Bloomberg writes "Federated's Cunningham Bets on Longer Bills to Lock in US Yields." The article states, "Federated Hermes Inc. is pushing out maturities in its money market funds close to the maximum limit -- a bet that contrarian calls for US interest-rate hikes are off the mark and there's more easing to come. 'We're in what I would call the 90th percentile of where we're allowed to be,' Deborah Cunningham, Federated's chief investment officer for global liquidity markets, said in an interview. Her team is buying up longer-dated securities to lock in yields, and expects the Federal Reserve -- which is set to hold interest rates on Wednesday -- to cut by another one or two quarter-points this year. Speculation that the central bank will tighten policy in 2025 is too 'extreme,' she added."
It continues, "An illustration of Cunningham's positioning can be seen in the $63 billion Federated Hermes U.S. Treasury Cash Reserves fund, which has almost doubled in size over the last two years, growing at a faster pace than the broader market. Last week, its average maturity hit 50 days for the first time since late 2021, according to data compiled by Bloomberg. Firms are limited by regulations and client mandates in the amount of duration risk they can take on."
The piece tells us, "Federated Hermes is leading a trend across the industry: the weighted average maturity (WAM) of the 100 largest money-market funds has increased to 38 days from 30 days in September, according to Crane Data, a US money-market and mutual-fund information firm. Typically, short-duration strategies such as money-market funds extend the WAM of their investments ahead of expected easing. The risk is that rates rise, leaving funds with bills that take longer to roll over into higher-yielding securities."
Bloomberg adds, "The Fed is expected hold rates steady on Wednesday after a percentage point of reductions since September. Swap markets imply two more rate cuts in 2025, starting around the middle of the year. By contrast, officials at the European Central Bank are expected to lower rates by a quarter point on Thursday amid a more challenging outlook for economic growth. Money markets see a total of four ECB cuts in 2025, which would take its deposit rate to around 2%, though Cunningham's base case is for it settle at 2.25%. 'I feel like they'll get to their target and stick there for a little while and that's probably somewhere in the second half of the year,' she said. 'I don't think it goes below 2%.'"
In other news, Fidelity Investments writes on "The surprising risk of having too much cash." They comment, "Over the past few years, high yields meant your Fidelity account's core position could earn an attractive return without the ups and downs that come with investing in stocks. But since the Federal Reserve began cutting interest rates in September 2024, those yields have come down, even as inflation has persisted. That may make this a good to time to rethink what to do with the cash in your account."
They state, "Cash, stocks, and bonds are the 3 primary building blocks of a diversified portfolio and each has a role to play in helping you achieve your investing goals. That's why it's good to make sure your portfolio holds enough of all 3 of those types of assets to help you make progress toward your goals -- but not too much or too little of any one of them. With that in mind, you may want to consider whether you have more cash than necessary to meet your short-term needs."
Citing inflation, Fidelity explains, "Keeping your money in cash may seem like a great way to avoid losing it in a stock market downturn. However, holding cash raises your risk of losing money in another way. Over time, inflation can gradually eat away at the value of your portfolio unless it's invested in assets that can earn enough to keep up with rising prices. Although inflation is rising more slowly than it did over the past several years, consumer prices are likely to continue to go higher. Fortunately, you have a variety of ways to seek higher returns, depending on your investing goals, how soon you may need access to your money, and how comfortable you are with the up and down movements of financial markets."
They ask, "Do you want to invest for the future but are still in cash because you're worried that this is not a good time to invest in stocks? Fidelity has researched what a hypothetical investment of $5,000 per year would have returned if it was invested under various stock market conditions. The study found that even if the money was invested at the 'worst' possible time each year -- that is, when the market was at its peak -- it would have still significantly outperformed the same amount left in cash over the long run."
On Bonds, Fidelity states, "If you've stayed in cash because you like how your money market fund makes regular interest payments, you may want to learn more about opportunities in bonds. Like money market funds, bonds pay regular interest. Unlike cash, they also give you opportunities for capital appreciation and to lock in interest payments that may be higher than what you could earn on cash in the future."
They write, "To be sure, adding stocks and bonds to your portfolio doesn't mean cash has no role to play in your investment strategy. Over time, stocks, bonds, and cash have all taken turns as the best and—worst performing investments. Because financial markets and the business cycle are always in motion, it's good to make sure your portfolio holds enough of all 3 of those types of assets to help you make progress toward your goals."
Finally, the piece adds, "Fidelity offers a wide variety of research tools to help you reduce the risks posed by staying too long in cash. We also can help you create a plan to manage risk in your portfolio and can even help manage that portfolio by looking at your timeline, goals, and feelings about risk to create a mix of investments that's right for you."
