Barclays_Global_Portfolio_Manager_s_Digest_Cash_Flows

This document is intended for institutional investors and is not subject to all of theindependence and disclosure standards applicable to debt research reports prepared for retailinvestors under U.S. FINRA Rule 2242. Barclays trades the securities covered in this report for itsown account and on a discretionary basis on behalf of certain clients. Such trading interestsmay be contrary to the recommendations offered in this report.Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companiescovered in its research reports. As a result, investors should be aware that the firm may have aconflict of interest that could affect the objectivity of this report. Investors should consider thisreport as only a single factor in making their investment decision.* This individual is a member of the Product Management Group and is not a Research AnalystAll research referenced herein has been previously published. You can view the full reports,including analyst certifications and other required disclosures, by clicking the hyperlinks in thispublication or by going to our Research portal on Barclays Live.FOR ANALYST CERTIFICATION(S) PLEASE SEE PAGE 33.FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 33.FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 34.Global Portfolio Manager's DigestCash FlowsWe provide context and perspective on research across regionsand asset classes, this week providing our updated analysis ofcash holdings and if/when they are primed to move into riskassets; a look into electronic trading in the bond markets; andexpectations around the neutral rate in the Euro Area.• The $6T Dollar Question Part II: Households (HHs) and nonfinancial businesses (NFBs)currently have more sitting in cash than at any time in the last 34 years. To that end, thehighest money fund returns since 2007 likely account for much of the $1.5tn in inflows sinceMarch 2023, but both HHs and NFBs have increased their checking account balances,reflecting a shift in liquidity preferences that has increased the demand for precautionarysafety buffers. As a result, we think that only a portion of the cash on household and non-financial businesses' balance sheets may move into risk assets as interest rates fall. With thisin mind, we believe that the rotation into credit is unlikely to happen now from a relative yieldperspective as money funds still yield more than front-end IG. However, this should change asthe Treasury yield curve steepens. For equities, we doubt that the foreseeable path of rateswill create enough of a spread premium to incentivize investors away from money marketsand into stocks. Specifically, the current S&P 500 equity risk premium is 75 bps; using post-Dotcom as a proxy for when a lot of cash moved from money markets into equities, we think200 bps is a good approximation of the trigger level. SPX would have to fall over 20% to 17.5xNTM P/E assuming that rates/yields follow the path priced in by forwa