JPMorgan swaps cash for Treasuries

0:02Good morning from the Financial Times. Today is Wednesday, December 17th, and this is your FT News Briefing. Donald Trump's involvement in Venezuela has bond investors hopeful, and JPMorgan Chase is having a field day with U.S. Treasuries. Plus, despite all the ups and downs, investors are remaining bullish on American AI stocks. We'll tell you why. I'm Mark Filippino, and here's the news you need to start your day.

0:35Investors are snapping up Venezuela's defaulted debt. The country's bonds have rallied recently to 33 cents on the dollar. That's a 40 % rise since the start of October. Now, you might have picked up on the word defaulted earlier and are wondering why investors would want to go anywhere near Venezuelan debt. Good question. Well, U.S. President Donald Trump is putting military pressure on the country, and if Venezuelan President Nicolas Maduro gets ousted, investors think Caracas might actually pay back its debt. Analysts are pouring some cold water on all this, though. A chaotic downfall of the Maduro regime could trigger a civil war instead of IMF-backed restructuring talks.

1:22jp morgan chase has withdrawn almost 350 billion dollars in cash from its account at the federal reserve since 2023 and the bank has plowed a lot of that into u.s government debt the move is a way to defend itself against rate cuts that could eat into its profits here to tell us more is the ft's U.S. Banking Editor, Josh Franklin. Hey, Josh. Hi, Mark. So just explain to us what exactly is going on here. J.P. Morgan is essentially lowering its cash reserves and investing that money into U.S. Treasuries? Exactly. So U.S. banks, big U.S. banks, they have accounts at the Federal Reserve. And as funny as it may seem, the central bank actually pays them interest to keep their money there.

2:03And for a long time, you know, especially post-2008, interest rates were very low and banks didn't really earn a lot of money from doing this. But then once interest rates started going up in 2023, it actually became pretty lucrative for them. So by one estimate, J.P. Morgan made$15 billion in interest from the Federal Reserve in 2024. The Federal Reserve as a whole paid out$186 billion to banks in interest. So it's been pretty lucrative. And why put that money into treasuries, though? The interest rate of the Federal Reserve, it's a floating rate, right, that the Federal Reserve sets, and they can increase it and lower it.

2:38And the direction of travel for the last few quarters has been down for the interest the banks are earning at the Fed. And very much the view is that that's going to continue to be the case. So what you can do now if you're JP Morgan, you can take a lot of this money that's in an account that has a floating rate, and you can put it in something like U.S. Treasuries that has a fixed rate attached to it. And U.S. Treasuries have different maturities, you know, from a few months to over a decade. And so you can really lock in a higher interest rate by putting your money there instead of being at the whim of what could happen with floating rate account of the Fed.

3:13How significant is this move, just to put this into context? So it's pretty enormous relative to the whole industry. So if you look at the end of 2023 through to the third quarter of 2025, J.P. Morgan moved almost$350 billion. And that really accounts for almost the entire movement of money out of the Fed during that period of time. So there was about$1.9 trillion in cash at the Fed at the end of 2023. And now that stands to about$1.6 trillion. So net, that's not all J.P. Morgan. But it really does show the huge outsized importance that this bank does have in the industry. Yeah, I'm curious. What happens if this keeps up?

3:56Are there any larger ramifications if banks keep pulling their money out of the Fed? Well, so it's a safe, liquid place to keep your money, right? It gives you like a nice bit of cushion. I'm not suggesting that J.P. Morgan has any kind of liquidity issues. But in treasuries, you're locking it up. And in order to access your money, you have to sell the treasuries. So you have to hope you, if you decide to sell them, you don't do so at a loss. What's interesting as well is that this interest that banks earn on their reserves at the Fed has actually emerged as like a bit of a controversial topic.

4:28And you've got quite a few Republican senators that have said that this is a waste of money by the Federal Reserve, by the U.S. government, by extension, and they shouldn't actually be paying this. And this is just kind of paying banks to do nothing with their money. Josh Franklin is the FT's U.S. Banking Editor. Thanks, Josh. Thanks very much.

4:54The U.S. unemployment rate hit a four-year high last month. Government data out yesterday shows it rose to 4.6 percent. It's a sign that the labor market is continuing to weaken, and that bolsters the case for the Federal Reserve to cut interest rates again in the new year. The Fed has made three straight quarter-point cuts. Short-term U.S. government bond yields slipped after the report came out. markets are currently pricing in two quarter point interest rate cuts by the end of 2026.

5:29Global investors are feeling bullish about a stock market rally, which has been powered by artificial intelligence stocks. Asset managers are pouring so much money into equities that their cash holdings have fallen to a record low. Here to tell us why that matters is the FT's Rachel Reese. Hi, Rachel. Hi, how are you? I'm doing well. So, Rachel, this is an interesting one. Give me some numbers here. What do we know about what investors are doing with their money? Yeah. So, basically, all of these numbers come from this monthly survey of global fund managers done by Bank of America. Basically, what they found is that global fund managers' cash holdings have fallen to record lows.

6:07The average cash holdings in a portfolio in December has fallen to 3.3%. That's down from 3.7 % in the previous month, November, and it's the lowest of all times since they started the survey in 1999. All right. So, Rachel, I'm having a little whiplash here because it was just a few weeks ago that we were seeing tech stocks sell off over concerns that there's an artificial intelligence bubble. Now we're seeing a bounce back. Why is that? Where's this confidence coming from? To be honest, you'll have to ask the fund managers. We have seen, you know, a number of swings this year. We've seen real changes in sentiment from the huge lows of Liberation Day back in April.

6:48We've seen huge rallies since then. And basically, investors are confident that the rallies are going to continue. I think the main driver is really a confidence in upcoming corporate earnings. There's a real sense that those are going to be really good across the board. There is also, you know, despite continued question marks over AI, there's also still a lot of confidence there. You know, those stocks do keep going up and up. There's confidence coming from renewed hopes of lower interest rates in the U.S. as well, with the Fed cutting rates just last week. Are there any risks to this strategy, though?

7:22Yeah, there are absolutely risks. I mean, one big thing that, you know, the people that we spoke to said is with a rally like this, there's kind of always more risk of going down on bad news than going up on good news simply because of just how concentrated and crowded it is at that top end. Elias Galu, one of the strategists behind the survey, told us this specific question on the survey has been going since 1999. It's gone through a lot of asset bubbles and cash holdings have never been this low, you know, through the dot-com bubble, through the crash in 2008. So that's concerning because it just shows just how concentrated investors are and the kind of fragility that that creates.

8:04Now, Mark, there is a notable exception to this. And what is that? So Warren Buffett, the most famous investor in America, his firm, Berkshire Hathaway, actually have record high cash holdings, according to some recent reporting by some of our colleagues here at the FT from November. Wow. So quite an exception to the rule that Warren Buffett would be. Rachel, what are you going to be looking out for in this market rally as we head into the new year? I mean, I think it comes down to a few things. US stocks are currently around record highs. So the S &P 500 is pretty much at its record. It's just below it.

8:41But they have been wavering the past few days after some kind of disappointing results from Oracle and, you know, kind of renewed concerns around high AI valuations and spending. So I think, firstly, we have to look at how the market responds to that and what happens to that in the next couple of weeks. But AI is not all of the US stock market. And I think, you know, going into next year, the U.S. economy, interest rates, potential further interest rate cuts, and a strong corporate earnings season will also kind of have a big part to play in how the stock market does over the next kind of six months to a year.

9:19Rachel Reese is a markets reporter for the FT. Thanks so much, Rachel. Thank you.

9:29Before we go, the soccer fans have spoken, and FIFA has introduced a new pricing tier for tickets to next year's World Cup in North America. It's allocating a limited number of$60 tickets for each of the 104 schedule matches, including the final. They'll be set aside specifically for traveling supporters of qualified teams and distributed through their national federations. The move comes after outrage from fan groups over the cost to attend next year's matches. The cheapest seats for the final match cost more than$4 ,000. Fans called that pricing strategy a, quote, monumental betrayal of tradition and urged FIFA to have a rethink, which apparently it did.

10:15You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. Thank you.