US Treasury bill yields have risen significantly as investor cash flowing into money-market funds has slowed sharply this year. According to The Economic Times, money-market fund inflows totalled about $158 billion in the first three quarters of the year, sharply below the $823 billion recorded for all of 2025 and $840 billion in 2024. Money-market fund managers typically shorten the maturity of their portfolios when they expect rates to rise, with the weighted average maturity falling to 36 days last month from 42 days in May. Treasury bill holdings rose about 4% from the end of 2025 through August, compared with an 18% increase during all of last year, as reported by the Investment Company Institute.
The combination of reduced money-market fund demand and increased Treasury supply is creating significant pressure on short-term yields. As reported by The Economic Times, Treasury bill spreads have widened, with the six-month Treasury bill spread standing at 11.3 basis points on Monday, after reaching 12.5 basis points last week, its highest level since April 2025. The spread indicates that investors are seeking additional compensation to hold Treasury bills relative to the market's expected path for short-term Federal Reserve policy. Heavier Treasury issuance and rate uncertainty could add further pressure to the market, though funding markets remain orderly for now.
Fed rate expectations eased following the disappointing jobs data, with markets no longer pricing in a rate hike this month compared to traders who were last pricing in a roughly 80% probability of unchanged rates. As reported by Reuters, expectations for a December hike fluctuated around an 86% probability, according to LSEG data. Robert Bernstone, head of trading at SummitTX Capital, noted that while the news was okay in that it means the economy isn't roaring, there remains concern over the economy and inflation, leading to cautious optimism among investors.
For the week, 2-year yields were down 3.3 basis points for their first weekly decline since the second week in August. According to Reuters, benchmark 10-year yields were on track for a 10-basis-point increase for the week, which would mark their fifth consecutive weekly gain. 30-year bond yields were poised for a weekly gain of 13.2 basis points in their second advance in a row. The yield on benchmark US 10-year notes had dropped 7 basis points to 5.175% on Friday, extending the retreat from this week's peak above 5.34%, which was its highest level since 2002.
Molly Brooks, US rates strategist for TD Securities, pointed to fluctuations in Fed policy expectations during the session and profit taking ahead of the weekend as factors in the yield reversal. As reported by Reuters, she noted that the report decreases the worry about potential labor market re-acceleration and makes the Fed's focus more on inflation mandate. Carol Schleif, chief market strategist at BMO Private Wealth, noted seasonal factors including late Labor Day holiday and later-than-usual start of new school year, suggesting that blending last month's above average and this month's softer data provides more insightful answers. The strength of US equities has also contributed to weaker money-market fund inflows, with the S&P 500 gaining about 13% this year and the Nasdaq up roughly 18%, reducing investors' incentive to hold cash.
