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Chart in Focus: Cash vs. bond returns in rate hiking cycles

Nanette Abuhoff Jacobson, Global Investment and Multi-Asset Strategist
Patrick Wattiau, Investment Strategy Analyst
2024-08-31
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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.

Cash with a roughly 5% yield is a beautiful thing. While it’s easy to get attached to high-yielding cash, holding cash until there’s more certainty in the market environment could cost total return relative to bonds based on the past six interest-rate hiking cycles. As such, investors may want to consider moving out of cash into longer maturities sooner rather than later.

We analyzed the three-year total returns of cash, Treasuries, bonds (as represented by the Bloomberg Aggregate Bond Index), and corporate bonds (as represented by the Bloomberg US Corporate Bond Index) starting from the last hike of each of the past six full US Fed interest-rate tightening cycles since 1980. 

Figure 1
Yied differential

The chart above shows that returns for all the bond strategies we observed were around double the returns of cash. Even though some bonds have lower yields than cash, they've benefited materially more than cash in the past six Fed rate-hiking cycles on average. Corporate bonds outperformed Treasuries and the Bloomberg Aggregate Bond Index due to their higher yield and periods of spread compression, which added net positive return.


Please refer to www.wellington.com/hk/3rd-party-data for disclaimers regarding any third-party data used.

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