Cash & Liquidity Management
Published  9 MIN READ
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Optimising Liquidity When Interest Rates Are Rising: Three Key Steps

A rising rate environment can be a challenge even for the most sophisticated fixed income investor. And even though treasurers know further rate hikes are on the cards, they may happen more swiftly than some imagine. In this unpredictable environment, an actively managed ultra-short-duration strategy could be the optimal liquidity solution for treasurers.

The potential impact on liquidity management of the current rising rate cycle demands the attention of fixed income investors. Although interest rates in the US have already started to rise from historic lows, more rises are on the cards. What is less certain however, is how quickly these hikes will be enacted. This is making it challenging for treasurers to know what to do with their liquidity.  

The good news is that by studying past rising rate cycles and using dynamic scenario analysis of potential future rate moves, treasurers managing liquidity through this environment can gain valuable insight that can help to inform their next steps. As part of their strategic decision making process, therefore, treasurers may wish to start including a review of the three major rising interest rate cycles seen over the last few decades:

  • Period 1: January 1994 to February 1995
  • Period 2: October 1998 to May 2000
  • Period 3: June 2003 to June 2006

Some key changes happened throughout these times, with an inevitable impact on credit spreads (see Figure 1).