Liquidity solutions – the importance of being hedged

  

May 2023 | 2 min read   

Liquidity solutions – the importance of being hedged 

The uncertainty in the current macroeconomic context, sparked by geopolitical turmoil combined with high inflation, is pushing investors to look for safer opportunities. 

  

As a multitude of options exists on the markets, we believe that liquidity solutions could meet several key criteria at the same time¹, while offering attractive risk-adjusted returns.

However, as fixed income instruments are typically exposed to interest rate risk, also for liquidity solutions we think it is important to develop the appropriate hedging strategy; this to offset the negative impact of sudden rate movements. In fact, the rapid increase of inflation in developed markets has sparked the response by central banks, which reacted by quickly hiking rates and tightening financial conditions since spring 2022. As inflation persist stubbornly above the central banks’ target rates, it could be reasonable to expect that the current monetary policy cycle is not over, and interest rates could increase again.

As the performance of liquidity solutions is closely linked to the evolution of the interest rates, since last year Amundi has decided to pursue a strategy that fully hedges against interest rate risk, following closely the evolution of the Euro short-term rate (€STR). In this way, the yield of liquidity solutions could move in line with interest rates, increasing by over 350 basis points since July 2022.

Amundi, your trusted partner for cash management², offers a full range of added-value services to address your liquidity needs.

To learn more about our product range, please visit our Best Ideas.

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Sources:

¹ Amundi Convictions, Liquidity solutions – balancing diversification, yield and risk control, 21 April 2023
² No1 in Money Market Management in Europe in euros. FundFile - End June 2022 - Open-ended Funds domiciled in Europe and in euros only.

Important information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 3 May 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 3 May 2023
Doc ID: 2875189