Why are money market yields so low, especially Treasury bill (T-bill) yields?
The low money market yields result from investors’ and the Federal Reserve’s (the Fed’s) response to the credit crisis and recession. The combination of the following factors-intense demand for the shortest-maturity, most liquid, highest credit-quality securities, and a record-low Fed interest rate target-produced extremely low money market yields for instruments that get or set their rates primarily from Treasury market benchmarks or from the Fed. “Risk aversion” (a.k.a. fear) has been a dominant theme in the financial markets, particularly since October 2008, when it became clear that the economic downturn and financial sector failures in the U.S. were rapidly expanding globally. “Flights to safety” typically occur under these conditions. Investors seek what they think are the safest, most liquid investments available. To most, U.S. T-bills (with their U.S. government backing and guarantee of repayment) still fit that description. Demand for T-bills spiked tremendously, particularly
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