Cash & Liquidity Management
Published  6 MIN READ

A New Model for Assessing Risks and Opportunities in the Money Markets

In the wake of Covid-19, corporates are reassessing their liquidity management strategies. To assist treasury managers in this endeavour, ICD and The Carfang Group have created a new quantitative model for assessing the risk/return relationships among money market instruments. Justin Brimfield, Chief Marketing Officer, ICD, and Anthony J. Carfang, Managing Director, The Carfang Group, explain how the model works and outline how it can be used to health check short-term investment portfolios and sense check investment policies.

March 2020 was the most profound stress test that money markets have seen since the post crisis regulations. As Covid-19 spread across the globe, and economic turmoil took hold, corporates shifted assets, drew down on credit lines and issued debt as a means to increase the liquidity and safety of their cash.

Carfang says: “There was an immediate emotional response to the coronavirus crisis. Investors were uncertain, so the majority sought a safe harbour. As a result, we saw trillion-dollar inflows into money market funds (MMFs).” Even since the ‘March madness’, assets in money market instruments have remained at historic levels.

Brimfield adds: “We expected to see some of the cash corporates are sitting on being reinvested into the business – to help make organisations more resilient post-pandemic and to bolster growth. Nevertheless, most of the over 400 corporates on ICD Portal have held on to their large cash balances. We are still very near record highs in assets on ICD Portal, well over $200bn.”