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Cash May Not Be King Much Longer
Wednesday 07 February 2024
Investment Talks
Cash May Not Be King Much Longer
February 2024 | For most of the last year, savers have been earning a reasonable return in cash. But how long can these compelling cash rates last? Historically, the answer has been: not very long. In every rate hike cycle since the 1970s, the US Federal Reserve has "paused at the peak" federal funds rate for a matter of months, not years, and history suggests the rate cuts could begin soon. Furthermore, once the Fed starts cutting its policy rate, cash rates could move hundreds of basis points lower in a very short period of time. We believe rotating from cash into short-term bonds can help investors reduce this reinvestment risk without taking on the full price volatility inherent in longer-duration fixed income exposures.
01 | With yields on cash currently elevated, we appreciate why cash allocations have swelled. However, as the Federal Reserve considers pivoting its stance, so too should investors.
02 | Against the interest rate risk inherent in most fixed income securities, investors should consider the reinvestment risk inherent in cash.
03 | Shifting exposure from cash to short-term bonds may allow investors to "lock in" much of today's elevated income levels while also positioning their portfolios for price upside.
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Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of January 31, 2024 . Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the authors and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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