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Redeploying cash: Where to invest next? 

Ongoing market uncertainty combined with sharp rises in interest rates prompted investors to stockpile a record $5.5 trillion* into money market funds globally over the last few years. Cash may be king today, but we believe that interest rates aren’t going to stay high forever.
As the uncertainty around rate cuts continues, we believe now is the time to redeploy cash into high-quality, active fixed income solutions.

Arif Husain

Head of Fixed Income at T. Rowe Price

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Holding cash is not an effective investment strategy over the long-term.

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Sovereign bond yields remain at attractive levels.

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Credit yields are at appealing levels and are backed up by strong fundamentals.

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The macro environment is supportive, but volatility is persistent and active management offers strategic advantages.

A Fed pause signals opportunity

During the rate pause period, bonds have tended to outperform cash.

Past performance is not a reliable indicator of future performance. For illustrative purposes only. 
Source: Bloomberg, as of 18 March 2024. Historical analysis calculates average performance of the Bloomberg U.S. Aggregate Bond Index and the Bloomberg U.S. Treasury Bills: 1–3 Months TR Index (cash) in the 6 months leading up to the last Fed rate hike, between the last rate hike and first cut, and the 6 months after the first cut. Dates used for the last rate hike of a cycle: 31/01/1995, 31/03/1997, 16/05/2000, 29/06/2006, 12/19/2018. Dates used for the first rate cute are: 30/06/1995, 30/09/1998, 29/12/2000, 18/09/2007, 01/08/2019.

The Active Fixed Income Opportunity: Three potential scenarios and how to tackle them

Given the current global economic uncertainties, we think it makes sense to redeploy cash in terms of possible market scenarios rather than a single outcome.

Scenario 1 – Growth

Investment solution: High income

  • This is our base-scenario: an environment of moderate growth and continued disinflation.
  • Investors will be seeking high income and might fear missing out the bond market rally.
  • This backdrop sets up an attractive environment for active security selection within credit markets.
SICAV

Diversified Income Bond Fund 

Seeks stable income through a highly diversified portfolio of bonds of all types from around the world. 

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SICAV

Global High Income Bond Fund

A truly global, high-conviction portfolio that aims to deliver high income, capital growth, and diversification.

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SICAV

Global High Yield Bond Fund 

Seeks enhanced returns from a diversified global portfolio of high yield securities from around the world.  

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Scenario 2 – Deterioration 

Investment solution: High quality

  • The aggressive tightening seen in 2022 and early 2023 may still have lagged impacts.
  • Global central banks are forced to cut rates quicky, and investors will be seeking high quality investments. 
  • Bonds outperform money market funds.
SICAV

Euro Corporate Bond Fund 

Invests primarily in euro-denominated corporate bonds using intensive credit research to unearth attractive income opportunities. 

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SICAV

Global Government Bond Fund

An actively managed fund seeking alpha through highly active interest rate and country management.

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SICAV

Global Impact Short Duration Bond Fund

Seeks a positive impact on the environment and society by investing primarily in sustainable investments.

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Scenario 3 – Stagflation 

Investment solution: Diversification

  • Higher interest rate and prolonged stress on fundamentals.
  • Inflation reaccelerates while growth stalls.
  • Investors should consider diversifying strategies, that combine decorrelated performance behaviour, active interest rate management and security selection.
SICAV

Dynamic Credit Fund

Seeks attractive alpha with low correlations through the credit cycle in bonds typically issued by government entities, companies, and banks.

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SICAV

Dynamic Global Bond Fund

A high-conviction approach on countries, interest rates, yield curves as well as credit security selection seeking consistent returns through fixed income market cycles.

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Risks: For fund specific risks please refer to the prospectus
General Fund Risks

Capital risk - the value of your investment will vary and is not guaranteed. It will be affected by changes in the exchange rate between the base currency of the fund and the currency in which you subscribed, if different. Counterparty risk - an entity with which the portfolio transacts may not meet its obligations to the fund. ESG and Sustainability risk - may result in a material negative impact on the value of investment and performance of the fund. Geographic concentration risk - to the extent that a fund invests a large portion of its assets in a particular geographic area, its performance will be more strongly affected by events within that area. Hedging risk - a fund's attempts to reduce or eliminate certain risks through hedging may not work as intended. Investment fund risk - investing in funds involves certain risks an investor would not face if investing in markets directly. Management risk - the investment manager or its designees may at times find their obligations to a fund to be in conflict with their obligations to other investment funds they manage (although in such cases, all funds will be dealt with equitably). Operational risk - operational failures could lead to disruptions of fund operations or financial losses. 

Actionable insights

Our latest views on investors reallocating their cash.

By  Nikolaj Schmidt, Peter Bates, Ken Orchard, Tim Murray
By  Ken Orchard
T. Rowe Price Insights

Ahead of the Curve

Read the latest monthly insights from our Fixed Income CIO, Arif Husain

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*Ongoing market uncertainty combined with sharp rises in interest rates prompted investors to stockpile a record US.$5.5 trillion into money market funds globally over the last 10 years (Broadridge GMI, December 2023).

202404-3547612