Interview with Salim Khalifa; Fixed Income Portfolio Manager at Crédit Mutuel Asset Management.
Crédit Mutuel Asset Management
After an unprecedented rise in Eurozone interest rates, we are approaching a peak. For almost a year, official interest rates have risen by 3.75% to 3.25% for the deposit rate. The market expects a peak of 3.75% to be reached between July and September 2023. Money market funds have a very short average maturity, allowing them to quickly track interest rate movements. They have become popular again, with instant yields of around 3.30% today. Far from the performances shown (-0.50%), exactly a year ago. Money market fund assets are growing broadly, becoming competitive with other asset classes. By way of comparison, French 10 year debt yields 2.90%.
The yield curve is strongly inverted, and the most profitable part of the yield curve is the core of the cash product investment universe, with maturities ranging from 6 months to 1 years.
For investors seeking slightly higher returns over an investment horizon of a few months, we offer very short term bond funds with yield to maturity (ARR) rates of close to 4%. These include CM-AM Institutional Short Term and CM-AM Short Term Bonds with SRI of 1 for these two vehicles. With the end of the rate hike nearing, short bond funds allow investors to extend this windfall relative to money market funds.
The yield plateau of 4% should not last for long. The market is increasingly pricing in a rapid rate cut from next autumn. Even in this scenario, short dated bond funds can benefit. Indeed, unlike Futures and Options Accounts (CAT) and other banking products, UCIs are valued at market prices. With the value of debt securities moving in the opposite direction to rates, the assets of CM AM Short Term Bonds and Institutional Short Term Bonds should significantly appreciate in this scenario and thus continue to distribute attractive returns.
In the medium and long term, we eschew a return to negative interest rates. Cash investment income should remain higher than cash for a long time to come.
Drafting completed on 7/06/2023