Money Markets into 2021: What do experts think?______

Ed Lopez, Chief Revenue Officer

The dynamics of money markets have been fundamentally changed by the pandemic and attempts to revive economies with ultra-low interest rates. The way we work has been turned upside down, too, with working from home the new normal for many.

To figure out what all this means for the treasury function, I was delighted to join a recent Euromoney webinar alongside other industry experts. Some of the key questions were: how have money markets responded to the economic shock of Covid-19? Will more funds close or is it simply a case of repositioning? And aside from yield, what do investors really want from their money market providers from now on? And – closest to my heart – what will this mean for the automation of the treasury function?

The combination of market volatility and changing work habits, in my view, has exposed just how far behind money market funds are in their digital transformation. Too many processes are still paper-based and with no fax machine at home, you obviously can’t carry out certain functions that you might take for granted in an office environment.

In a recent survey, Calastone explored this and many other aspects of automation of the treasury function and its relationship with money market funds. It’s clear that treasurers are responding to the pandemic by accelerating the automation and digitalisation of treasury functions.

While the world has been coping with Covid-19 for almost a year, money market fund liquidity looks fairly stable. But as Alastair Sewell, senior director, fund and asset Management at Fitch Ratings, says: Funds are still conservatively positioned because the danger of volatility returning has not subsided. In the UK and elsewhere in Europe, the economic impact of a second wave of the pandemic is as yet unclear. There are many risks on the horizon.

Two things to watch, says Paul Przybylski, global head of product strategy and global head of client service for Global Liquidity at JP Morgan Asset Management, will be what happens when corporates that drew down credit lines in the second quarter start to pay down over the next 12 months, and also what happens as support facilities put in place by governments and regulators start to expire. The takeaway here is that we have entered a world in which inflows and outflows are arguably less predictable than before, which in turn puts a real premium on having the right technology in place to help treasurers and other investors act in real time.

Digital technologies are essential to enable access to real-time information on trading and cash positions, particularly in the short-term markets, says Sewell. Getting a handle on the total amount of commercial paper outstanding in Europe, for example, is a challenge. Even something as basic as identifying credit names is hard when all you have are acronyms to guide you for name recognition – rather than a proper identifier. “DB” – Deutsche Bank – can easily be mistaken for “Deutsche Bahn”, he explains.

Increasingly, therefore, it makes sense to make the investment and settlement process, the reporting process and analytics readily available in a user-friendly way – and to get rid of manual processes.

Przybylski predicts that the treasurer will become a much more strategic corporate role as we emerge from the pandemic. That’s because the treasurer is called upon to understand how to create liquidity and read the intricacies of money movements. Technology that delivers greater efficiency and real-time capability are the basic “table stakes”, as he puts it.

The role of the treasurer could even become a revenue-generating function, Przybylski says, particularly given that technology costs have become more affordable. That’s a future we really can aim for, thanks to technology.

Ed Lopez, President, Global Money Market Services

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