Slowdown in money-fund cash flow hits short-term Treasuries

Money-market funds have seen a significant slowdown in cash flow this year, leading to higher yields on short-term Treasury bills and potential funding issues in the markets. In the first three quarters of 2025, money fund inflows amounted to just $158 billion, a stark contrast to $823 billion in the full year of 2025 and $840 billion in 2024.

Analysts believe this reduced inflow has impacted demand for Treasury bills, driving up their yields. Sam Earl, a US rates strategist at Barclays, noted that money market funds are increasingly considering other investment options due to the slowdown in inflows. Despite this, money market funds continue to buy Treasury bills, though the pace of demand has slowed.

The spread between 3-month Treasury bill yields and 3-month Overnight Index Swaps (OIS) has widened, indicating that investors are demanding a larger premium to hold these short-term securities. Barclays predicts that the Treasury will issue approximately $225 billion of bills in October and $160 billion in November, which could further push yields higher.

If this trend continues, higher yields could create tighter funding conditions and increase financing costs for dealers and market participants. However, analysts believe that money fund inflows typically increase in the fourth quarter, so it's too early to raise concerns.