Short-term bonds - more (value) than liquidity substitute

The negative interest rate environment will probably accompany us for around a decade in total. Current market expectations show that positive Euro money market interest rates are not to be expected before end of 2024. Even the current discussion as to whether the rise in the inflation rate is only temporary or whether a sustained higher price level increase will materialise has not changed the interest rate outlook so far. Following the change in strategy by the European Central Bank (ECB), it will in future tolerate a temporary overshooting of inflation above the target of 2%, which argues in favour of a lower key interest rate level in the Euro-zone for longer.
Many investors who hold liquidity in the medium term for strategic or regulatory reasons are therefore looking for alternatives and have increasingly turned to short-term bonds and fund investments in recent years. This group of investors accepts a higher risk compared to overnight or time deposits if this is rewarded by a higher expected performance. Multi-asset investors are also increasingly focusing on this market segment. The main argument here is the currently prevailing stronger synchronisation of equities and long-term bonds and the above-average duration risks without corresponding current income in defensive bond segments with longer residual maturities.