For more than a decade, the U.S. liquidity landscape has been dominated by low short-term interest rates, enacted to stimulate the economy at the height of the 2008 financial crisis. Throughout 2020, unprecedented pressures weighed on the markets for prime money-market funds (MMFs) and other popular vehicles for stashing corporate cash. At the height of the Covid-19 crisis in March of last year, this environment resulted in short-term rates for some U.S. dollar (USD)–denominated securities turning negative.

During that period, demand overwhelmed supply at the very short end of the Treasury/repurchase market, as concerns about credit risk surged. Between mid-March and the end of April 2020, over $1 trillion moved into government and Treasury MMFs. This abrupt increase in demand sent Treasury bill and overnight Treasury repurchase agreement (repo) rates temporarily below zero at times.

T-bill rates have since returned to positive territory, and they have stayed positive—currently ranging from the low to mid single digits—due primarily to the large volume of new issuance that has been made available to help fund the U.S. stimulus packages. In addition, government and Treasury MMFs saw net outflow activity in the second half of 2020, which reduced the demand for T-bills, helping to support yields. Somewhat lower demand from these MMFs has also helped to generally keep overnight Treasury repo rates out of negative territory.