Market minute: Concern over government shutdown showing up in money markets

REAL ECONOMY BLOG | March 10, 2025

Authored by RSM US LLP

There is a kink developing in the U.S. money-market curve, with 4.29% one-month T-bill rates now below the 4.30% three-month rate and on the verge of breaching the Federal Reserve’s repo-facility award rate of 4.25%.

This kink is most likely a byproduct of the rising concern over the potential of a government shutdown. Congress must act by midnight on March 14 to avoid a shutdown.

That standoff will be followed in the months ahead by another potential showdown over raising the nation’s debt ceiling.

Investors are looking at the risk of not getting paid, with the demand for bills maturing in one month offering a greater dose of safety relative to bills expiring later in the year.

As such, there is higher demand for one-month bills, which is driving the one-month rate lower. At the same time, there is a lower demand for three-month bills, with investors looking for higher rates of return to compensate for the risk of not getting paid on time.

Two years ago, the threats of a government shutdown caused similar disruptions.

This can be seen in the wild swings in rates for one-month bills beginning in March 2023 that accompanied an increase in money-market funds parking their assets in the safety of the Fed’s overnight repo facility.