What kind of impact do interest rates have on per-share market values?
Usually small and temporary. Because the market value of fixed-income securities varies inversely with interest rates, an increase in interest rates can reduce (and a decline in interest rates can increase) the market values of the securities that a money market fund holds. However, such price effects are typically very small for the kinds of short-term, high-quality securities money market funds hold. Events in 2004 illustrate this: in July, the Federal Reserve began tightening monetary policy, causing short-term interest rates to rise. Consequently, the market prices of short-term Treasury securities fell. In particular, the price of a 3-month Treasury bill issued on July 6, 2004, fell below its amortized cost value for most of the security’s life. Nevertheless, the maximum deviation of the market value of the security from its amortized cost was small, only 3 basis points on August 2, 2004. The deviation shrank as the Treasury bill neared its final maturity, at which time its market
