Money market assets under management and Treasury yields
Source: Bloomberg Finance, L.P., as of February 1, 2024.
- Markets ended a solid January with a late month bout of volatility as regional banks faced renewed stress while the Federal Reserve took a March rate cut off the table, resetting market expectations.
- Yields across the Treasury curve fell further this week, extending the steep declines that began in the fourth quarter of 2023 while markets pushed back expectations for Fed rate cuts from March to May 2024.
- As short-term rates continue their material decline, the allure of cash—so high throughout 2023 amid an environment of elevated rates and a fragile U.S. economy—has faded as the macro picture at the start of 2024 is very different.
- Said another way, short-term rates (black line) have declined as the soft landing narrative has increasingly come into focus, yet investors continue to plow money into cash (orange line), which has approached $6 trillion in assets under management.1
- The forward path for money market rates looks very different than it did just one year ago. With this in mind, investors should remain mindful of the potentially significant opportunity costs of maintaining too large a cash balance within their portfolio.