Cash really is on the sidelines, and it should help calm markets from here, according to Morgan Stanley.
The Wall Street bank points out some $4.7 trillion in now stocked away in money-market funds, and bank deposits have also surged. Even the U.S. Treasury has expanded its cash balance at the Federal Reserve.
Meanwhile, they point out, net leverage at hedge funds is below average, equity futures positioning is unusually short, duration at emerging-market debt funds is lower than normal and implied volatility remains elevated in both equities and credit. Another positive, they say, is how the Federal Reserve is ‘attacking the Agg,’ their term for how the central bank is taking measures that support the U.S. Aggregate Bond index AGG, +0.35%. That index is composed 41% of Treasurys, 26% of mortgage-backed securities from Fannie Mae and other government agencies and 25% of corporate bonds.
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