12th March 2020
On 11th March the Bank of England announced a set of policy measures aimed at easing the impact of the disruption caused by the COVID-19 outbreak. This was coordinated with announcements on fiscal spending unveiled later in the day by Chancellor Sunak as part of the Budget.
The monetary policy measures announced by the Monetary Policy Committee were as follows:
- Reduced the base rate by 0.50% (from 0.75% to 0.25%)1
- Launch of a new 4yr term funding scheme for UK banks. Additional funding will be available for loans to SMEs. This should provide ~£100bn of additional funding.
- Decrease in the countercyclical capital buffer for banks to 0% (from 1% and previously scheduled to reach 2% by Dec 2020). BoE estimates this will provide £190bn of additional bank lending capacity.
The key fiscal announcements from the Treasury included:
- £12bn package to help target COVID-19 including additional resources for the NHS, sick pay and tax payment deferrals.2
- Cancellation of the planned reduction in corporation tax
- Greater spending on public services and public sector investment (e.g. infrastructure).
In light of these events yields in Sterling money market funds have started to fall, reflecting lower rates in the front end.
GS Sterling Liquid Reserves Fund investment strategy given these developments:
- In the current environment of increased volatility and uncertainty our strategy is to maintain a resilient, diversified, highly liquid portfolio.
- We are maintaining 45% of the fund in weekly liquidity as of 11th March.
- The portfolio’s credit quality has increased as we have invested in high quality European supranationals at attractive levels.
- The weight average maturity is currently 48 days, a slight reduction over the last week due to maturities and inflows.
- At present we have no capacity concerns, and the fund is now over £14.5bn.
Please reach out to your Goldman Sachs representative should you have any questions or wish to discuss in more detail.
Source: GSAM as of 12th March 2020
1 Source: Bank of England Monetary Policy Committee
2 Source: UK Budget
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