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Money market fund and fixed income solutions

After a couple of years marked by a sustained period of interest rate rises from the Bank of England, European Central Bank and the Federal Reserve, we've reached a juncture where interest rates are at their peak, often referred to as “Terminal Rates.”

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The central banks have kept interest rates steady for several months. The Bank of England's base rate has remained at 5.25% since August 2023, the European Central Bank's Deposit facility rate has been at 4.00% since September 2023, and the Federal Reserve has held the Federal Funds Rate between 5.25% and 5.50% since September 2023, marking a 22-year high for the U.S. rate. As a result, investors' demand for cash is likely to remain high, making it crucial to optimize cash management strategies and expand their use through segmentation. These approaches are increasingly important in creating effective liquidity solutions for investors.

As 2024 unfolds, markets are increasingly anticipating rate cuts. This has led many investors to ponder, "Should I adjust my term or duration to secure higher yields?“

In recent years, Short-Term Money Market Funds (ST-MMFs) have become a popular choice for investors. These funds are attractive because they have the ability to minimize volatility through investing in short-dated, high credit quality assets, whilst having the potential to swiftly benefit from the rate hikes. The market pricing of interest rates suggests that there will continue to be opportunities for attractive yields on overnight cash options in 2024.

However, this year brings a new phase of uncertainty about potential interest rate cuts, which may affect the market.

Key considerations

  • 01

    Ensure your cash management strategy considers the different requirements for your operational, core and strategic cash balances.

  • 02

    With continued uncertainty regarding interest rate expectations, the length of investment should play a key part in your strategy.

  • 03

    Transitioning into longer-dated cash-like strategies or fixed income can result in more risk.

Your strategy, risk tolerance and operational needs can all impact which investment vehicle is right for you. When choosing an option, it is helpful to consider a few key questions:

  • The temptation to seek higher rates is clear but remember to consider the basics when constructing your cash management strategy:

    • Do you have specific liquidity requirements?
    • Are you able to segment your liquidity requirements into different buckets and apply different strategies?
    • Can liquidity be locked in a fixed-term trade or will regular access be required?
    • What is your investment horizon?

  • Increasing duration involves increasing liquidity risk and volatility.

    • Are there specific risk targets that can be outlined or measured?
    • Are there sensitivities to market pricing volatility?
    • Is there a maximum loss tolerance?
    • Is there a defined return range or profile?
    • If you are considering locking into a term investment, what is the break-even point you need to reach in order to outperform a short-dated investment that may benefit more quickly from rising rates?

  • A change in strategy can result in operational changes and sometimes lead to inefficiencies.

    • Are there certain accounting treatment requirements?
    • Are there specific reporting or regulatory requirements?
    • Will any change of strategy and or product impact how the transactions/instructions are handled?

BlackRock has a wide range of pooled products and bespoke strategies to ensure any transition into a longer-dated strategy meets your requirements. At any point of a market cycle, whether you are looking to extend or reduce duration, money market funds can play a crucial role in reducing volatility and offering vital liquidity.

Short-term money market funds: While uncertainty remains, these extremely short and high credit quality funds may be a good defensive choice by providing same-day liquidity, positioned to minimise volatility and absorbing any short-term rate hikes more quickly.

Standard money market funds: Typically designed for a 3-month+ investment horizon, these funds take slightly more duration and credit risk than their short-term counterparts, offering the potential for return uplift. Whilst these strategies are still considered to be money market funds, they have more flexibility to deploy cash further out the curve to capture higher yields when available.

Short duration/fixed income: BlackRock has a range of pooled funds and Exchange Traded Funds (ETFs) offering the opportunity to extend further out the risk/reward spectrum. These range from short duration strategies with a typical duration range between 0.5 and 2 years and more traditional fixed income bond type strategies with duration over 2 years.

Bespoke solutions: BlackRock offers bespoke solutions through separate accounts to help you achieve your own specific investment goals. These solutions range from portfolios investing directly into money market funds or fixed income securities to a predefined set of investment guidelines.

BlackRock’s cash investment offering combines our unique expertise to partner with investors on money market funds, separately managed account (SMA), currency-hedged and collateral management solutions which include bespoke features for every client portfolio based on their own liquidity and risk requirements.

Want to find out more? Contact your Cash Relationship Manager or reach us at I would like to learn about cash management solutions or +44 (0)20 7743 3187.

A Money Market Fund (MMF) is not a guaranteed investment vehicle. An investment in MMFs is different from an investment in deposits; the principal invested in an MMF is capable of fluctuation and the risk of loss of the principal is to be borne by the investor. The MMF does not rely on external support for guaranteeing the liquidity of the MMF or stabilising the NAV per share. Further information about the funds, including the methods used by the MMF to value the assets of the MMF and calculate the NAV, are available at blackrock.com/cash.