Investors are hiding out in cash, putting 20.4% aside, as volatility erupts, State Street says

By Joy Wiltermuth

Forget 60/40 -- for now

Long-term institutional investors kept more of their portfolios in cash in September as volatility struck the roughly $25 trillion Treasury market, spurring a sharp selloff in stocks and bonds, according to State Street Global Markets.

Instead of the traditional 60/40 portfolio construction, which dedicates a bigger share to stocks and a smaller portion to bonds, investors increasingly were keeping a significant pot of cash at the ready, according to a new State Street report.

It showed cash allocations rose 0.3% to 20.4% in September, while the slice for fixed-income rose 0.2% to 28.5% and equities dropped 0.5% to 51.1%.

"Investors are hiding in cash once again in the face of combined equity and fixed income market weakness," said Michael Metcalfe, head of macro strategy at State Street. "While cash holdings are now above average, we would caution they remain a few percentage points below their normal crises peaks."

State Street's holdings report is based on the share of investor portfolios allocated toward equity, fixed income and cash going back to 1998.

The 10-year Treasury yield BX:TMUBMUSD10Y jumped 7 basis points on Friday to 4.78%, while the 30-year Treasury yield BX:TMUBMUSD30Y advanced 5 basis points to 4.94%.

The surge in short-term Treasury yields since the Federal Reserve began ratcheting up its policy rate to a 22-year high has given ordinary investors in Treasury bills, or T-bills, a shot at 5% yields for the first time in more than a decade.

Until recently, however, longer-dated Treasury yields used to finance much of the economy, namely the 10-year and 30-year rate, were slower to approach the 5% level. The sharp recent repricing creates price pressures on older bonds issued at lower coupons.

Until Friday, it also had been hurting stocks. The Dow Jones Industrial Average DJIA was up about 400 points Friday, or 1.2%, while the S&P 500 index SPX was 1.5% higher and the Nasdaq Composite Index COMP was up 1.8%, according to FactSet.

Related: This fund manager is holding 60% cash -- and expecting a stock-market crash

-Joy Wiltermuth

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-06-23 1501ET

Copyright (c) 2023 Dow Jones & Company, Inc.