Cash Is Now A Safe Haven
2022.10.17 11:27
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For most of modern investment history, cash carried an air of indecisiveness: any allocation to money market funds or US Treasuries—considered the equivalent of cash—was merely a stopgap for more “definitive” investment decisions. But with the US Federal Reserve raising interest rates ever higher, cash has become a highly reliable asset class for the first time in decades.
yields are hovering near 3.3%, a 14-year high, while yields are yielding 3.9%. The latter is higher than the yield on the bond, with negligible duration risk—an indicator of sensitivity to interest rate changes that can prove particularly damaging in extreme market environments. Guaranteed 3%+ in interest? You have no duration or credit risk; therefore, you face no risk.
High-risk assets and “safe havens” are taking a hit as a “tightening” Fed attacks . The central bank raised interest rates for the third time in a row by 75 basis points on Sept. 21, while it also revised its forecasts upward for future increases. While that cut yields on longer-maturity fixed-income securities, it also suggested that simply holding interest-bearing notes to maturity and collecting interest — what the industry calls “coupon clipping” — is a sensible strategy.
That logic has fueled a flood of inflows of $32 billion this year into ETFs that hold debt maturing in a year or earlier, a breather from the record $34 billion in 2018, the last time the Fed tightened monetary policy. About $4.6 trillion are in US money market funds, near a 2020 record high of $4.8 trillion.
After a dramatic mixed picture week in which gained within a trading day +5,098% (pr. Close – next low -2,40% and low – high current day from 3491 to 3669), finally it lost -1,55%, gained +1,22%, lost -3,15%, and gained +1,34% on a weekly basis.
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