Cash beats Treasurys
- Morningstar and CNBC report that cash has recently been a better portfolio diversifier than Treasury bonds. - The three-year stock–Treasury correlation swung from about -0.35 at end‑2021 to roughly 0.65 by end‑2025. - That shift is prompting investors to re-evaluate cash yields and liquidity as ballast instead of relying solely on bond diversification (cnbc.com) (morningstar.com).
Cash, not Treasury bonds, has recently done the better job of offsetting stock-market risk in diversified portfolios, according to Morningstar’s latest research. (morningstar.com) Morningstar said the three-year correlation between U.S. stocks and long-duration Treasury bonds moved from negative 0.35 at the end of 2021 to positive 0.65 at the end of 2025. Over that same three-year stretch, cash had the lowest correlation with stocks. (morningstar.com) Correlation is the measure investors use to see whether two assets move together or offset each other. A negative reading has traditionally made Treasurys useful as portfolio ballast, because bond prices often rose when stocks fell. (morningstar.com) That pattern broke in 2022, when the Federal Reserve raised interest rates and both stocks and bonds fell together. Morningstar said high-quality taxable bonds improved as diversifiers in 2025, but not enough to return to pre-2022 correlation levels. (morningstar.com) Cash benefited from the same rate shock that hurt longer bonds. Morningstar said cash was one of the few asset types with positive returns in 2022, and its yields rose as stock and bond prices were falling. (morningstar.com) That made plain-vanilla cash and cashlike holdings look less like “dead money” than they did when short-term rates were near zero. The Federal Reserve’s target range stood at 3.5% to 3.75% after its March 19, 2026 meeting, keeping yields on short-term instruments well above the levels investors saw for most of the 2010s. (federalreserve.gov) Treasury data show 3-month bill rates were around 4.3% at the start of 2025, while Federal Reserve data show 3-month constant-maturity Treasury yields were about 3.7% in early April 2026. Those levels help explain why investors have been willing to hold more liquidity while waiting out bond-price swings. (home.treasury.gov) (federalreserve.gov) Morningstar did not argue that bonds no longer matter. It said retirees and other investors with near-term spending needs should hold cash and short-term bonds alongside core intermediate- or long-term fixed-income positions, especially with inflation worries and energy-price shocks still making long-term bonds volatile in 2026. (morningstar.com 1) (morningstar.com 2) CNBC highlighted the same shift on April 20, pointing to Morningstar’s finding that cash has diversified portfolios better than bonds in recent years. For investors rebuilding the defensive side of a portfolio in 2026, the old answer of “buy Treasurys” is now sharing space with “keep cash handy.” (cnbc.com) (morningstar.com)
