For most of modern investment history, cash carried an air of indecisiveness: any allocation to money market funds or US Treasuries—considered the equivalent of cash—was merely a stopgap for more "definitive" investment decisions. But with the US Federal Reserve raising interest rates ever higher, cash has become a highly reliable asset class for the first time in decades.
United States 3-Month yields are hovering near 3.3%, a 14-year high, while United States 6-Month yields are yielding 3.9%. The latter is higher than the yield on the United States 10-Year bond, with negligible duration risk—an indicator of sensitivity to interest rate changes that can prove particularly damaging in extreme market environments. Guaranteed 3%+ in interest? You have no duration or credit risk; therefore, you face no risk.
High-risk assets and “safe havens" are taking a hit as a "tightening" Fed attacks inflation. The central bank raised interest rates for the third time in a row by 75 basis points on Sept. 21, while it also revised its forecasts upward for future increases. While that cut yields on longer-maturity fixed-income securities, it also suggested that simply holding interest-bearing notes to maturity and collecting interest — what the industry calls "coupon clipping" — is a sensible strategy.
That logic has fueled a flood of inflows of $32 billion this year into ETFs that hold debt maturing in a year or earlier, a breather from the record $34 billion in 2018, the last time the Fed tightened monetary policy. About $4.6 trillion are in US money market funds, near a 2020 record high of $4.8 trillion.
After a dramatic mixed picture week in which S&P 500 gained within a trading day +5,098% (pr. Close – next low -2,40% and low – high current day from 3491 to 3669), finally it lost -1,55%, Dow Jones gained +1,22%, Nasdaq Composite lost -3,15%, and DAX gained +1,34% on a weekly basis.