Liquidity is back — but capital is still waiting
9 JAN, 2026
By Ahmed Khelifa from L’ALLOCATAIRE
Source: The Eye of L’ALLOCATAIRE Newsletter
The global liquidity regime is shifting. After an extended period of balance sheet contraction, the Federal Reserve has put an end to quantitative tightening and resumed reinvestments of maturing securities, while simultaneously initiating a gradual rate-cutting cycle. At first glance, this marks a clear inflection point. Yet for investors, the consequences are more nuanced.
Despite the return of liquidity at the system level, real interest rates remain firmly positive, particularly at the short end of the curve. As a result, cash and Treasury Bills continue to offer an attractive real yield, creating a powerful incentive to delay risk-taking. This has led to a paradoxical environment: liquidity is no longer being withdrawn, but it is not yet fully redeployed into risk assets.
In this context, each incremental rate cut takes on outsized importance. Every 25bp reduction erodes the relative appeal of cash and gradually pushes marginal capital to seek alternative sources of return. Historically, this redeployment does not happen all at once. It follows scalable and liquid channels first — notably ETFs — before spreading to more convex exposures as risk appetite rebuilds.
