Doing What They Say on the Tin

The Resilience of MMFs 

As interest rates begin to tumble globally, Aviva Investors’ Tony Callcott, Global Head, Liquidity Sales and Distribution and Alastair Sewell, Senior Investment Director, discuss the impact this will have on cash management strategies. They also examine why MMFs remain an attractive option for corporate treasurers. 

With major global events as a benchmark, it’s easy to guess someone’s age when you ask them: ‘Where were you when…?’ Similarly, interest rates can place someone in a particular era; maybe they don’t remember the rampant inflation of decades past. They may, however, remember the pain of negative interest rates of only a few years ago.

After a period of relatively high inflation and rates, which followed the global pandemic of 2020, the macro environment is starting a new chapter, one that Callcott says will be “defined by rate cuts rather than rate hikes”. After some initial rate-cutting, inflation appears to be in check, and he expects to see this trend continue over the next six to nine months.

The impact of the rate cuts, however, will differ according to the client type. “In a falling rate environment, corporates are more likely to be looking to increase their debt allocations,” Callcott observes. Because that debt will be cheaper to service, they will typically have higher cash reserves, which will drive a need for them to strategise and allocate that cash effectively for the short term.

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