19 July 2023

Money Market: Taking advantage of the momentum

 In Summary 

  • After years of scarcity, the asset class is recovering
  • Money market yields are expected to exceed 4% by the end of the year1
  • We see real opportunities in Euro Commercial Papers, particularly in the banking sector

Flows are coming back

Investors are back on the asset class, which benefits from:

  • The normalization of central banks’ monetary policy (stops of long-term loans and rate hikes) to counter inflation, which remains high, the asset class offers attractive risk-adjusted returns
  • Its main role as ” awaiting investment ” when uncertainty is high

Money Market flows

Wich assets should be favored to take full advantage of the dynamics of the money market?

Euro commercial papers vs short term bonds

We prefer Euro Commercial Papers (ECP) to short- term bonds. Indeed, the premiums offered by bonds on the primary or secondary market have tightened sharply since the beginning of the year.

For comparable credit risk, ECP often offer a more attractive yield while having lower volatility.

For example, Santander’s 1-year bond yields 4.05% compared to 4.25% for the Euro Commercial Paper of the same maturity.

Euro Commercial Papers and Short term bonds yields


Banking sector

Final whistle for the European Central Bank’s long-term lending operations.

After several years of cash inflows, banks will have to repay TLTRO (Long-Term Refinancing Operations) loans. By the end of June, nearly €1,500 billion will have been repaid, i.e. two-thirds of the amounts initially injected. To compensate, banks are once again turning to the money market to refinance.

Anticipated and coming TLTRO repayments (in €Bn)

Some peripheral banks should find themselves in a significantly less comfortable situation, especially Italian banks whose liquidity reserves with the Central Bank are negative (more TLTRO loans to be repaid than deposits). But most European banks have enough liquidity and have already anticipated repayments. We do not anticipate systemic risk on the liquidity and solvency of European banks and see opportunities in this context, in particular on the best rated French and Spanish banks (A-1).

Banks risk premium evolution

Indeed, risk premiums have risen steadily since January 2022 and are now back to pre-TLTRO levels of 2014. We were waiting for the current risk premium levels, which seemed consistent with the end of Central Bank support, to reposition ourselves more significantly on 9/12-month issues.

Thus, we are slowly increasing our credit modified duration to capture this premium increase, while keeping an interest rate duration close to zero. The carry offered by our money market funds should therefore increase in line with the ECB’s interest rate hikes and the increase in premiums offered by issuers.



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