Barron's: Cash Makes a Comeback
Barron's writes "No Volatility Here: Cash Makes a Comeback." The article tells us, "Rising interest rates are punishing bonds and causing stocks to teeter. But cash investments -- a misnomer until recently -- haven't looked so good in years. Yields on money-market funds and other cash sanctuaries are approaching 2%, levels not seen in almost a decade." Barron's quotes Federated Investors' Deborah Cunningham, "Cash is an asset class once again." The piece explains, "Cash's comeback has been a long time coming. From 2009-2016, the Fed held short-term rates near zero, forcing money funds to waive management fees just to maintain yields of 1/100th of one percent (0.01%). Online banks, hungry for deposits, filled the void with higher yields on savings. That left money funds touting safety and liquidity as their only selling points. But as the Fed has hiked rates -- five times since late 2016 -- money-market yields have rebounded. The average is 1.5%, almost a point above the level a year ago, according to Crane Data. Taxable funds now have a 0.50 percentage point yield edge over bank deposits, reports iMoneyNet. Investors have noticed -- money-fund assets went from $2.6 trillion to $2.8 trillion over the past year." They quote Crane Data's Peter Crane, "Money funds were on a starvation diet with yields at zero percent.... Rate increases have given them a stay of execution." Barron's adds, "Yet yields on money-market mutual funds (which aren't insured) should catch up to online banks' soon. The funds hold debt maturing in a few days or weeks, enabling them to harvest higher yields rapidly as rates rise. With two rate hikes on tap -- likely in June and September or December -- yields should reach 2%, says Crane. Some institutional-class funds (which have high minimum investments and floating net asset values) already have hit that mark.... Perhaps the best argument for bolstering liquid, short-term savings and bond accounts now: The stock-market rally is extremely aged. When the bear strides back onto Wall Street, bargain hunters with cash will be king."
