The Cambridge Weekly – 2nd May 2023

The Cambridge Weekly – 2nd May 2023

Inflation running out of money

Over the past few weeks, we have observed how markets have been hanging in a fine balance, as evidenced by the rather directionless and decreasingly volatile bond, equity and currency markets. We are not the only ones who see it that way.

In particular, credit markets have been very stable or – as one could also interpret them – indecisive. There appears to be lots of investor demand for higher-yielding corporate bond securities without much new supply through issuance matching it. This demand overhang has cheapened credit spreads, or in lay terms, the premium that corporates pay over governments.

Cash and money market funds: part 2 – the UK

Any financial institution has to keep a certain amount of its assets in cash to allow for ongoing redemptions. Of course, the amount varies depending on the purpose of the institution: retail banks holding daily accessed deposits need lots of readily accessible cash, while long-term investors like Cambridge have lesser requirements. But we all need accessible liquidity, meaning there is a high demand for cash-like instruments and highly liquid assets.