As Fed prepares to cut, time to move away from money markets?
Main U.S. indexes red; Dow off most, down ~0.65%
Nasdaq negative, but off low; chip index slightly green
Energy leads S&P 500 sector gainers; Healthcare weakest group
Dollar, crude up modestly; gold slips; bitcoin down >1%
U.S. 10-Year Treasury yield rises to ~4.19%
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
AS FED PREPARES TO CUT, TIME TO MOVE AWAY FROM MONEY MARKETS?
Daniel Siluk, portfolio manager and head of global short duration & liquidity at Janus Henderson, is making the case for moving funds away from money market strategies into shorter-dated bonds, citing easing inflation and looming rate cuts from the Federal Reserve.
He writes in a note that a record level of assets parked in money markets -- roughly $6.4 trillion -- represents an "opportunity cost" for investors, as they would not be able to take advantage of potential capital appreciation within bond markets brought about by falling rates.
With economic risks waning, he says there is real costs associated with maintaining a large cash allocation.
"While having a liquid rainy-day fund has its benefits, we believe the time is ripe for investors to deploy some cash back into capital markets, especially now that bonds once again offer attractive income streams, low volatility, and potential for capital appreciation," Siluk says, citing one- to three-year bonds.
In the two decades before the pandemic, the market value of the Bloomberg U.S. Aggregate 1-3 Year Index consistently outpaced U.S. money markets' assets under management by a substantial margin. The reason is fairly straightforward, he says. Since 1996, the 1-3 year index's rolling one-year and three-year returns calculated monthly have outperformed money markets 75% and 84%, respectively.
"Even more compelling is that when policy rates are falling, shorter-dated bonds have always outperformed."
Siluk also points out that the inverted yield curve is also compelling reason to favor the front end of the curve.
Typically, one- to three-year Treasuries represent the safest sector of the fixed income market, as investors can more easily evaluate inflation and other factors that may impact a bond's value across a shorter time duration until its maturity.
Yields on this segment of the curve though are typically lower than longer-dated maturities, as investors trade higher returns for lower volatility. That, Siluk says, is no longer the case given the persistent inversion of the yield curve.
With the inverted yield curve, investors generate higher yields on the short end, while being exposed to less interest rate risk, or duration.
The Janus Henderson official also points out that impending rate cuts by the Fed would likely result in shorter-dated bonds being more tethered to policy rates generating a degree of capital appreciation.
In contrast, he says assets held in money markets would likely receive no such benefit – just lower yields on rapidly maturing short-term paper.
(Gertrude Chavez-Dreyfuss)
*****
FOR THURSDAY'S EARLIER LIVE MARKETS POSTS:
A TREASURY TERM PREMIUM THAT ISN'T - CLICK HERE
THURSDAY ECONOMICS: PARTLY CLOUDY, 93% CHANCE OF SEPTEMBER RATE CUT - CLICK HERE
WALL STREET MIXED; DOW HITS RECORD HIGH - CLICK HERE
TRUMP 2.0 BODES WELL FOR BANKS - WELLS FARGO - CLICK HERE
ONE SMALL STEP FOR TECH, ONE GIANT LEAP FOR BANKS - CLICK HERE
SWISS WATCH EXPORTS CONFIRM CHINA WEAKNESS - CLICK HERE
AHEAD OF THE ECB: PREPARE FOR NO BIG FIREWORKS - CLICK HERE
LABOUR'S AUTUMN BUDGET COULD BE CAUTIOUS - CLICK HERE
TS LOMBARD GOES LONG FRENCH STOCKS - CLICK HERE
AUTOS HELP STOXX STEADY, TECH STRUGGLES - CLICK HERE
TECH SEEKING A FLOOR AFTER SELLOFF - CLICK HERE
CHIPS ARE DOWN AS TRADE TENSIONS MOUNT - CLICK HERE
Mga Kaugnay na Asset
Pinakabagong Balita
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.
