Fund managers recommend a shift to Treasury and mortgage bonds in preparation for a possible recession.

Investors have accumulated a record amount of cash and similar assets as a way to protect themselves against recent market volatility. However, fund managers are now advising investors to start using that cash, as decreasing inflation and the possibility of an economic slowdown may present profitable opportunities in the bond market. Money market fund assets reached a record high of $5.73 trillion last week, as investors sought low-risk securities with high liquidity. Money market investing is popular during uncertain times, when cash availability is crucial and risk tolerance is low. With inflation decreasing to more comfortable levels, bond managers are suggesting that now is the ideal time to allocate some of those assets into the bond market. The Federal Reserve’s minutes from their November meeting indicate that they view the current interest rate level as restrictive, potentially signaling an end to their aggressive rate hike campaign. Bond managers believe that the actions of the Federal Reserve are slowing down the economy, which is necessary to bring inflation back to the target of 2%. They argue that sticking to cash means missing out on potential price appreciation if the economy slows down. Mortgage bonds are also seen as a sector that could perform well next year if interest rates drop. While these securities were criticized for their role in the 2008 financial crash, increased regulation has made them appealing again. They are considered less risky than corporate bonds and less volatile than stocks.