Fitch: SNB, ECB Decisions May Drive Negative MMF Yields

Published 

Fitch Ratings-Paris/London: The yields on Swiss franc-denominated money market funds could turn negative in the next few weeks following the Swiss National Bank’s decision to cut already negative benchmark rates further and scrap the currency’s cap against the euro, Fitch Ratings says. The European Central Bank’s quantitative easing programme could also keep yields on euro MMFs ultra low for a prolonged period, and they could turn negative.

Negative yields may lead to outflows as investors reassess the proportion of assets they hold in cash or cash equivalents like MMFs. But the scale of the impact is uncertain as low-risk alternatives are also likely to offer negative yields. Negative yields, or the subsequent use of unit cancellations or other mechanisms to maintain a stable unit value, are not necessarily negative rating factors on their own. But a sudden and sharp acceleration in redemptions that puts pressure on portfolio liquidity could be negative, as could a strategy of seeking to boost yields by significantly increasing credit risk or portfolio maturity.

The SNB’s decision, including a 50bp cut in the interest rate for deposits at the central bank to -0.75%, has turned the yield on government debt negative at maturities up to 10 years. Swiss franc MMFs are already having to buy assets with negative yields as their current holdings mature, and this will feed through to negative yields for customers soon. Some managers may choose to close their fund to new investors, which would limit their reinvestment needs and protect yields for existing clients. But this would only delay the impact.

Euro MMFs’ net yields are already around zero. Markets had anticipated the ECB’s QE announcement, but if there is a further rise in prices and fall in yields when the central bank starts buying government debt in March, MMF yields could turn negative.

Corporate treasurers may respond by moving some of their money out of MMFs into less liquid, but higher-yielding assets or into products that accept more duration or credit risk. Those that decide they want the same access to their funds while keeping risk low may find few alternatives. For example, several Swiss banks have already said they will introduce negative interest rates for large or institutional customers.

Most recent episodes

40th Annual New York Cash Exchange: What Can Treasurers Expect?

Ahead of the 40th annual New York Cash Exchange, two of TMANY’s distinguished board members, David Miller and Timothy T. Hesler, CTP, provide TMI CEO, Robin Page, with a quickfire rundown of what attendees can expect from this year’s conference. Our guests share their aspirations for the event,...

00:00

Expectation-Beating Inflation Prints Ratchet Up Pressure on Monetary Policy

Welcome to the third edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 9th May...

04:48

Making the Sustainable Transition: A Roadmap to ESG in Treasury

Over the last 18 months, Societe Generale has experienced a steady increase in requests from their corporate clients to integrate ESG features in treasury management.  Louis-David Rouyer, Philippe Pougeard, and Emmanuelle Petelle (Societe Generale) provide TMI’s Eleanor Hill with a whistlestop run...

22:24

Lift Off for Fed Rate Rises

Welcome to the latest edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 5th of...

04:58

Treasury in 2022 and Beyond

Industry experts Bob Stark (Kyriba) and Sebastian di Paola (PwC) join TMI’s Editor, Eleanor Hill, to explore the very latest treasury trends – and to discuss how smart treasurers can get ahead of the game by ...

43:21

How BearingPoint Harnessed Data-Driven Forecasting with CashAnalytics and SAP

Listen back to our recent forecasting masterclass, where Group Treasurer Eveline Stam, and Conor Deegan (CashAnalytics) provided TMI’s Eleanor Hill with a comprehensive overview of how consultancy firm BearingPoint achieved company-wide cash forecasting nirvana by combining specialist solutions from...

37:14

The 3 T’s of The Future: Tech, Treasury, and Transformation

Over the past two years, an increasingly dynamic environment has not only accelerated technology development – from quantum computing to blockchain technology, and even the metaverse – but also technology adoption, bridging colleagues and breaking down silos in a remote work world. In this podcast,...

44:02

Monetary Policy Continues to Drive Markets as Ukraine Invasion Weighs on March Meetings

Welcome to the second edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 3rd of...

05:25

Tax Spotlight: How the OECD’s Two-Pillar Solution Impacts Treasury

Aaron Lee and Joseph Lee (DBS Bank) join TMI’s Eleanor Hill to discuss how the OECD’s Two-Pillar Solution aims to address the tax challenges arising from the digitalisation of the economy. Ahead of the 2023 implementation date multinational corporates will have much to consider around these reforms....

24:00

FX Connections: Bringing Transparency to Cross-Currency Payments

Cross-border activity is growing at a remarkable rate, making FX payments a hot topic for treasurers across the globe.  In this TreasuryCast episode, Eleanor Hill asks Daniela Eder and Gibran Maqsood (Barclays Corporate Banking) to provide their key action points around FX payments in 2022. Our guests...

21:00