JPMorgan Clients in Cash as Schwab’s Options Hedge Default

Source: Bloomberg

With the deadline for avoiding a U.S. default looming, investors from Boston to Bangalore are moving to cash, extending the maturities of their short-term Treasury holdings and buying options to help protect themselves should stock and bond prices tumble.

Some JPMorgan Chase & Co. private bank clients are raising cash while others are dumping Treasury bills with maturities beyond the Oct. 17 debt ceiling deadline for longer-dated bonds. Stewart Capital Advisors LLC in Indiana, Pennsylvania, favors insurance companies, technology stocks and health-care providers, which now have lower valuations. Money is flowing out of an exchange-traded fund that tracks American banks and into overseas equities.

While most investors say a default will be averted, the potential for calamity should political leaders fail to renew U.S. borrowing authority before it runs out is moving some to take measures to safeguard their assets. A Treasury Department report on Oct. 3 said consequences would be “catastrophic” should the U.S. fail to make payments, including higher interest rates, lower investment and slow growth for decades to come.

“We want to protect capital first,” said Kevin Kearns, a fixed-income portfolio manager at Boston-based Loomis Sayles & Co., which manages $188 billion. While Loomis is forecasting that a default will be avoided, the back-and-forth negotiations may provoke some investors to sell assets. “We have our shopping list ready if things go on sale,” Kearns said.

Read more: http://www.bloomberg.com/news/2013-10-10/jpmorgan-clients-in-cash-as-schwab-sees-options-hedging-default.html