March 2025, From the Field -
For several years now, cash has been king. But there is an opportunity cost to staying parked in cash—missing out on capital appreciation opportunities elsewhere. With this in mind, we think it is time for investors to consider redeploying cash. But where? With bond yields still at elevated levels, we believe that fixed income is an attractive asset class for putting cash to work—especially for investors seeking to lock in income.
In this first installment of a three‑part series on fixed income, we’re delving into why investors should consider redeploying their cash into bond markets.
Market uncertainty and elevated short‑term interest rates have led to a record amount of money being held in money market funds. However, last year marked the beginning of interest rate cuts by developed market central banks, causing cash rates to come down from their peaks. Despite this, these rates remain high compared with much of the post‑financial crisis era, prompting many investors to remain in cash.
Looking ahead, the future direction of cash rates is uncertain. But regardless of where cash rates go from here, we believe it is not an optimal strategy to stay parked in cash, particularly over a medium‑ to long‑term horizon, as it could mean missing out on potentially higher‑yielding investment opportunities elsewhere.
With bond yields still at elevated levels relative to much of the post‑global financial crisis recovery, we believe fixed income presents an attractive opportunity for investors. Beyond its income generation potential, fixed income offers investors diverse sector options that support a range of goals and risk tolerances, providing opportunities for both defense and capital appreciation. The fragmented nature of this asset class means that what drives one sector of the market is different from what drives another. This provides flexibility to choose sectors that suit distinct needs, such as generating consistent income, capital appreciation, or defense against equity market volatility.
"...with bond yields still at elevated levels, it is time to consider redeploying those cash assets to potentially lock in income at these attractive levels."
Kenneth Orchard, CFA, Head of International Fixed Income
In recent years, fixed income and equity markets have tended to move in tandem. This understandably raises questions about whether bonds can still deliver the benefits of diversification seen historically. Going forward, correlations between the asset classes could continue to be volatile. However, if an extreme market event or significant downturn puts major selling pressure on risk assets such as equities, we expect high‑quality government bonds to be effective diversifiers. At a minimum, they should provide longer‑term investors with potential liquidity—therefore, optionality—needed to make portfolio adjustments in times of stress.
The combination of political uncertainty, high fiscal deficits, and geopolitical risks, alongside diverging global growth and monetary policies, may be unsettling for some investors—keeping many parked in cash. However, with bond yields still at elevated levels, it is time to consider redeploying those cash assets to potentially lock in income at these attractive levels. In particular, a global multi‑sector bond approach may be conducive in the current environment as it has the ability to invest across a wide variety of fixed income sectors, including government, corporate, and securitized debt—both investment‑grade and high yield issues—across developed and emerging markets. This offers the potential to diversify return sources, which may appeal to investors seeking a stable return and lower volatility through diversification. In our next installment of the series, we will delve deeper into this approach and explore the potential benefits for investors.
Kenneth A. Orchard, CFA®
Head of International Fixed Income
Kenneth Orchard is head of International Fixed Income. He is portfolio manager for the Global Multi-Sector Bond and Diversified Income Bond Strategies and co-portfolio manager for the International Bond and Global Aggregate Bond Strategies. Kenneth is a member of the Fixed Income Steering Committee and the European and UK Asset Allocation Committees. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.
Vincent Chung, CFA®
Portfolio Manager, Global Fixed Income
Vincent Chung is a portfolio manager in the Fixed Income Division. He is co-portfolio manager for the Diversified Income Bond Fund and the Global Aggregate Bond Strategy. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.
Additional Disclosure
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
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