Marc Stacey, Senior Portfolio Manager for Investment Grade Credit, explains why the case for sitting in cash is weakening – and why even modest reinvestment flows back into credit markets could have a significant impact on performance.
Key takeaways
- Cash is losing its shine as the investment grade yield pick-up re-emerges.
- Even small shifts in asset allocation away from cash could have a big impact on spreads and returns.
- Fundamentals look positive for the investment grade asset class, but selectivity remains key.
After a period of popularity, cash may be losing its shine. As interest rates started to normalise through 2022-23, investors poured vast sums into money market funds, attracted by yields of 5% or more on short-dated government paper and cash equivalents. According to data from the Federal Reserve Bank of St Louis, the total amount of cash parked in money market funds exceeded USD7 trillion in Q4 20241. In a world of rising rates, the shift to cash perhaps made sense – but the landscape has since changed.
