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Cash reigns: Investors hold steady with $6 trillion amid Fed's delay


Investors hold steady with $6 trillion dollars

A significant bunch of cash, totaling a staggering $6 trillion, stands firm as the Federal Reserve opts to delay interest rate cuts. This flood of liquidity witnesses investors pouring billions into money-market funds on a daily basis, while corporate treasurers accumulate cash reserves at unprecedented levels.


Despite earlier predictions of its demise, the market smoothly absorbs an excess of Treasury bills, highlighting the enduring strength of cash as an asset class.


The influx of cash into US money-market funds has been substantial since the beginning of the year, with Investment Company Institute data revealing an addition of $128 billion.


By the close of the third quarter, companies were sitting on a record $4.4 trillion in cash reserves. Even with a deluge of over $1 trillion in Treasury bills entering the market since mid-2023, there remains considerable capacity for further accumulation.



This current trend sharply contrasts with earlier concerns regarding the redeployment of cash once the Federal Reserve initiated interest rate cuts.


However, with market expectations for policy easing diminishing, the allure of money-market funds offering yields of 4% or more persists.


Combined with restrained corporate spending in the wake of the pandemic and ongoing depositor apprehensions about the stability of the banking sector, 2024 appears poised for another year of robust cash holdings.


Peter Crane encapsulates this sentiment, remarking, "The year of cash wasn't a flash in the pan.... The overall resensitization to interest rates is still spreading and even a lot of money hasn't moved or looked at it yet."



Certain corporations have already taken steps to bolster their allocations to money-market funds, as evidenced by Meta Platforms Inc. and Amazon.com Inc., whose holdings surged to $32.9 billion and $39.2 billion, respectively, by the end of 2023 as we read in Bloomberg.


Qualcomm Inc., a prominent player in smartphone processors, similarly increased its investments in money-market funds during 2023, emphasizing the strategic importance of maintaining ample liquidity.



Despite the specter of impending interest rate cuts, cash remains steadfast, with Peter Crane forecasting money fund holdings to potentially reach $7 trillion in 2024.


Lingering concerns about the stability of the banking system and the volume of uninsured deposits contribute to this resilience. Crane confidently asserts, "I will eat my hat if money-market fund holdings were to decline from their current levels in 2024."


20.02.2024



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