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| the one-month T-bill settled at .27 after spiking to .32 |
Money market funds invest in ultra short term securities like T-bills with average maturities under 60 days. These came under pressure yesterday, as reported here:
The one-month U.S. Treasury bill yield spiked to a multiyear high on Tuesday amid mounting concerns that the U.S. may not fulfill its payment obligations to short-term bond holders. The yield on the one-month T-bill traded as high as 0.322 percent, levels not seen since the fourth quarter of 2008, before settling at 0.273 percent, according to data from Thomson Reuters. The yield stood at 0.083 at the start of the month. ...
"If the U.S. was to default, T-bills are under real threat of not being paid... and the risk premium in the bond yields is reflective of that fear," said Evan Lucas, market strategist at IG. A large portion of demand for T-bills comes from institutional investors, such as money market funds. "Ten-year bonds [by comparison] are relatively unaffected by the shutdown and debt ceiling as coupon payments will flow over the life of the instrument and one or two missed coupons can be recuperated," he added.
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To put the fear in perspective, a 2-year Treasury yields only 0.373% this morning, so the spike in the one-month to 0.322% shows how seriously the bond market can react to the prospect of debt default.
