Liquidity lowdown: Trump’s 2.0 policies are causing chaos but Money Market Funds remain resilient 

Recent headlines have been largely dominated by US President Trump’s trade tariffs and policies.  Markets have entered a volatile period with heightened uncertainty, leaving business strategies in disarray and preventing investors from pursuing their previously planned investment activities. 

With a trade war practically in full swing and announcements changing rapidly, one asset class that has been able to navigate through this uncertainly like no other is cash. Uncorrelated to other asset classes, cash has so far emerged unscathed by the onslaught of trade tariffs, which saw other asset classes endure some of the worst sell-offs in decades.  

Money Market Funds (MMFs) have seen significant inflows since Trump’s initial tariff announcements as investors become increasingly cautious about recession risks and the potential for a slower growth outlook in the UK. In the US, tariffs are already leading to higher prices as some manufacturers halt business lines in response. The outlook for global growth is uncertain and trade relations are tense. While the UK may not seem as severely impacted as some other economies, it is currently facing 10% trade and further sector-specific tariffs, which may possibly prove disinflationary in the longer run if the growth outlook for the UK deteriorates significantly. However, the outcomes are not clear either way. In times of volatility and uncertainty, MMFs are often seen as a safe place for investor cash through their ability to invest in high quality liquid assets and provide a level of capital preservation unseen in other asset classes. Investor concerns often shift through periods of uncertainly, from one of generating returns, to one of loss mitigation. Even though cash is considered as one of the safest assets classes to invest in, with interest rates currently well above neutral rate at 4.50%, we feel that cash should be considered as a credible asset class in its own right, and not only a temporary place to store cash. 

In times of volatility and uncertainty, MMFs are often seen as a safe place for investor cash.

Amidst all the market chaos caused by Trump’s administration, opportunities have emerged for cash markets. Credit spreads on certificates of deposit (CDs) have widened (healthily in our view) after a period of unusually narrow and tight spreads, and although we do not see them at worrying levels, they indicate clear signs of market awareness and an increased likelihood of an economic slowdown in the UK. Ordinarily, this may be bad news for many investors but for MMF investors, this has created opportunity to invest in assets at higher yields – yields which have been moving back towards historic value and in some tenors beyond. MMFs are typically short duration in nature, with a maximum weight average maturity (WAM) of 60 days. If credit spreads widen, these typically encounter less pressure than a longer duration fund, making them a potentially attractive investment vehicle in times of stress, and when there is a perceived risk of economic slowdown. Credit spread widening has been seen across most money market assets recently, with one-year floating rate CDs rising as much as 10 basis points over the benchmark SONIA since the start of April 2025. We have not seen them at this level since 2023 and they are now heading towards historic averages in the year, which we feel indicates better value.

Since the start of Trump’s presidency, markets have been under huge pressure, but MMFs have arguably proved their worth once again. A contraction in GDP may push the Bank of England to cut interest rates faster than they may have done otherwise, but we believe that there are still great opportunities for MMFs in 2025.

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