Slower Money Fund Inflows Weaken Demand for US T-Bills, Lifting Short-End Yields

Net inflows into US money market funds slowed sharply this year, eroding demand for short-dated Treasuries and pushing bill yields above the overnight indexed swap (OIS) rate, according to TD Securities data. Money market funds drew just $158 billion in the first three quarters, versus $823 billion in all of 2025 and $840 billion in 2024. Their Treasury bill holdings rose about 4% through end-August, compared with an 18% full-year gain last year, ICI data show. On Monday, three-month bill yields exceeded same-tenor OIS by nearly 10 basis points, with the spread touching its widest since September 2024 last week. The six-month spread stood at 11.3 basis points after hitting 12.5, the highest since April 2025. Vanguard's Nafis Smith attributed the slowdown partly to this year's equity rally, with the S&P 500 up 13% and the Nasdaq up 18%. Barclays estimates the Treasury will issue about $225 billion of bills in October and $1.6 billion in November, adding supply pressure. Analysts said repo markets remain orderly, while LSEG data show rate futures pricing one more quarter-point hike this year and two in 2027.