Debbie Cunningham, Chief Investment Officer of Global Liquidity Markets at Federated Hermes.
What were the best and the worst things to happen to liquidity markets in 2020?
Absolutely, the best thing to happen to the liquidity markets and to the world in general was the effectiveness and finding of several vaccines to combat the coronavirus. Certainly, the testing of those and the speed at which the pharmaceuticals industry was able to undergo those tests and the effectiveness of them, 94 to 97%, none of that was even dreamed about in the middle part of this year. So vaccine is at the top of that list. And as a result of kind of the flight to quality that occurred back in the March and April timeframes, one of the big positives for our sector, for the liquidity sector was an asset increase that was really a result of customers choosing to be in the highest quality, lowest risk asset class, and that is the liquidity asset class. We had confirmation of the objectives of the liquidity asset class. We were able to provide daily liquidity in the industry at par at a market rate for those customers. But that asset increase was absolutely something that was desired from a customer standpoint and provided from an industry and an investment management standpoint.
The last thing that I would say about the positives would be the accommodation of workflow in a work from home capability and objective. And I think prior to this pandemic, we have all gone through various business continuity planning types of exercises that would take sectors of the market and have you worked from home on a day or maybe a week's basis, but the fact that we have been able to affectively keep our clients satisfied by operating appropriately for them all days, all business days before, during and now, hopefully, after the pandemic, should be, I think, a positive for all those that are generally in the liquidity sector of the marketplace. It doesn't replace working beside one another, collaborating with your coworkers in a conference room gathered around a table, but it has worked extremely well.
From a worst scenario standpoint, I think probably the worst thing that's ever happened in my lifetime happened in 2020, and that is the coronavirus that has impacted the world. And certainly what we have seen from an economic damage standpoint during the second quarter of 2020 has never been experienced before and was immense, at least not in the current world situation. And the statistics that we saw were really off the chart from a negative standpoint during that second quarter of 2020. What we also saw that was just breathtaking second quarter and now, to some degree again during the fourth quarter was the huge amount of human life that has been impacted by this pandemic, both from an infection standpoint, as well as a loss of life, and those are things that can't be replaced and will be with us for a very long time.
But the last thing, which may be considered a positive in some camps or a negative in others, would be the 150 basis point decline in yields. We had been operating in a zero rate environment for a long time post the financial crisis, and were finally getting used to being in that one to 2% arena, and all of a sudden, we're back at zero again. But it has worked for helping the economy stay on an even footing.
Disclosure: Views are as of 12-15-20 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. You could lose money by investing in money market funds. Although some money market funds seek to preserve the value of your investment at 1.00 per share, they cannot guarantee they will do so. An investment in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any government agency. Federated Investment Management Company 20-30601 (12/20)