Slowdown in money-fund cash flow hits short-term Treasuries
TLT•Money-market fund inflows totaled $158 billion in the first three quarters of this year, compared with $823 billion for all of 2025 and $840 billion in 2024. Three- and six-month Treasury bill yields rose relative to overnight index swaps as demand slowed and heavy bill issuance is expected.
1. Slower demand for bills
Money-market fund inflows have slowed significantly this year, weakening demand for Treasury bills and lifting their yields relative to comparable overnight index swaps. Inflows totaled $158 billion in the first three quarters, down from $823 billion for all of 2025 and $840 billion in 2024. Money funds remain net buyers of bills, but their holdings had risen about 4% by the end of August, compared with an 18% increase over all of 2025.
2. Yields and supply
Three-month bill yields rose nearly 10 basis points above three-month OIS on Monday, after the spread reached its widest since September 2024 last week. The six-month spread was 11.3 basis points on Monday, after reaching 12.5 basis points last week, its highest since April 2025. Barclays estimates the Treasury will issue about $225 billion of bills in October and another $160 billion in November, which analysts said should push yields higher.
3. Funding and rate outlook
Analysts said shifting cash from overnight repo markets into higher-yielding bills as issuance increases could tighten funding conditions, but repo markets have remained orderly. Money-fund inflows typically accelerate in the fourth quarter. US rate futures have priced in one 25-basis-point rate hike this year and two more in 2027, while money funds’ weighted average maturity fell to 36 days last month from 42 days in May.
