Insight Article Desktop Banner
Market Insights
May 17, 2021

Economic Data Improves, but Central Banks Still See Risks

Insight Video Mobile Banner
May 17, 2021

Economic Data Improves, but Central Banks Still See Risks

Market Insights

Economic Data Improves, but Central Banks Still See Risks

Share Icon

May 17, 2021


Federal Reserve Board1
As expected, the Federal Open Market Committee (FOMC) kept the range for the federal funds rate unchanged at 0.00% to 0.25% at the conclusion of its April meeting. While the Federal Reserve (Fed) maintained its steadfast accommodative monetary policy, it noted changes to the economy, progress on vaccinations, and risks to the outlook. For the first time, the Fed commented on the vaccine rollout and strong fiscal policy that have helped “strengthen” the economy. More specifically, the Fed said, “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.” The Fed removed “considerable” when describing risks to the economy, saying, “the ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.” Looking ahead, Chairman Jerome Powell strongly reiterated the Federal Reserve’s forward guidance on quantitative easing policy and view on rates, as they still consider the economy a long way from the Fed’s goals.  

European Central Bank1
At the European Central Bank’s (ECB) policy meeting on April 22, 2021, President Lagarde and the policy committee left the ECB deposit rate unchanged at -0.50%, as expected. The committee kept the size of its pandemic emergency purchase program (PEPP) and asset purchase program unchanged in April.  Similar to its March statement, the Governing Council plans to conduct purchases under its PEPP at a “significantly higher pace than during the first months of the year.” While the environment remains uncertain, the ECB views current policy as appropriate and will remain accommodative until inflation moves towards its mandate.

Bank of England1
Although no formal policy meeting was held in April, analysts expect the Bank of England (BOE) to leave policy unchanged in May. While national lockdowns will have an impact on economic data, analysts believe it will be less adverse than originally expected. Investors will want to pay attention to the BOE’s guidance on economic activity and how the vaccine rollout are affecting the economy. 

Display 1: Monthly Interest Rate Summary as of 4/30/21.

Source: Bloomberg.

MSILF Weighted Average Maturities (WAM)2 Summary as of 4/30/21.

Source: iMoneyNet 



With cash remaining abundant on the short end of the curve, spreads stayed tight and LIBOR4 once again hit new all-time lows intra-month of 0.17288% on April 21. We maintained our strategy of adding fixed-rate investments to the portfolio, due to the liquidity and roll-down benefits of that structure. Weekly liquidity in our portfolios remain elevated, in excess of 50% throughout the month.

Yields on overnight repurchase agreements remained extremely low with SOFR5 printing at 1 basis point each day in April. Short maturity Treasury yields remained in the single digits across the curve, with 1-month through 1-year bill auctions stopping between zero and 0.065%. Cash inflows into money market funds continued in April, as did net Treasury bill pay-downs, both of which weighed on front-end yields. Not surprisingly, volume in the reverse repurchase (RRP) facility steadily increased to a peak of roughly $183 billion at month-end. We selectively bought Treasuries for the portfolios and invested a large portion in short-term repurchase agreements. We continued to ensure high levels of liquidity and manage the portfolios to be responsive to changes in market conditions and interest rate levels.

At the short end of the municipal curve, yields for variable rate demand obligations (VRDOs) were unchanged throughout the month of April. The SIFMA Index,7 which measures yields for weekly VRDOs, held steady at 0.06% during the month. Yields at the longer end of the municipal money market maturity range trended lower as supply remained constrained. The Bloomberg BVAL One-Year Note Index8 finished the month at 0.08%, down 0.02% from the prior month-end. With inventory levels remaining manageable and an influx of coupon cash, we expect rates to remain in this range, even as we approach the delayed personal income tax filing date of May 17.


1 Source: Bloomberg.

2 Weighted Average Maturity (WAM): Measures the weighted average of the maturities of the portfolio’s individual holdings, taking into account reset dates for floating rate securities.

3 The Portfolio will be required to price and transact in their shares at a floating net asset value (“NAV”) and will be permitted to impose a liquidity fee on redemptions or temporarily restrict redemptions in the event that the Portfolio’s weekly liquid assets fall below certain thresholds.

4 The London Interbank Offered Rate (LIBOR) is the short-term interest rate that banks charge one another and that is generally representative of the most competitive and current cash rates available.

5 The Secured Overnight Financing Rate (SOFR) is a benchmark rate for US dollar-denominated loans and securities based on overnight transactions in the U.S. Treasury repurchase market.

6 Government and Treasury Funds are Stable NAV funds.

7 The SIFMA Municipal Swap index is a 7-day high-grade market index comprised of tax-exempt VRDOs reset rates that are reported to the Municipal Securities Rule Making Board’s (MSRB’s) SHORT reporting system.

8 The Bloomberg BVAL One-Year Note Index represents tax-exempt municipal bonds that have an average rating of AAA by Moody’s and S&P.

The views and opinions expressed are those of the Portfolio Management team as of April 30, 2021 and are subject to change based on market, economic and other conditions. Past performance is not indicative of future results.

The Global Liquidity team aims to effectively meet clients’ unique cash and working capital needs, offering a broad range of money market funds, ultra short bond funds and customized separate account solutions.
Related Insights
Related Insights

One basis point = 0.01% 

The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment.

Past performance is no guarantee of future results. This document represents the views of the portfolio management team. The authors’ views are subject to change without notice to the recipients of this document. It does not reflect the opinions of all portfolio managers at Morgan Stanley Investment Management and may not be reflected in other strategies and products that the Firm offers.

This material is a general communication, which is not impartial and all information provided has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Current and future portfolio holdings are subject to change. The forecasts in this piece are not necessarily those of Morgan Stanley, and may not actually come to pass.

Certain information herein is based on data obtained from third party sources believed to be reliable. However, we have not verified this information, and we make no representations whatsoever as to its accuracy or completeness.

Please consider the investment objectives, risks, charges and expenses of the portfolios carefully before investing. The prospectus contains this and other information about the portfolios. To obtain a prospectus, download one at or call 1.800.236.0992. Please read the prospectus carefully before investing.

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events.

You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds’ sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

You could lose money by investing in the Fund. Because the share price of the Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Funds’ sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

The Tax-Exempt Portfolio may invest a portion of its total assets in bonds that may subject certain investors to the federal Alternative Minimum Tax (AMT). Investors should consult their tax adviser for further information on tax implications.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.



This is a Marketing Communication.

Check the background of our firm and registered representatives on FINRA's BrokerCheck

Please be aware that liquidity instruments may be subject to certain additional risks. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In the current rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. Longer-term securities may be more sensitive to interest rate changes. In a declining interest-rate environment, the portfolio may generate less income.

It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

Not FDIC Insured—Offer No Bank Guarantee—May Lose Value
Not Insured By Any Federal Government Agency—Not A Deposit

Subscriptions    •    Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.

Morgan Stanley Distribution, Inc. Member FINRA/SIPC.