The certainty and comparatively high rewards of cash are attracting investors once more as their confidence in the Federal Reserve's decision to raise interest rates strengthens. The iShares 0-3 Month Treasury Bond exchange-traded fund, worth $11.5 billion, saw a near $572 million inflow last week, the largest weekly inflow since the height of the banking …
The certainty and comparatively high rewards of cash are attracting investors once more as their confidence in the Federal Reserve’s decision to raise interest rates strengthens. The iShares 0-3 Month Treasury Bond exchange-traded fund, worth $11.5 billion, saw a near $572 million inflow last week, the largest weekly inflow since the height of the banking crisis in March, according to statistics collated by Bloomberg.
At the same time, money-market fund assets increased last week to a record level, ending three consecutive weeks of outflows. With traders betting that the Fed will increase rates this month and possibly again after that, following June’s hiatus, demand for the shortest-dated government debt is increasing once more. Investors are being cautious ahead of the next round of corporate earnings, which begin this Friday, due to this hawkish inclination as well as the strong performance of stocks and corporate debt in the first half of 2023. According to Winnie Cisar, global head of credit strategy at CreditSights, the melt-up in risk assets, narrower credit spreads, and anticipation that the Fed will actually increase again in July are likely to be to blame. “It’s probably the combination of the melt-up in risk assets and tighter credit spreads, plus expectations that the Fed actually hikes again in July,” said Winnie Cisar, global head of credit strategy at CreditSights. People are taking a brief break to consider the market’s next move, particularly as earnings season approaches. In the midst of the central bank’s historically aggressive tightening cycle, cash has become one of the most popular asset classes. After the Fed increased rates by five percentage points in just over a year, Treasury bill yields are very close to their highest levels in over ten years.
However, after a rally that sent credit spreads to their tightest level in months, demand for corporate debt is now waning. Last Thursday, according to data gathered by Bloomberg, $2 billion was pulled out of the $13.1 billion iShares iBoxx High Yield Corporate Bond ETF (HYG) and the $35.4 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD).
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