Richard Yetsenga of ANZ, argues that with the recent central bank surprises and the emerging ‘shortage’ of bonds globally, the return of US cash as an asset class might be seen for the first time in a decade.
Key Quotes
“Certainly, a US cash comeback is not a new idea. We argued in favour of it last year. With the upside down nature of the move in rate differentials, however, the driver of this trend has turned out to be quite different.”
“Even with fund yields still around zero, assets of US money market funds have risen to the highest level since mid-2011.”
“While assets have yet to convincingly break out of the broad range of recent years, and there is an annual seasonal pattern evident in the data, a shift to a new higher range would clearly be significant.”
“Regulatory changes in the US will also likely be affecting flows, but these would be expected to actually reduce the attractiveness of these assets.”
“Looking forward, US cash is likely to be a key beneficiary of the relative decline in availability and attractiveness of government bonds which is emerging globally”
“Now in a world widely perceived to offer an abundance of investment opportunities, either in the real economy, equity market or even corporate bond market, some of the leakage out of bonds would be expected to find its way there."
"In the current environment, however, it seems reasonable to expect a meaningful share of funds squeezed by the bond ‘shortage’ to look for another safe alternative. Cash seems to present itself by a process of elimination.”
“And with the nominal return on cash near zero in most markets, and approaching zero in others, currency fundamentals are likely to also enter the equation. On this basis, USD cash seems the last man standing.”
Key Quotes
“Certainly, a US cash comeback is not a new idea. We argued in favour of it last year. With the upside down nature of the move in rate differentials, however, the driver of this trend has turned out to be quite different.”
“Even with fund yields still around zero, assets of US money market funds have risen to the highest level since mid-2011.”
“While assets have yet to convincingly break out of the broad range of recent years, and there is an annual seasonal pattern evident in the data, a shift to a new higher range would clearly be significant.”
“Regulatory changes in the US will also likely be affecting flows, but these would be expected to actually reduce the attractiveness of these assets.”
“Looking forward, US cash is likely to be a key beneficiary of the relative decline in availability and attractiveness of government bonds which is emerging globally”
“Now in a world widely perceived to offer an abundance of investment opportunities, either in the real economy, equity market or even corporate bond market, some of the leakage out of bonds would be expected to find its way there."
"In the current environment, however, it seems reasonable to expect a meaningful share of funds squeezed by the bond ‘shortage’ to look for another safe alternative. Cash seems to present itself by a process of elimination.”
“And with the nominal return on cash near zero in most markets, and approaching zero in others, currency fundamentals are likely to also enter the equation. On this basis, USD cash seems the last man standing.”
