US Market: Treasury bill yields rise as money-fund demand weakens

Investor cash flowing into U.S. money-market funds has slowed sharply this year, reducing demand for Treasury bills and pushing Treasury bill yields higher relative to key short-term interest-rate benchmarks.

Money-market fund inflows totalled about $158 billion in the first three quarters of the year, sharply below the $823 billion recorded for all of 2025 and $840 billion in 2024, according to TD Securities data.

The slowdown has weakened one of the major sources of demand for Treasury bills, prompting yields to rise relative to comparable overnight index swaps, or OIS, which reflect market expectations for the Federal Reserve's interest-rate path.


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Money-market funds remain net buyers of Treasury bills, but the pace of accumulation has moderated significantly. Their Treasury bill holdings rose about 4% from the end of 2025 through August, compared with an 18% increase during all of last year, according to Investment Company Institute data.

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Treasury bill spreads widen

The softer demand is increasingly visible in Treasury bill pricing. Three-month Treasury bill yields rose nearly 10 basis points above three-month OIS on Monday, after the spread reached its widest level since September 2024 last week.

The spread for six-month Treasury bills stood at 11.3 basis points on Monday, after reaching 12.5 basis points last week, its highest level since April 2025.

A wider spread indicates that investors are seeking additional compensation to hold Treasury bills relative to the market's expected path for short-term Federal Reserve policy. Treasury bills are generally regarded as highly liquid and among the safest short-term assets, making the increase in the premium notable.

Reuters reported that the strength of U.S. equities has also contributed to weaker money-market fund inflows by reducing investors' incentive to hold cash. The S&P 500 has gained about 13% this year, while the Nasdaq is up roughly 18%.

Heavy Treasury supply adds pressure

The slowdown in money-fund demand comes as the U.S. Treasury prepares to increase bill issuance. Barclays estimates the Treasury will issue about $225 billion of bills in October and another $160 billion in November.

The additional supply could put further upward pressure on bill yields as the market absorbs a larger volume of short-term government debt.

Broader bond-market pressures are also contributing to higher yields. Longer-dated Treasury yields have risen amid heavy corporate borrowing to finance artificial intelligence investment, elevated U.S. and global government deficits and resilient domestic economic growth.

A combination of increased bill supply and slower demand from money-market funds could have implications for short-term funding markets if the trend persists.

Funding markets remain orderly

Higher Treasury bill yields could encourage money-market funds to shift more cash away from overnight repo markets and into bills. If that happens alongside increased Treasury issuance, repo funding conditions could tighten, potentially raising financing costs for dealers and other market participants. Analysts cited by Reuters, however, do not see the recent moves as an immediate sign of stress.

Money-market fund inflows often increase during the fourth quarter as investors prepare for year-end liquidity requirements, tax payments and portfolio rebalancing. That seasonal pattern could provide additional demand for Treasury bills in the coming months.

Repo markets, which can be among the first areas to show signs of funding stress, have so far remained orderly. Treasury officials have also pointed to continued demand for bills from money-market funds and stablecoin-related investors, despite the recent moderation.

Rate uncertainty keeps funds short

The increase in Treasury bill yields also reflects uncertainty over the future path of U.S. interest rates. Rate futures have priced in one 25-basis-point rate increase this year and two additional increases in 2027, according to LSEG estimates.

Money-market fund managers typically shorten the maturity of their portfolios when they expect rates to rise. Holding shorter-term securities allows funds to reinvest cash more quickly at potentially higher yields following rate increases.

TD Securities data showed that the weighted average maturity of money-market funds fell to 36 days last month from 42 days in May. The maturity remains well above the 15-day level recorded in 2022.

For now, the increase in Treasury bill yields appears to reflect a combination of slower money-fund inflows, heavier Treasury supply and greater uncertainty about interest rates rather than a breakdown in short-term funding markets. However, Reuters reported that a continued decline in demand from one of the biggest buyers of Treasury bills could make the market more sensitive to shifts in liquidity and funding conditions.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)