Money markets are not benefiting from rising interest rates

By Sober Look

While yields on shorter maturity treasury notes have risen over the past month, money markets yields remain suppressed. The three-month treasury bills still hover around 5 basis points. The uncertainty about the Fed’s “taper” is spooking investors out of “risky” assets and into bills and other money markets products. This higher demand for bills is holding down short-term rates near zero even as longer term rates rise.

This dynamic of course is not limited to the two maturities in the chart above. The whole front end of the curve has steepened materially without much impact on bill rates.

Once again, savers are punished – they either have to take risk (such as rate or credit risk) or live with 5bp (or less). Money markets simply have not benefited from higher interest rates.