A significant slowdown in investor cash flowing into money-market funds this year has pushed up yields on Treasury bills and raised concerns about potential short-term funding issues. Money fund inflows have dropped to US$158 billion in the first three quarters of 2026, down sharply from US$823 billion in 2025 and US$840 billion in 2024, according to TD Securities data.
The reduced demand for T-bills has lifted their yields relative to overnight index swaps (OIS), a key money market benchmark. Analysts note that money market funds are still net buyers of Treasury bills, but demand has slowed markedly. By the end of August, holdings had increased just 4% from year-end 2025, compared to an 18% rise over all of 2025.
Investors are now requiring a larger premium to hold T-bills, with yields on 3-month bills rising nearly 10 basis points above the OIS rate. For 6-month maturities, the spread reached 11.3 basis points on Monday, the highest since April 2025. This suggests investors are demanding extra compensation to hold short-term US debt.
Analysts attribute the slowdown in money-fund inflows to the strong performance of US equities this year, with the S&P 500 up 13% and the Nasdaq up 18%. Additionally, expectations of heavy Treasury supply in the fourth quarter and more interest rate hikes from the Federal Reserve are pushing yields higher. Barclays estimates the Treasury will issue roughly US$225 billion of bills in October and another US$160 billion in November.
The Treasury’s focus on issuing short-term securities could tighten funding conditions if money funds move cash into higher-yielding T-bills while issuance ramps up. Analysts caution that while it’s too early to sound the alarm, higher yields could alter cash flows across short-term funding markets.
For now, the move in Treasury bill rates does not appear to signal stress in underlying funding markets. Repo markets have remained orderly, and Treasury officials have highlighted continued strong demand for bills from stablecoins and money funds, despite a slight softening. However, analysts note growing uncertainty over interest rate directions, with US rate futures pricing in one rate hike of 25 basis points this year and two more in 2027.