A sharp deceleration in investor cash entering money-market funds is weakening demand for short-term US Treasury bills, pushing T-bill yields higher relative to overnight index swaps (OIS) and raising concerns over short-term funding conditions.
📌 Key Data & Market Highlights:
- Drastic Inflow Drop: Money market fund inflows totaled just $158 billion through Q3 2026, down sharply from $823 billion in 2025 and $840 billion in 2024 (TD Securities).
- Yield Premium Expansion: The 3-month T-bill yield rose nearly 10 basis points above 3-month OIS (the widest spread since Sept 2024), while the 6-month spread reached 11.3 bps (hitting 12.5 bps last week, a high since April 2025).
- Holding Growth Moderation: T-bill holdings increased roughly 4% YTD through August, compared to an 18% surge across full-year 2025 (ICI data).
- Heavy Imminent Supply: Barclays estimates the US Treasury will issue ~$225 billion in T-bills in October and $160 billion in November, further elevating yield pressures.
- Shorter Maturities: Money fund weighted average maturity (WAM) declined to 36 days from May’s peak of 42 days as managers adapt to potential Fed rate hikes (futures price in one 25 bps hike in 2026 and two in 2027).
🌐 Main Catalyst: Strong equity market performance (S&P 500 up 13%, Nasdaq up 18% YTD) has diverted capital away from cash vehicles, leaving T-bills vulnerable to heavy upcoming supply.