Wave of Cash Seen Washing Into Credit as Investors Seek Duration

Cash may still be king for the moment, but after more than $1 trillion flowed into money-market funds last year as short-term rates rose, investors are trying to figure out where it goes next.

Bank of America Corp. projects a record $500 billion of flows to high-grade corporate debt in 2024, based on the current pace of inflows. Barclays Plc strategists expect $400 billion to $600 billion could move into risk assets from money-market funds over the next year, with investors likely to favor credit over equities in that shift.

Investors have been reaping the benefits of duration — bond parlance for price sensitivity to changes in interest rates — for much of the last four months, amid bets that central banks will cut interest rates aggressively in 2024.

Since the end of October, long-dated debt in a corporate-bond index has seen gains amounting to almost four times that of short-dated paper, according to Bloomberg indexes. That’s a reversal of what was going on during rate hikes in 2022, when longer-dated bonds slumped in value.

Duration Is a Money Maker Amid Rate Cut Bets