Last week, the Federal Reserve increased interest rates to levels not seen for 22 years. From mortgages to car loans, borrowing costs have climbed to historic highs and,However, these high rates are music to the ears of many retail investors who hold cash and cash-like assets. Over most of the last decade, near-zero rates eroded any real returns on savings, while the stock market enjoyed year after year of strong gains, with the S&P 500 rising on average 13% each year.
But now, tight monetary policy has once again burnished the appeal of Treasury bills and bonds, savings accounts, and bank certificates of deposit. Six-month US bills are offering a yield of about 5.5%, the highest since 2001, according to Refinitiv data. The total assets of US money-market funds have surged by $472 billion since mid-March to a record $5.5 trillion, data from the Investment Company Institute show, underscoring the rising popularity of the asset class among investors.
Better returns from these investments are also helping offset some of the pain caused by the rate rises. While interest payments have ballooned by $151 billion from one year ago, households are taking in an additional $121 billion from cash-related investments, according to Commerce Department data