![]() Online high-yield savings accounts currently average 3.98% and one-year CDs average 4.86%, Tumin said. Last month, the average rate on a savings account was 0.4%, while a one-year CD averaged 1.59%, according to the Federal Deposit Insurance Corp. “Even if T-bill yields don’t rise from where they are now,” Antoniewicz said, “yields on money-market funds are still significantly higher than those on money-market deposit accounts at banks.” Another question is which other big-time buyers might also want to buy the debt, Crane added. “The question is - at what yield?” he said. Given the chance to buy up a mountain of Treasury debt, Crane said money-market-fund managers would likely do so. Some $1 trillion of the debt from Treasury bills could be issued before the end of August, the analysts said. It is expected to do that by issuing a wave of short-term debt that could total around $1.4 trillion through the end of the year, according to estimates from BofA Global strategists Of that amount, $1.97 trillion is retail investor money, and $3.44 trillion comes from institutional investors.įollowing the debt-ceiling increase, the Treasury Department needs to replenish its accounts. Money-market funds had $5.42 trillion in assets through the end of May, up from $5.34 trillion in mid-May and $4.8 trillion in mid-January, according to data from the Investment Company Institute. The Fed will meet in several weeks to decide if it should pause or push ahead with more interest-rate increases to fight inflation. Everything else is window dressing,” Crane said, explaining that returns are tied to the Fed’s own short-term policy rate, which it has been increasing sharply to fight inflation. The Federal Reserve “dominates the returns on money-market funds. Fed dominates the returns on money-market funds ![]() A basis point is 1/100 of a single percentage point. More high-yielding T-bills in the mix might push up fund yields by “a few basis points,” he estimated. Right now, the annualized seven-day yield is an average of 4.91% for the market’s biggest funds, Crane’s numbers show. If money-market funds buy the newly issued T-bills, their investors will receive potentially higher yields because money-market funds pass through interest income to their shareholders,” she said.īut if that does happen, don’t expect a sharp surge, said Peter Crane, president of Crane Data, which follows the money-market-fund industry. “In order to place all this debt, yields on Treasury bills may need to rise. ![]() Shelly Antoniewicz, senior director of industry and financial investment at the Investment Company Institute, said the Treasury Department is expected to issue T-bills now that the debt-ceiling crisis is averted, “although how quickly will depend on the Treasury. government’s $31.4 trillion debt ceiling. President Joe Biden signed a bill that temporarily suspends the U.S. Last week, the House of Representatives and the Senate passed legislation raising the debt ceiling for two years while capping and cutting other costs. Related: Treasury yields higher as investors assess interest rate outlook How the debt-ceiling deal could affect yields Sheehan is skeptical that the upcoming batch of T-bills will push money-market-fund yields higher.įor T-bill yields, “the level is priced in in the market already in anticipation of that supply,” he said. That was an “abnormal spike,” said John Sheehan, portfolio manager of Osterweis Total Return Fund, a mutual fund at Osterweis Capital Management. Ahead of the debt-ceiling deal, there was a point when some Treasury-bill yields were hitting 7%, with maturities coming due around the time when the government was projected to run out of enough money to pay all of its bills. The federal-funds rate is now at a range of 5% to 5.25%.īond prices and yields move in opposite directions. For one thing, the funds “have been doing a lot better at keeping up with the federal-funds rate,” which is the Fed’s benchmark interest rate. ![]() “Money-market funds are definitely giving competition to the online savings accounts,” said Ken Tumin, founder of. The question is whether the share owned by money-market funds will increase in the coming months, analysts say. government debt that matures between 4 and 52 weeks. If the yields on those Treasury securities are high, that may translate to yield increases for the funds. Treasury securities at the end of April - could buy at least some of the Treasury debt waiting to be issued after an increase of the borrowing limit. These multitrillion-dollar mutual funds - which held an estimated $1.467 trillion in U.S.
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