Investors enjoying juicy yields on their cash should start preparing to shift their strategy, according to Goldman Sachs. People piled into cash instruments such as Treasury bills and money market funds as the short end of the yield curve rose alongside Federal Reserve interest rate increases starting in early 2022. Now, some $6.
15 trillion is sitting in money market funds, as of July 2, according to the Investment Company Institute . While the annualized seven-day yield on the Crane 100 list of the 100 largest taxable money funds hit a high of 5.20% at the end of last year, it is now only slightly lower at 5.
12%. That will change once the Fed starts cutting rates. There is a "real probability" that could start in September, said Lindsay Rosner, head of multisector investing at Goldman Sachs Asset and Wealth Management.
Therefore, she is already positioned for the yield curve to steepen. "As soon as the Fed starts cutting 25 basis points, maybe at a quarterly pace, that rate that you have been receiving in your cash surrogate — your money market fund, your T-bill and $6 trillion is sitting there earning that — that's going to evaporate," Rosner said. "There is income in fixed income, but it will require in the next months or quarters to move out the curve.
" That means getting out of T-bills and money markets and buying investment grade corporate bonds or even funds that hold below investment-grade securities. She specifically likes issuers in business sectors that hold up.
