoenir said:

BOE only influences rates it's doesn't control them. Still in the foothills of a high mountain that's going to be climbed. 

BoE obviously sets its base rate, are you perhaps making some unstated point about political influence on that process?  What sort of height of mountain are you anticipating, and on what basis?

Hoenir

eskbanker said:

Hoenir said:

BOE only influences rates it's doesn't control them. Still in the foothills of a high mountain that's going to be climbed. 

BoE obviously sets its base rate, are you perhaps making some unstated point about political influence on that process?  What sort of height of mountain are you anticipating, and on what basis?

Exiting the post GFC \ QE era was always going to be a multi decade transition. We remain in unchartered water. 

OldScientist

Although the holdings vary, this fund (which I also own) has about 10% allocated to very short term cash (less than a week) and most of the rest is under 3 months, so is fairly liquid. In the event of a liquidity crisis that affected the entire banking system, it would almost certainly be gated while the various assets matured, hopefully without default (at least the UK treasury bills are safe enough). There is a long, but informative, article on the risks of ST MMF at https://monevator.com/money-market-funds/ that is well worth a read.

We have to wait until tomorrow to see whether rates have been cut or held, but I note that the expected cut of 0.25% (to 5%) will still leave short term fixed income with higher yields than longer term, so there probably won't be a rush to the exit (but who knows!) - the yield on the STMMF will only drop as the assets mature (just like it took a while to ramp up when rates were increasing).

Beddie

I doubt there will a rush as rates drop - where would the money go to? Rates will drop everywhere.

InvesterJones

Beddie said:

I doubt there will a rush as rates drop - where would the money go to? Rates will drop everywhere.

To other assets like equities or property, which is one of the purposes of cutting rates.

Hoenir

Beddie said:

I doubt there will a rush as rates drop - where would the money go to? Rates will drop everywhere.

Repaying existing debt possibly. Still many corporates and consumers who are making money while being leveraged.

QT is quietly sucking liquidity out of the money markets (in the UK anyway) at the rate of some £8 billon a month.  

Linton

The short term money market will be dominated by institutional investors.  What private investors do will be of little relevence.