Riding the money market wave

Who would have thought it at the end of 2021, when the 3-month Euribor stood at -0.572% and it was common practice to charge these negative money market rates in Austria, at least to companies? Less than one and a half years later, this rate has now risen to over 3% and there are still more highs ahead.

Morever, in Germany negative interest rates were even passed on to private investors in some cases. A year earlier, at the end of 2020, there were even forecasts that the negative 3-month Euribor would be with us until 2026. Almost the whole world believed that interest rates were a thing of the past. But as we know, the future is uncertain and often different from what we all think. And so it was. For the first time, the 3-month Euribor was negative on 22 April 2015 and only after a little more than seven years - namely on 14 July 2022 - did we see a plus again. At the beginning, it was +0.002%, i.e. not even one basis point.

The onset and rise of inflation then necessitated a harsh turnaround by the ECB, which heralded the turnaround in interest rates in July 2022. For the first time since 2011, interest rates were raised again, to be followed by another seven hikes until now. An end is not yet in sight. The market is currently pricing in at least two more interest rate hikes and therefore the 3-month Euribor should still rise. We think the interest rate cuts that the market is pricing in afterwards are somewhat exaggerated. At the moment, the capital market is already pricing in lower 3-month Euribor rates in 2024, by almost 100 basis points by the end of 2024. Given an unchanged economy, we see this as far too optimistic. The current money market rates are likely to be with us for some time.

Overall, money market rates should therefore remain at this level for some time. After a very long lean period, even security-oriented investors have a reason to rejoice again and can once more earn appreciable returns without any fluctuation, even if these are also significantly below the current inflation rates. It is worth talking to your private banker to find out whether and how you can best profit from the money market. Before you can ride the wave on the money markets, you have to jump on the horse in the first place.

This information represents a market overview and the market opinion of Kathrein and aims to provide a general overview of current developments. It does not contain any binding statement or forecast on the future development of financial instruments or interest rates. Past developments are not a reliable indicator of the future level of interest rates or income.