My name is Kyongsoo Noh, and I am a portfolio manager on the ultra-short duration team at J.P. Morgan Asset Management. Welcome to the 2021 Q2 Guide to the Markets audio commentary for Global Liquidity investors.

The basics of our outlook for the year remain the same as when we last spoke in January, which is strong growth, a pick-up in inflation, and a steeper yield curve. However, what has changed is the magnitude, which we are upgrading based upon new information. Specifically, we are increasing our US GDP forecast for the year to 8%.

Our discussion today is going to be in three parts. First, I will talk about how higher than expected fiscal stimulus and better than expected virus outcomes have improved the growth outlook. Then, I will reiterate our view that the rate curve will continue to steepen adding some new thoughts about how supply/demand dynamics in the very front end will keep short rates pinned close to zero. Finally, I will end on some thoughts on income inequality.

Turning to p. 27 of the Guide, we can see that fiscal stimulus this year is even larger than last year. This is the primary driver of the upgrade to our 2021 GDP forecast.

• On the upper right chart, you can infer the larger fiscal stimulus package this year by seeing the larger fiscal deficit for 2021 than for 2020

• It is not directly on this page, but to give you a sense for the sizes in terms of dollars, this year’s fiscal stimulus is $2.8 trillion, which is comprised of the $900 billion approved in December 2020 and the $1.9 trillion approved in March 2021 – all told, this is $400 billion larger than the CARES Act (2020)

• Compared to what we were thinking in January, the $2.8 trillion for 2021 ended up being almost $1 trillion more than we were expecting

• This larger than expected stimulus is the main factor in increasing our 2021 GDP forecast

A secondary driver of our upgrade to our economic forecast is virus outcomes, which have improved dramatically. Virus data is depicted on p. 22 of the Guide.

• We have seen a significant decline in the number of cases and fatalities from Covid-19 in the US, which is shown here on the left chart

• This improvement is a function of three things to varying degrees: localized restrictions, natural immunity (by recovering from the virus) and vaccine immunity.

• In the US, localized restrictions differ pretty widely by city and state, so the latter two are really the bigger drivers on a national basis

• In the right chart, you can see increasing prevalence of both natural and vaccine immunity in the population; when we get to somewhere between 60-80% prevalence, we will have herd immunity

• We expect nearly all willing adults in the US to be inoculated in the next few months; therefore, it is possible for the US to reach herd immunity around mid-year, which will open up some parts of the economy that have been limited since the pandemic began

With greater fiscal stimulus and better virus outcomes than expected, growth prospects are better today than they were last quarter. Therefore, we are upgrading our US GDP forecast for 2021 to 8% for the full year. To picture this, let’s turn to p. 21 of the Guide.

• To frame how we sized the upgrade, let’s revisit the stimulus fueled growth from last year; there are more sophisticated ways to break down the numbers, but in the interest of simplicity, my thinking is as follows:

    • Last year with $2.4 trillion of fiscal stimulus and only the promise of a vaccine, we had 7.7% growth (not for the full year, but as measured from pandemic trough to year end - you can see this on the left chart)

    • On the other hand, this year, we have $2.8 trillion of fiscal stimulus and multiple approved vaccines going into millions of arms per day; so I would expect a bigger recovery this year than last year – thus the 8% figure

    • It is not on this page, but current economic indicators also point to strong growth:

    • The ISM Manufacturing PMI was 64.7 last month, the highest reading since 1983!

    • The US created 916,000 jobs in March (the 30 year average is 152,000/month)

    • S&P500 earnings are set to surpass pre-pandemic levels as early as this quarter

    • Lastly, usage of the word “hotel” in search engines is at a 10 year high

What is the main implication for the fixed income capital markets? Simply put… a steeper yield curve, which you can see here on p. 43 of the Guide

• Faster growth means inflation will perk up, driving longer yields higher; in fact, it’s not on this chart, but inflation as implied by 10 year TIPS is at 2.35%, the highest level since 2013, and well above current nominal 10 year UST yields of approximately 1.70%

• At the same time, we still expect the Federal Reserve to maintain zero interest rate policy (ZIRP) in the front end of the curve until 2023 to allow for a full jobs recovery

• The combination of these 2 things means a steeper yield curve

We do have some new information about supply/demand dynamics in the front end of the curve that will likely continue to pin front end rates close to zero over the next few months in addition to pressures already brought about by zero interest rate policy

• Cash is making its way from the federal government’s coffers to banks as customers receive their stimulus checks and deposit them into their bank accounts

• Due to regulatory driven leverage constraints, banks will be motivated to prevent their balance sheets from swelling too much from these deposit inflows and will encourage some corporate customers to move deposits into money market funds instead

• This migration is likely to happen over the next few months

• While we do not think these inflows into money market funds will drive front end yields negative, they nonetheless will help keep the front end pinned close to zero while the longer end of the yield curve continues to sell off

The last comment I will make today before we move to the final summary is about the Fed and income inequality. For this part of the discussion, we turn to p. 30 of the Guide.

• On the right, it comes as no surprise that higher amounts of education increase earnings potential; the opposite is also true, lower amounts of education decrease earnings potential

• On the left, we have unemployment by level of education; combining the information from both charts, we can infer labor market health by income bracket; as you would expect, people with less education (and therefore typically lower earnings) tend to be more vulnerable to joblessness in economic downturns as shown by the higher volatility of the light blue line

• The administration is keenly aware of income inequality, as is the Fed; because of this, in the current cycle, it will be key to watch not just overall unemployment rates, but unemployment in the lower income segments

• That is not to say that the Fed will not pull hikes forward if we see a significant improvement in the labor market, but for that to be the case, we think that there will need be a full recovery across all income segments before the Fed acts

• I would add this to any other Fed watching data that you already have in your toolkit

This brings us to our summary:

• We have increased our GDP forecast for 2021 to 8% due to greater fiscal stimulus and better vaccine distribution

• The interest rate curve should continue to steepen as growth drives inflation

•  However, front end rates should remain pinned close to zero due to (1) ZIRP and (2) an expected migration from deposits into money market funds over the next few months

• Finally, make sure to watch unemployment across all income segments when determining the Fed’s reaction function for hikes – do not just look at unemployment averages in this economic cycle

As a direct result of ZIRP, money market and ultrashort strategies are experiencing low but positive returns. On the other hand, due to the steepening of the yield curve, many longer fixed income strategies have experienced negative returns YTD. The key to picking the right strategy is to balance liquidity needs and risk tolerance. Choosing the highest yielding strategy does not necessarily translate to higher returns depending on your time horizon.

To explore these topics further, please reach out to your J.P. Morgan Asset Management representative. Thank you for listening, and we look forward to speaking with you.

Sources: J.P. Morgan Asset Management, Bloomberg, Google

Hi, this is James McNerny, portfolio manager on our Managed Reserves, or ultra-short duration team.  We hope that you and your loved ones are well, and that your spring is off to a great start.       

The first quarter of 2021 brought new hope for a strengthening global economic recovery, particularly in the US as the reopening continued, the $1.9 trillion dollar fiscal stimulus was passed and the vaccine roll-out accelerated. 

That resulted in a strong start for equity markets, which rallied for the fourth straight quarter.  But US fixed income markets struggled, particularly out the yield curve, with interest rates moving markedly higher and curves steeper as stronger growth and higher inflation expectations were priced-in.  The ten year US Treasury moved approximately 84 basis points higher, closing at 1.74%, while the thirty year rose 76 basis point to end the quarter at 2.41%.  Investment grade corporate credit spreads widened modestly as a glut of new issuance caused indigestion in a market already feeling shaky on the back of the move higher in rates.  Consequently, strategies with longer durations exhibited sizeable negative total returns, with the Bloomberg Barclays US Aggregate Bond Index down -3.4% for the quarter.         

On the monetary policy front, the Federal Reserve made very little change to their approach.  They indicated they have not yet begun to entertain the idea of tapering their bond purchase program, and reiterated that they do not anticipate raising rates anytime in the foreseeable future.  To that point, the median dot on the Fed’s closely watched summery of economic projections indicated their current expectation that rates will remain on hold (near zero) through the end of 2023.  This has kept rate movements in the front-end of the yield curve muted relative to the longer end spikes previously mentioned.  Anecdotally, the 2yr Treasury moved just 4 basis points higher on the quarter.  But that’s not to say that the market is fully buying into the Fed’s rhetoric.  In fact, measures of market expectations show the opposite.  For example, the OIS forward curve is currently implying a lift-off for the Fed to begin hiking in the fourth quarter of 2022, followed by 3 subsequent hikes in 2023.  Those expectations have resulted in the yield curve steepening in the ultra-short and short duration spaces with 3 and 5 year Treasuries moving higher.  So it’s been important to pick your spots on the yield curve wisely, as those bond funds with shorter durations outperformed in the first quarter.  I say bond funds because despite having the shortest durations, money market funds with annual yields near zero did not keep pace with their ultra-short counterparts.  And as a result of the moves mentioned, we saw ultra-short fund yields migrate higher with opportunities to allocate into better yielding securities given the modest moves higher in rates, steeper in curves and wider in spreads.   

Given all of these moves, we saw continued investor interest in the ultra-short space.  Through the end of February, Morningstar reported year-to-date net new cash flows of $8.5B into the space, placing it in the top five for net new flows by category.  And that makes sense when you take into account there is over $4T in USD money market funds earning near zero yields.  Some of that money is migrating one step out the curve into the ultra-short space in a search for higher yields and total returns, while not taking on a significant extension in duration.  Separately, with the moves we’ve already discussed further out the curve, it does not surprise us that some investors may be looking to shorten the duration of their fixed income allocation by moving money down the curve from longer strategies into the ultra-short space, perhaps while waiting to see where their next opportunity is.       

And for those reasons, higher yields than money market funds with limited duration risk in this recent rising rate environment, we’ve continued to see interest in this space on our ultra-short platform here at JPMorgan.  For example, our ultra-short ETF saw over $1B in inflows in the first quarter, taking its assets to over $16.5B.           

As for our thoughts on positioning portfolios in the space…..with Treasury rates so low, we don’t see much value in owning that sector, although the modest curve steepening recently has helped.  Instead, we have been running a longer position in short term credit, primarily via investment grade corporate bonds.  With the recent curve steepening coupled with our view that the Fed is likely on hold until 2023, there are opportunities at specific points on the curve that we will now look to exploit.  We are also very comfortable from a fundamental perspective with exposures to the US consumer through consumer related asset backed securities, particularly given the recent round of stimulus and the prospect of more to come. 

One last item to note is the recent decision by the Fed to not extend a temporary change to its supplementary leverage ratio rule (or SLR), a change originally made in April 2020 at the peak of the pandemic market volatility to address illiquidity in the US Treasury market.  That change had allowed banks to exclude US Treasuries and deposits held at the Fed from their SLR calculations, alleviating the need to set aside additional capital as their holdings of USTs and reserves expanded rapidly in the first quarter of 2020.  The expiration of that temporary change means it will likely not be as attractive to banks to carry Treasuries and certain deposits on their balance sheets.  Should banks become capital constrained, they may undertake a number of options including turning away certain deposits, which would then likely seek a home in money market funds.  This would add to the already challenging supply and rate outlook for money markets, with even more cash chasing the already low yields we mentioned earlier.  While the Fed does have tools to help counter-act this downward pressure on money market rates, it also likely continues to promote a search for yield and technical support from investors moving from money markets into the ultra-short segment.

Should you have questions or wish to speak, please do not hesitate to contact your JPMorgan advisor who would be happy to put you in touch with us.  In the meantime, thank you for joining the conversation, please take care of yourselves and stay healthy and safe.    

Hi, I’m Neil Hutchison, lead portfolio manager for our international ultra-short duration portfolios.

Q1 2021 was never going to be good economically. Coming into the year we were faced with newer, more transmissible variants of COVID 19 – forcing further containment measures on large swathes of Europe.

With the immediate future looking bleak, near term growth prospects were largely written off, having said this, markets remained in glass half full mode, and looked forward to better times ahead. Vaccination efforts in the US and UK stood out from the crowd and coupled with further fiscal support, the narrative shifted from lockdowns to growth and inflation by February onwards. 10 year yields in the US moved from 90bps to 165bps in Q1. This reflation story was not a US phenomenon. 10 year yields in the UK increased 55bps to 75bps and the German Bund went from 25bps to 35bps.  

Interestingly the reaction function of policy makers to this steepening of yields curves no longer had central banks singing from the same hymn sheet. The Bank of England’s and the Fed both welcomed the market moves as a sign of optimism in the economy . On the other hand , The ECB appeared more concerned, worried the repricing could become destabilising.

Whilst rates were backing up, they initially engaged in a policy of verbal intervention, with ECB heavyweights attempted to talk down the rates moves.  The stage was set for the ECB to follow up with action at their March meeting of the governing council. At this meeting  the ECB remained committed to an extremely accommodative monetary policy and further announced they would “significantly” increase the pace of the Pandemic Emergency Purchase Programme (PEPP) purchases in order to maintain “favorable financing conditions”. In other words they would not let term rates get too much higher.

The central bank’s pledge to keep base rates low and liquidity high continues to anchor short term EURO rates.  For Money market investors, The EURIBOR curve remains very flat, with nearly all maturities tenors regularly fixing below the ECB Deposit Rate.

The latest take up in Targeted Longer Term Refinancing Operations (TLTROs), saw banks take advantage of another 330 billion in cheap loans, this latest borrowing has taken excess liquidity to almost 4 trillion in the eurosystem . TLTRO remains very attractive for banks with rates as low as NEG 1%. This further reduces the need for banks to tap money markets for funding, keeping front end suppressed, with little or no term premium to entice investors out from short dates.

For the UK , the relatively impressive vaccine roll out strategy largely put paid to the negative interest rate policy debate, well for now at least!

2 year gilt yields moved from -15bps to almost +15bps by the end of February. Further boosting sentiment. The Chancellor also announced a supportive budget with continued fiscal measures for employment and the housing market, while taxes were frozen in the short-term.

Negative rates no longer appear to be in our immediate futures, having said that, the BOE has now officially added negative rates to its monetary policy toolkit, so when the time comes to cut rates, the lower bound for UK rates is no longer above zero. This is certainly something for money market investors to be aware of.

So, despite rates volatility further out the curve and negative returns for longer duration investors; Central banks globally remain accommodative and forward guidance is pointing to rates (and front end yields) remaining unchanged for at least a couple of years.

Considering this backdrop, it may be appropriate for our clients to review their cash management strategy.  Asking themselves the question how much cash do we really need in an operational cash, same day product?

It’s at time like these, when every basis point counts, that a cash segmentation exercise could help in an effort to mitigate the increasing cost of holding cash.

Quarter in review: China’s economic momentum remains strong

Lillian: Welcome to J.P. Morgan Global Liquidity’s audio commentary. My name is Lillian Lee, an Internal Client Advisor with Global Liquidity, and today I will be discussing China’s economic and interest rate developments during the first quarter and the outlook for the rest of 2021 with Mr. Aidan Shevlin, our Head of the International Global Liquidity Fund Management Team. Aidan, could you highlight the key economic trends in China during the first quarter for us.

Aidan: Thank you Lillian.  The majority of economic data released by China during the quarter was strong as the market benefited from robust domestic and international growth.  Although headline numbers were skewed upwards by the timing of Chinese New Year and the extremely low based effects due to last year’s initial Covid-19 lockdowns – the underlying health of the economy was undeniable and triggered upward revisions to 2021’s Gross Domestic Product (GDP) forecasts.  With growth returning to pre-pandemic levels, the government and central bank pivoted their focus from stabilization to long term goals.  The currency responded by strengthening while interest rates trended upwards and the curve steepened.

Lillian: That’s very interesting, could you share some more insights on the key economic developments during the quarter?

Aidan: The tailwind from last year’s v-shaped recovery was evident in fourth quarter GDP, which was higher than expected at 2.6%q/q, pushing full year 2020 growth to 2.3%. Strong exports and a rebound in domestic demand, underpinned by a successful Covid-19 containment strategy were key drivers of this remarkable resurgence.

We believe this strong economic momentum endured during the first quarter of 2021, with key domestic data, including retail sales, industrial production and fixed asset investments all recorded sizable increases, although the annual numbers did benefit from a very low base in 2020. 

A localized outbreak of Covid-19 in northern China ahead of Chinese New Year temporarily threatened the recovery.  Fortunately, prompt government action and a “staying-put” strategy helped contain the outbreak and minimize the economic disruption. 

The underlying strength of the economy was especially evident in stronger manufacturing and export numbers as global demand for electronics, medical equipment and consumer goods pushed the trade surplus to a five-year high.

Headline inflation slipped back into deflation territory on lower food and services prices, however, the producer price index inflation rose notably due to rising commodities prices, reaching a 27-month high of 1.7%y/y.  Finally, robust credit growth during the quarter was supported by the traditional start of year spike in bank lending and corporate bond issuance while shadow banking activities continued to contract.

The highly anticipated National People’s Congress (NPC) in mid-March outlined the government’s key goals for 2021 and approved China’s fourteenth five-year plan.  The pronouncements were not as hawkish as expected, with calls for macro policies to remain supportive.  The government also announced their GDP, inflation and financing targets for 2021, which were lower than expected. These should allow the authorities flexibility to rapidly adapt to macro-economic developments.  Meanwhile, the five-year plan focused on policies to achieve China’s medium term socio-economic targets including innovation, urbanization and green developments.

The “prudent but stable” monetary policy advocated by the People’s Bank of China (PBoC) following the NPC is based on the central bank’s long term target of deleveraging the economy and reducing the shadow banking sector while minimizing systemic risks.  The PBoC left the Medium Term Lending Facility and the Loan Prime Rate unchanged during the quarter.  While investors typically expect liquidity support ahead of Chinese New Year, the PBoC surprised the market by steadily withdrawing liquidity throughout the quarter, but they stressed that this was policy normalization rather than a shift in policy stance.

Lillian: So, against this fiscal and monetary policy backdrop, how did interest rates evolve over the quarter?

Aidan: The unexpected reduction in PBoC liquidity support triggered a spike in repo rates at the end of January, with the Shanghai Stock Exchange repo hitting a six-year high of 5.5%, but liquidity conditions subsequently stabilized during the rest of the quarter.  The SHIBOR yield curve steepened during the quarter as shorter term yields declined slightly while the long end of the curve moved higher as investors priced in an increased risk of PBoC rate hikes. Longer maturity government and policy bank bond yields also edged higher during the period.  Finally, the Renminbi ended the quarter broadly unchanged versus the US Dollar, having initially appreciated rapidly to almost a three-year high, before the dollar regained strength.

Lillian: Thank you Aidan. So, it appears the economy has performed well during the first quarter, based on the latest developments, what is your outlook for the remainder of 2021?

Aidan: By the end of the first quarter, the data indicated that the Chinese economy had almost fully recovered from the negative impact of the pandemic, allowing longer term growth to return to its pre-Covid trend.  With the virus outbreak successfully contained, most social distancing and internal travel restrictions have been removed, establishing a strong foundation for further domestic growth.  Meanwhile, exports remain very resilient, supported by the global recovery and recently introduced US fiscal stimulus package.

The Chinese government’s fiscal policies remain committed to boosting domestic demand, supporting innovation and continued structural reforms.  We expect the PBoC will likely remain mildly hawkish, ensuring adequate liquidity while focused on reducing speculative activities and curtailing the shadow banking sector.

While systemic risks remain low, continued US-China political tensions, the possibility of a monetary policy misstep and a resurgence of the Covid virus remain concerns.  Nevertheless, we believe the strong economic momentum of the first quarter will likely continue – albeit at a more moderate pace for the remainder of 2021.

Lillian: Aidan, thank you for the insight on China’s money market.  And thank you all for joining the conversation today. Should you have any questions, please reach out to your J.P. Morgan Asset Management representative.

(data source: Bloomberg and J.P. Morgan Asset Management, as of 31 March 2021)

Hello everyone, my name is Juan Lois and I’m on our dedicated Sustainable Investing team, leading our Clients Solutions for the Americas. Today I will walk you through what sustainable investing means for us at JP Morgan Asset Management, focusing on how we integrate financially material Environmental, Social and Governance factors into all our actively managed strategies.

Sustainable investing can mean something different to everyone, so I would like to first start with what it means for us. We use sustainable investing as the broad umbrella term for all investment strategies that consider Environmental, Social, and Governance factors in the investment process. At its core, sustainable investing is a forward-looking investment approach that aims to deliver long-term sustainable financial returns in a world that is changing rapidly.

This last part is key, as the world is fundamentally changing and at a faster pace than ever before, we must be forward thinking with our investment process. . Whether it is the rise of all types of goods and services produced in sustainable ways, or the proliferation of data that provides greater transparency on how companies operate – the world has and is increasingly shifting in ways that create additional E, S and G risks that we as investors have to consider in our investment process if we are to produce the same financial returns that our clients have always expected of us.

Said another way, at JPMAM we believe that explicit incorporation of financially material ESG information in the investment process can help deliver enhanced risk-adjusted returns over the long-term. Think of ESG as data. It is extra-financial information that can help us make better informed investment decisions. For this reason, over the last several years we have been very focused on making sure all our actively managed strategies incorporate ESG information in the investment process, which has resulted today in over $2 trillion in ESG integrated assets under management.

While we ensure each investment team aligns to a set of standards, we also make sure that each asset class and investment team has their own implementation process – which includes deciding exactly which ESG issues are financially material for their given strategy. This is critical as a risk from an equity perspective might be very different from a risk for fixed income products.

As we look at Global Liquidity and our money market products, they too consider the E, S and G factors that can impact a company’s ability to successfully operate and generate returns. Our credit analysts evaluate a range of ESG issues to better understand the extent to which the issuers we lend to on behalf of our clients can navigate and manage the ESG risks they face. This evaluation, which includes our own proprietary analysis as well as 3^rd party research like MSCI, is reflected in our issuer recommendations and our approved purchase list – which directly impacts concentration and tenure parameters.

As part of our general research process, we actively engage issuers on all financially material risks – including ESG issues – and we incorporate the insight gained from these conversations with issuer management into our analysis and recommendations. Because of JPMAM’s size and the frequency in which we work with the same issuers, these conversations and resulting investment decisions can have a real impact on an issuer’s access to capital.

Looking ahead, we are building on the tremendous amount we learned from each of the investment teams during the ESG integration process and are creating a proprietary ESG score. The score will incorporate insights from our fundamental sector analysts, a range of external data sources, and new AI and data science capabilities to identify forward-looking ESG risks and opportunities.

We are also focused on going beyond ESG integration to build a suite of sustainable products that aim to better capture opportunities associated with the transition to a more sustainable future.

To wrap up, we are really excited about these efforts and the commitment from our entire firm. If you have any questions or if there is anything, we can do to assist you on your own sustainable journey, please don’t hesitate to reach out to your JP Morgan Asset Management Representative. Thank you.

Hi, I’m Olivia Maguire, Sterling Money Market portfolio manager with the J.P. Morgan Asset Management Global Liquidity team in London. Thanks for joining our conversation today where I’m going to discuss the potential for negative rates in the UK.

Back in May 2020, the new Bank of England Governor, Andrew Bailey, first mentioned that negative rates were a tool under active review for the UK Monetary Policy Committee, or the MPC. Before that point the Governor and his predecessor, Mark Carney, had been more supportive of a lower bound that was close to, but above zero. Since those comments from Bailey in May, the market has adjusted to the expectation that Bank Rate in the UK could follow rates in Europe, Japan and Switzerland below zero into negative territory, and that previously cited challenges around communications and difficulties for banks and building societies in dealing with sub-zero rates may now have lessened or, can be overcome. In fact the MPC said in their latest meeting minutes for September that the Bank of England and the Prudential Regulation Authority, (the PRA), will commence “structural engagement on the operational considerations” of negative policy rates in the fourth quarter of 2020. That technical work, to ensure that the financial system can implement sub-zero rates will take time to complete according to Bailey, and the work itself does not actually signal that the Bank will act on reducing rates, however it is the next step to ensure that policy makers are ready for negative rates if needs be, or in the MPC’s own words, “should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates”.

Economic data up to the September MPC meeting had held up better than expected but downside risks to the UK economy do remain; one risk is to employment as the more generous Government support programs, such as furlough schemes, come to an end; a second is the outcome of UK and EU Brexit trade negotiations and a third is the economic impact of further waves of COVID-19 infections in the UK and globally.

Right now, we believe that the MPC’s marginal tool of choice would be to extend Quantitative Easing, and so in the face of any downside risks materialising, they could ease monetary policy by increasing asset purchases from the current envelope of £745billion. Negative rates are firmly in the toolkit, but with the ongoing technical work to ensure the financial system is operationally ready for them, we do not anticipate that the Bank would implement sub-zero rates until at least the second quarter of 2021 or possibly later.

So, what does this outlook mean for our investors? Well since Bank Rate was cut to 10 basis points in March this year, we have seen a correlated fall in gross yields across Sterling Liquidity strategies. As was our approach in other currencies, we do not intend to let mutual fund fees alone be the cause of a fund’s performance becoming negative. So where possible, we will waive fees in order to maintain a fund’s yield at zero or higher and we are already implementing this approach across Sterling Liquidity short-term funds.

If a fund’s gross yield were to approach negative levels, then some changes are required to Sterling Liquidity fund structures to deliver negative net yields, and regulatory frameworks require managers to provide specific prior notification to existing investors ahead of any proposed changes, as was the case with our EUR Liquidity strategies which have been operating ordinarily with negative yields since 2015.

In summary, while negative rates in the UK are now a distinct possibility, they won’t happen until the Bank of England has concluded technical and operational work on their feasibility, and while gross yields on JPMorgan Sterling Liquidity Strategies remain above zero, clients will receive a net yield of zero or higher.

Thanks for listening today & should you have any questions, or wish to discuss the topic further, please do not hesitate to contact your J.P. Morgan Asset Management representative who would be happy to put you in touch with us here on the investment desk.