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- Investors aren't making as much money on the classic 60/40 strategy as holding short-term bonds.
- The mix of US equities and debt yields 5.07%, while yields on the six-month US Treasury hit 5.16% on Tuesday.
- Cash holdings haven't paid out more than the 60/40 portfolio since 2001.
For the first time since 2001, investors can make more money holding cash than a traditional stock-bond portfolio.
On Tuesday, the so-called 60/40 portfolio of US equities and fixed-income assets yielded 5.07%, a figure based on the weighted average earnings yield of the S&P 500, along with the Bloomberg USAgg Index of bonds.
Meanwhile, yields on the six-month US Treasury bill rose to a high of 5.16% intraday. Such short-term Treasurys are often likened to cash holdings.
Returns for the classic portfolio of stocks and bonds are taking hits as traders react to the Federal Reserve's interest rate hikes and speculate on the US central bank's next move.
Meanwhile, returns on short-term Treasury bills are also sensitive to increases in the fed funds rate and climb alongside the benchmark.
In 2023, the 60/40 strategy has given investors 2.7% after tumbling 17% last year, its biggest decline since 2008.
The shift in the 60/40 portfolio's performance versus short-term T-bills comes as the Fed continues its fight against stubbornly high inflation.
Prior to the Fed's tightening cycle, interest rates had been persistently low for several years, spurring traders to make increasingly speculative bets to generate larger returns.
In a recent research note, BlackRock strategists said that short-term bonds could be an interesting play on inflation concerns as the fixed-income asset allows an investor to preserve capital amid market volatility.
"Fixed income finally offers 'income' after yields surged globally. This has boosted the allure of bonds after investors were starved for yield for years," Jean Boivin, Head of BlackRock Investment Institute, wrote.