Cash Retakes Its Crown

Investors are piling into products that shield them from losses in a rising-rate environment

- By Katie Greifeld, Vildana Hajric and Isabelle Lee

For most of modern investing history, cash has carried a connotation of indecision: Any allocation to money-market funds or Treasury bills-considered cash equivalents was merely a way station en route to more definitive investment decisions. But with the US Federal Reserve cranking interest rates ever higher, cash has become a bona fide asset class for the first time in decades.

Rates on three-month Treasury bills are hovering near 3.3%, the highest since 2008, while six-month bills yield 3.9%. The latter is above the 10-year Treasury note's yield but with negligible duration risk-a measure of sensitivity to interest rate changes, which can be particularly destructive in extreme market environments. "Guaranteed 3-plus percent on T-bills? You have no duration, you have no credit risk-you have no risk," says Jason Bloom, Invesco's head of fixed income, alternatives, and ETF strategies. "That looks amazing right now."

Risk assets and havens alike are shuddering as a hawkish Fed attacks inflation. The central bank delivered its third consecutive 75-basis-point hike on Sept. 21, while raising projections for increases to come. Although that's shredded returns for longer-dated fixed-income securities, it's meant that simply holding bills to maturity and collecting interest payments-what the industry calls coupon clipping is a reasonable strategy.