UBS's Sabatino on the 'Wall of Cash'
Yahoo Finance posted an interview with UBS Head of Global Liquidity Robert Sabatino titled, "Understanding money market funds amid economic, Fed uncertainty." Host Jared Blikre comments, "This is from the perspective of ... money market funds. We don't talk about these a lot, `but short-term liquidity influences stocks and bonds and what they do on a day-to-day basis. It can be the swing factor, and we've seen the US Treasury front and center in a lot of pulling a lot of these levers here.... What is the global liquidity situation right now and what do you think that portends for stocks and bonds?" Sabatino says, "Yeah, you highlighted a bunch of factors that are at play right now. We have digested a tremendous amount of treasury bill issuance, after we raised the debt ceiling. The market was able to handle that without any problem. It was almost $600 billion in issuance since July. I think it speaks to the nature of money markets, right? We are an industry that is used to dealing with incoming information, deploying assets in a very safe and liquid manner.... You do have periods that at month end, quarter ends ... we're coming up to corporate tax date, so the middle of September ... you could have a little bit of pressure on funding.... We heard from the Dallas Fed's Logan the other week letting the market know that there are facilities in place like the standing repo facility, in case any banks or broker dealers want to take their treasury positions and turn into cash." Blikre then queries, "I want to ask you about the cash on the sidelines argument that I hear a lot in the financial media. So there's $7.2 trillion parked in money market funds, and the theory goes, well, this could just come rushing into stocks at any moment. But I've looked through history at these at the charts of when these rates actually come down, and it usually lags the Fed by quite a long time. So the Fed will lower short-term short-term rates, and it takes people a year or two to figure out that they're not getting 4, 5, 6% in their money market account. Then that cash leaves, and sometimes by that time we're already in recession. So, how do you see this global liquidity situation, the $7.2 trillion on the sideline? Is that a good thing? I mean, is that a backstop?" Sabatino replies, "Yeah, it's not on the sideline, right? Investors are actively choosing to be in money market funds.... They like the safety, liquidity and the market rate that we provide. If you look at other cash type vehicles, deposits, let's say, those are administered rates, um, and sometimes they lag the market dramatically. So what we've seen ... we came off a period of a zero interest rate environment where money market assets remained very stable. And then the last nine years, we've had incremental growth every year. We've had tremendous growth the last three. I see that continuing.... No one argues that, growth in the equity market, you know, gold hitting all-time highs, no one questions that. But they question these assets and money market funds. And also, I don't think we spend enough time looking at deposits, right?" Finally, discussing bank account, Sabatino explains, "So it's over $18 trillion. So there's a tremendous amount of cash that investors are choosing to keep liquid. At the end of the day, there's so many concerns geopolitically with tariffs, with interest rates that many investors enjoy the safety and the yield that they're getting in money market funds. And even if we saw declining rates as you correctly stated, uh there is a lag. So we don't immediately lose assets and going from, you know, a 4% money market fund yield down to 2.5%, to 3.0% is not the end of the world. We're not we're not going back to zero."
