The Return of Returns: Cash is Back

Central banks across the globe have varying approaches to monetary policy, but the general direction of travel, until recently, had been the same: one of tightening. When the shape of the yield curve changes, treasurers must be prepared to respond. Jim Fuell, Head of Global Liquidity Sales, International, J.P. Morgan Asset Management, explains how treasurers can position themselves to take advantage of ‘cash is back’.

Eleanor Hill, Editor, TMI (EH): First and foremost, is cash really back?

Jim Fuell (JF): Generally speaking, yes, cash is back. Despite the dovishness expressed by the Fed at its recent March meeting, the last two years have delivered a progressive tightening of USD rates.  Cash is certainly back from a US perspective: three-month Treasury yields have pushed through the 2% mark [1], while dollar money market yields have risen above the yield available from many broader, fixed-income benchmarks making cash an attractive asset class.  Across the rest of the major currencies this theme is less present and there are a number of potential disruptors. 

Brexit is causing uncertainty around the next sterling rate move. The same is true in the Eurozone, where expectations for rate movements are possibly further out than we had anticipated a year ago. And with Mario Draghi coming to the end of his term as President of the European Central Bank (ECB) later this year, the market is not expecting any change prior to his departure in October 2019, with euro rates pegged to the ECB deposit rate of -40 basis points [2]. 

Beyond 2020, we may see sterling and euro rate rises, but to a degree, that will depend on what the US looks like at that juncture; the tightening path may still be closed.

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