Cash Reigns Supreme: The Unwavering $6 Trillion Wall Amid Fed's Rate Strategy

📝 SUMMARY: In a financial landscape where the demise of cash was once predicted, the asset class demonstrates remarkable resilience. Investors are channeling billions into money-market funds, while corporate treasurers amass record cash levels, collectively forming a formidable $6 trillion wall. This development is particularly striking given the earlier speculation that cash holdings would diminish as the Federal Reserve initiated rate cuts, making cash less appealing compared to other investments.

As of the start of the year, U.S. money-market funds have seen an influx of $128 billion, according to Investment Company Institute data, with corporate cash reserves hitting a record $4.4 trillion by the end of the third quarter. This influx is further supported by the market's capacity to absorb over $1 trillion of T-bills issued since mid-2023, indicating a robust appetite for short-term government debt.

This shift in sentiment is attributed to traders scaling back on policy easing expectations, allowing cash held in money-market funds to continue earning attractive returns of 4%, 5%, or more. Moreover, the cautious stance of corporate executives post-pandemic and depositors' ongoing concerns about the banking system suggest that 2024 may witness a continued preference for cash.

The enduring allure of cash was highlighted by the Fed's aggressive rate hikes since 2022, propelling interest rates above 5% and drawing significant attention to the profitability of money-market funds and T-bills. Despite potential rate cuts on the horizon, the vast majority of this cash, utilized for cash management or liquidity purposes, shows little sign of moving, with projections of money fund holdings reaching up to $7 trillion in 2024. This trend emphasizes cash's pivotal role in the current economic environment, reflecting a broad reevaluation of its strategic value amidst fluctuating market dynamics.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-02-19/a-6-trillion-wall-of-cash-is-holding-firm-as-fed-delays-cuts?srnd=premium