SSGA Asks "Why Is Cash Piling Up?"
State Street Global Advisors' (SSGA) latest "Monthly Cash Review March 2025 (USD)" asks, "Why Is Cash Piling Up?" Author Will Goldthwait explains, "As we move through a period of extreme uncertainty in Washington D.C., it is no surprise that the markets are showing signs of anxiety. The political chaos, coupled with shifting fiscal policies, is causing volatility across many sectors. Even the slightest shift in sentiment seems to shake investor confidence and cause tremors in the market. Yet, amid all this uncertainty, one thing remains clear: investors are flocking to the safety of cash." He continues, "Positive flows continue. MMFs are up by approximately $300 billion, or 5%, since the start of December. LGIPs are up almost $50 billion, 13% from a year ago. Ultra-short-term ETFs are up almost $63 billion, or 32% since last summer, according to the Investment Company Institute (ICI). So, why is so much cash piling up? Part of the answer lies in the extraordinary rally we have witnessed in the equity market over the past year and the continued strength in the credit markets (corporate debt). Investors appear to be favoring cash: safe, liquid assets, and taking a few 'chips off the table.' I'm often asked, 'When will the money start to flow out of cash?' It seems unlikely that we will see that shift anytime soon -- not until we witness a major sell-off and/or a recession will we likely see a significant drawdown in cash." He adds, "While these money market inflows are undoubtedly significant, there has been talk that the broader liquidity environment is starting to tighten. The General Collateral Repo Financing Rate (GCR) and the Secured Overnight Financing Rate (SOFR), key indicators of money market rates, are beginning to move higher in yield vs. the Fed's target rate range. As the Fed continues its quantitative tightening program (QT), their reverse repo program (RRP) continues to wind down and we have seen a sharp decline in its usage from the peak of over $2 trillion in 2022 and 2023. Recently the balance dropped to a new low of $63 billion, although month-end funding pressures persist. December, January and February saw the RRP balance spike to $473 billion, $187 billion and $234 billion, respectively. This is not atypical as dealers tend to reduce their balance sheets at month-ends, but could these spikes also be implying that other funding pressures are emerging? Realistically? Most likely not. But what is interesting is the spikes emerging in the GCR and SOFR markets, as these may be better indicators of potential stressors."
