Rates hikes return, money markets too?
July 10, 2026
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4 min
Thibault Michelangeli, CFA
Portfolio Manager, Money Markets – Ostrum Asset Management
The recent increase in key rates by the ECB is indeed a supportive factor for money market strategies. On the one hand, rising rates are beneficial to the banking sector, which represents nearly half of our money market portfolio investments. On the other hand, due to their structure, money market strategies are characterised by a low sensitivity to interest rates.
The ECB raised its key interest rates in June. Is this increase justified? Can we expect further rates hikes by the end of the year?
For the first time since September 2023, the ECB raised its key interest rate by 25 basis points in June, bringing the deposit rate to 2.25% and ending a year of status quo. This rate hike is justified by inflationary pressures linked to the energy shock from the Middle East conflict. Moreover, this decision appears as a way for the ECB to demonstrate that it will not remain inactive and stand ready to take action to support its price stability objective. Even if geopolitical tensions ease, the ECB could be prompt to continue its interventions to contain the risk of second round effects. This is why it is not closing the door to a further rate hike in the coming month.
Is it the right time to invest in money market strategies?
The recent increase in key rates by the ECB is indeed a supportive factor for money market strategies. On the one hand, rising rates are beneficial to the banking sector, which represents nearly half of our money market portfolio investments. On the other hand, due to their structure, money market strategies are characterised by their low sensitivity to interest rates. This allows them to closely track €STR moves and limit the volatility of their net asset values, even in the event of rate shocks. These characteristics will validate their conservative nature. Finally, credit spreads remain attractive on short-term instruments which directly drives the performance of money market strategies.
How to navigate money market investing in a volatile market environment?
In this context of rate volatility, it is essential to manage interest rate sensitivity. This is a driver of performance and resilience. Addressing this sensitivity can be achieved through several levers. First, by investing in short-term maturity instruments. Second, by investing in instruments with variable rate indexations. And finally, by using rate swaps for hedging purposes.
In our opinion, a relevant money market strategy consists not so much in predicting rate moves, but rather in building resilient portfolios able to achieve their objective in various market configurations, even unexpected ones. This responsiveness coupled with strict liquidity ratios and selection of high credit quality issuers makes money market expertise well suited to this context.
Has the role of the liquidity pocket in client portfolios evolved over time?
During the negative rate period, which lasted almost 10 years in the Eurozone, holding cash represented a cost and was perceived as a temporary allocation. Investors were encouraged to minimise the liquidity holdings to invest in longer maturities or to go down the credit quality scale to achieve positive yields. Since 2022, when rates turned positive again, the liquidity bucket has become a truly central component for investors. This bucket not only provides a satisfactory return, but also enhances responsiveness in the event of a market reversal. Thanks to the liquidity offered by money market strategies, investors benefit from flexibility to quickly adjust their allocation. In a context of uncertainties, these trends become essential.
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The analyses and opinions mentioned in this document represent the point of view of the referenced author. They are issued as of the indicated date, are subject to change, and should not be interpreted as having any contractual value.
The strategy presents a risk of capital loss and is not guaranteed. An investment in this type of strategy differs from an investment in bank deposits because it is exposed to the risk that the invested capital will fluctuate. The strategy does not rely on external support to guarantee its liquidity or stabilize the value of the investment.
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