FT on Bond Wobble, Allure of Cash
Last weekend, the Financial Times wrote, "Bond wobble underscores allure of cash." The opinion piece says, "In one corner of markets at least, it looks like the amateurs are outsmarting the professionals again. A good majority of the big asset managers and banks had a clear view for this year that bonds are back. If that rings a bell then yes, we have heard this before. No, it didn't really work out, due to the persistence of bonds' mortal enemy: inflation. But for 2025, the message was clear: central banks are cutting rates and you won't see yields like this again. Get out of cash, buy the bonds and lock those rates in.... [I]t was bad enough that the huge ascent in bond prices that many big asset managers and investment banks had predicted for 2024 failed to materialise, and so far, as one professional bond investor put it to me, 2025 has been 'annoying'." It explains, "Bond prices have stumbled yet again because market participants are not just backing away from expectations for more bond-supporting rate cuts from the US Federal Reserve -- they are flipping in the opposite direction.... In a note in mid-December, Richard Clarida from bonds giant Pimco (and formerly a senior official at the Federal Reserve), along with Mohit Mittal, pressed the case for getting into bonds and out of cash.... I'm not about to argue with Pimco about bonds, and over the long term, that is very likely to be right. It is a huge consensus call among big banks and investors -- almost every one tracked by Natixis Investment Managers recommended avoiding cash this year. But the early 2025 wobble is unhelpful, and some (relatively) amateur investors were not convinced anyway." The editorial adds, "Cash specialists note, with some glee, that money still keeps pouring in, despite the rush to the exits that many predicted as the Fed started cutting rates. 'We don't buy the narrative that investors are chomping at the bit to deploy all their cash to stocks and bonds as yields decline,' said Deborah Cunningham, chief investment officer for global liquidity markets at Federated Hermes. She says many will be more than happy if the Fed's terminal rate -- its longer-term target -- hovers around 3.5 percent, particularly those who use cash primarily as a tool to pay expenses and other needs. 'We think the [cash] industry needs to make space in the rafters [this] year to hoist yet another banner,' she says. As usual, here we see competing world views from people with skin in the game, of course. Nonetheless, while bonds have been meandering, cash has proven far stickier than most asset managers had anticipated for several years now. It is a hard habit to break, and if you are still expecting this cash to burst out into riskier asset classes, you may be waiting some time."
