Source: Bloomberg

Author: Michael Mackenzie, Ye Xie, Alex Harris

For more than a year, this is a natural ultimate choice: the U.S. Treasury voucher that invested funds into super safe, harvested more than 5%of the yield, and then repeated again.Just as the billionaire and well -known bond investor Jeffrey Gundlach said in October last year: "Holding a treasury voucher, don't panic in your heart."

Even now, Fed officials will soon reduce the benchmark interest rate from the 20 -year high -this will immediately reduce the yield of Treasury coupons and other short -term bonds, but the currency market fund is still popular.In August, it flowed into an unprecedented level of US $ 106 billion, with a total of 6.24 trillion US dollars.

PIMCO and Bellaide, etc., are also bond investment management agencies -repeatedly suggesting investors to increase long -term bond exposure, but investors holding cash like Treasury vouchers seem to be very happyTemporarily stop the soldiers.The point of view of these institutions is that the return on cash only drops in one direction. However, in the environment of a sharp cut rate, bonds with a long term will benefit from capital gain.

"Logically, if the yield will decline, it is not reasonable to stay in the currency market fund for more than $ 6 trillion funds," said Kathy Jones, chief fixed income strategist in Jiaxin Financial Management.

During the severe fluctuations of bonds this year, cash has always been a good place to stay.The interest rate of the currency market is dominated by the Fed's current 5.25%-5.5%interest rate target range, and it has always maintained stability without any accidents.

However, this situation is about to change.Federal Reserve Chairman Jerom Powell hinted last week that it would cut interest rates in September.As the inflation fell, "the timing of adjusting the policy has arrived," Powell said.He also added: "The direction of progress is clear. The timing and pace of interest rate cuts will depend on the new data, constantly changing prospects and risk balances."

The currency market may also continue to be attractive, which is important to cut interest rates.For example, if only one percentage point is reduced, the yield of the Treasury coupon will still be maintained at 4%. This is a very attractive return level, especially when the interest rate level has maintained the interest rate level near zero before the last round of the austerity cycle.And long -term return on US bonds is much lower than this level.This may explain why individual investors are not in a hurry to reduce their holdings of currency market funds.

"In recent memory, this is the first time that cash has really provided a certain yield, so I can understand why people are attracted by it," said John Queen, the investment group manager of Capital Group.However, regardless of how cash is recently favorable, Queen recommends adopting a traditional diversified investment strategy, namely a combination of cash, stocks and fixed income.Capital Group manages $ 2.5 trillion in assets.

624 trillion US dollars in cash in the currency market fund, about 60%come from companies that find local cash after the crown disease epidemic.The rest comes from individual investors, who are satisfied with the higher yields than deposited in bank accounts.In addition, the return on the currency market fund is also higher than the long -term national debt, which is far less than the stock market.

Even after the Fed began to reduce interest rate cuts, the currency market fund should continue to attract the funds of at least some individual investors because they will still provide higher yields than banks.In addition, institutions that are more willing to outsourcing cash management will be attracted.

For investors who are enjoying short -term cash high yields, more and more of them recognize that this situation will not continue forever, so it is more concerned about the day when the cash return rate will suddenly decline.

Steven Roge, the chief investor of RW Roge Co, who manages 350 million US dollars assets, said that most of the time this year, the most difficult discussion with customers this year is to let them understand that the funds are deposited on the currency market fund or high income.The reinvestment risk brought by the savings account for a long time.

"Over time, investing in bond funds is a difficult topic," Roge said."The Federal Reserve's interest rate cut is coming, and these discussions have become easier."

For cash investors, the opportunity they lose is that the bonds are different from the treasury bonds. As interest rates decrease, the price of bonds will rise therefore brought capital benefits.

Bond managers emphasized that the 10 -year US Treasury yield is less than 4%, but it has brought capital gains to investors since the yield of more than 5%a year ago.A Bloomberg tracking index of 7-10 years of US Treasury bonds has risen 13.3%since October last year, while the cash return rate at the same time was only 4.5%.

Of course, for some people, it is not just a choice between Treasury coupons and long -term national bonds.After the shares of the company and other companies held, the Treasury vouchers held in Berkia, Volon Buffett in the second quarter, increased to US $ 234 billion.For investors like him, before the stock market appears new cheap goods, it makes sense to take advantage of the chances of interest rates.

But from the perspective of fixed income, if the rate of 10 -year Treasury bond yields also falls at a level of 3%with the return of interest rate cuts and policy to a neutral position, then holding the current yield of about 4%The annual Treasury bonds are still feasible.Long -term national bonds will get a two -digit return from the rise in price and the interest on the ticket.

"In this case, holding cash will not be better," said Neil Sutherland, the investment group manager of Schroder Investment Management Company."I think that the 10 -year yield may fall to 3%prediction. In this environment, you will get a two -digit return."

Different opinions

But don't tell Bill Eigen, the manager of Morgan Chase's strategic income and opportunity fund.For him, the 10 -year US Treasury bonds with a rate of investment in about 3.82%were almost unattractive.According to the latest declaration, the fund holds 54%of cash as of the end of July.

"If you hold cash, you can get a 5%interval in the middle section, and hold a short -term investment -level floating interest rate bond to get a 6%return," EIGEN said."I won't lend money to the government for 10 years but get less returns."

Eigen has been holding large -scale cash for some time. This approach has helped the fund get a 9%return rate in the past three years. At the same time, Bloomberg, USA, which also tracks the investment -level US dollar for fixed interest rate taxable bondsIndex loss 6%.But that's the past.

As the return rate of cash equivalent began to decline, and everyone thinks that it will decline, "not panic" will no longer be taken for granted.

Jones of Jiaxin Financial said that once investors see the return they get, they will find that the attractiveness is not as good as before.