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Asset class
Money Markets
Short-term funding instruments — where banks, corporates and governments borrow for days to a year.
The market at a glance
Money markets are finance's circulatory system: the short-term (overnight to one year) funding markets where governments, banks and corporations borrow the cash that keeps everything running. The scale is staggering — US repo alone turns over $4+ trillion daily, money-market funds hold over $6 trillion, and the T-bill stock exceeds $5 trillion.
This is deliberately the most boring market in finance — near-zero credit risk, near-zero duration — and that boringness is load-bearing: money markets are where "cash" gets its meaning. When they misbehave (2008, September 2019, March 2020), everything else stops working within days, which is why central banks now maintain standing facilities to cap rates on both sides.
Who does what
Governments roll T-bills weekly — the safe asset everyone else prices against.
Dealers and hedge funds finance securities inventories in repo — the leverage machine of fixed income.
Corporates and banks issue commercial paper and CDs for working capital and funding.
Money-market funds aggregate savers' cash and lend it into all of the above overnight — the system's great intermediary and, in crises, its great accelerant.
The conventions trap
Money markets quote the same economics three incompatible ways: discount yields (360-day, off face value), bond-equivalent yields (365-day, off price), and effective annual rates. A "5.00%" bill and a "5.00%" deposit are not the same rate. The converter below translates — a small skill that marks you as someone who's actually traded this market.
Interactive: T-bill yield converterStarter
From a bill's price and days to maturity, get all three yield conventions at once.
Discount yield (360d)
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Bond-equivalent yield
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Effective annual
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Same bill, three "rates" — always ask which convention a money-market quote uses before comparing anything.
Concepts to master
Secured vs. unsecured — repo (collateralised) vs. CP/CD (bank/corporate promise): the spread between them is the system's credit-stress gauge, the modern descendant of the LIBOR-OIS spread.
Collateral is money — Treasuries function as cash in this world; their scarcity or abundance (bills-OIS spread, repo specialness) moves everything.
Runs happen here first — maturity transformation without deposit insurance means the "safest" markets host the fastest panics. Every modern crisis chapter one is a money-market chapter.
The corridor — central banks steer these rates with floors (reverse repo) and ceilings (standing repo); reading actual prints against the corridor tells you reserve scarcity in real time.
Interactive: repo haircut & leveragePractitioner
The haircut looks like a technicality — 2% held back. Invert it and you see what it really sets: the maximum leverage of the entire financial system.
Maximum leverage
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Maximum position
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Equity impact of a 1% price move
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Price fall that wipes the equity
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Leverage = 1/haircut. A 2% haircut permits 50×; hedge-fund basis trades run on numbers like these — which is why regulators argue about haircuts, not about leverage.
Go deeper
Deep diveThe corridor: how central banks steer overnight money
Central banks don't decree the overnight rate — they fence it between a lending ceiling and a deposit floor, and watch where it trades.
A stylised policy corridor: the market rate trades between the deposit floor and the lending ceiling — mostly.
Ceiling: banks can always borrow at the lending facility. Floor: they can always park at the deposit facility.
Where in the corridor the market rate sits is the fastest read on reserve scarcity.
September 2019: the US repo rate went through the ceiling — the Fed has run standing backstops ever since.
Post-QE: abundant reserves pin rates near the floor instead.
Deep diveWhen the plumbing seizes: funding spreads
The money market's fear gauge is the spread between unsecured bank funding and the risk-free rate — a few basis points in peace, hundreds in war.
Bank funding spread through a crisis, stylised: years of nothing, then the spike that defines the era.
2008: from ~20bp to 450bp+ in weeks — banks refusing to lend to each other is the definition of a banking crisis.
Everything here is short-dated, so failure is fast: CP stops rolling, haircuts jump, money funds break ranks — within days.
Central-bank crisis playbooks start here (swap lines, CP facilities, repo backstops) before any headline rescue.
Deep diveRepo: the heart that pumps collateral
Every night trillions of cash and bonds swap places for a day at a time — the overnight repo rate is what "cash" actually earns at the margin.
Haircuts set leverage (calculator above) — and rising vol raises haircuts, forcing deleveraging, raising vol: the margin spiral of 2008 and March 2020.
Rehypothecation: one Treasury may secure several loans in a chain — efficient plumbing that turns single failures into traffic jams.
Specialness: collateral everyone needs to borrow trades below the norm — watching what goes special is watching where shorts crowd.
The basis-trade nexus: hedge funds' Treasury cash-futures positions at 50–100× repo leverage are the market's designated systemic worry.
Deep diveMilestones: cash's quiet crises
The "boring" market breaks more consequentially than any other:
1971 — the first money market fund (Reserve Fund) invents deposit-like investing outside banking.
1994 — Orange County: a municipality goes bankrupt on leveraged money-market bets.
2007 — ABCP freezes: the crisis actually starts in commercial paper, a year before Lehman.
2008 — the buck breaks; $300bn flees prime funds in a week; Treasury guarantees the industry.
2014/2023 — SEC reform rounds: floating NAVs, liquidity fees — engineering the run out of the structure.
2019 — the repo spike: 10% overnight in the world's safest funding market; the Fed builds standing facilities.
2020 — March dash-for-cash: prime funds run again; reforms round three.
2021–23 — the RRP era: $2.5tn parks at the Fed; money funds become the marginal setter of front-end rates.
"4% compounded monthly" and "4% compounded annually" are different offers. Compounding frequency turns a nominal rate into the yield you actually earn.
Effective yield (APY)
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If compounded daily
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Continuous limit
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Extra on $1,000 / year
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APY = (1 + n/m)^m − 1. The gap between nominal and effective is small at today's rates and was the entire marketing industry of banking's small print for decades.
Deep diveWho runs this market
Central banks: the Fed and ECB set the corridor and run the standing facilities that cap and floor overnight rates — this is the market they steer most directly.
Tri-party agents: BNY Mellon in the US and Euroclear/Clearstream in Europe hold and value repo collateral, so the two sides never have to move securities themselves.
Clearing: DTCC's FICC clears a growing share of US repo — a structural shift regulators have pushed since 2019.
Money fund complexes: Fidelity, Vanguard, BlackRock, JPMorgan and Federated manage trillions and are the marginal buyer of bills and repo.
Issuers: treasuries via bill auctions, banks via certificates of deposit, corporates via commercial paper — the supply side of everyone's cash.
Where the data lives: the New York Fed publishes SOFR and its volume distribution daily; the Treasury publishes the auction calendar; the SEC's money-fund filings show exactly what every fund holds.
Deep diveNumbers & conventions worth memorising
Item
Convention
Day count
Actual/360 for most money-market instruments — a "5%" rate earns slightly more than 5% over a year
T-bills
Sold at a discount, no coupon; the quoted discount rate is lower than the true yield
Repo haircuts
Around 2% on government collateral in calm markets; wider on anything else and wider still in stress
Settlement
Same day or next day — this market's whole point is immediacy
Fund limits
Weighted average maturity capped at 60 days, weighted average life at 120 days
Auction cycle
US bills auction weekly on a published calendar; results are public within minutes
Quarter-ends
Balance-sheet reporting dates distort repo and FX-swap pricing predictably — a sawtooth in the data
The question this market answers, and no other does: what does genuinely safe, genuinely liquid cash earn right now? Every other yield in the atlas is that number plus compensation for something.
Analysis
AnalysisThe analyst's checklist
What secures it, and at what haircut? Secured and unsecured are different instruments wearing similar yields.
Who is the counterparty, and what happens if they fail overnight? This market's tenor means failure is always sudden.
For funds: WAM, WAL and the weekly liquid asset buffer. Three numbers that describe the run resistance of any money fund.
Which yield convention? Discount rate, bond-equivalent yield and effective yield are three different numbers for one instrument.
Where does it sit against the policy corridor? A rate far from the floor or ceiling is telling you something about scarcity.
What are the redemption mechanics under stress? Fees, gates and notice periods matter only on the day they are used.
AnalysisRed flags
Anything described as "cash-like" that is not cash — the phrase has preceded most liquidity accidents in this market.
A few extra basis points for a large step down in liquidity: the trade-off is almost never worth it at money-market tenors.
Assuming intraday liquidity in a crisis — March 2020 taught even Treasury desks otherwise.
Rehypothecation chains you cannot see: ask how many times your collateral has been reused.
Yield that comes from credit rather than rates — prime funds are not government funds, whatever the label suggests.
Sponsor support treated as guaranteed: it is voluntary, reputational, and historically absent when most needed.
Market mapWho is on the other side of your trade
Prices are made by participants with different jobs, different constraints and different reasons to trade. Knowing whose need you are meeting explains more about a market than any indicator.
Money market funds are the largest cash pools and the most rule-bound. What they may buy is set by regulation, so their demand is a legal fact rather than a preference.
Bank treasuries fund the balance sheet daily and are the marginal borrower — their bid sets the rate when reserves are scarce.
Central banks define the corridor and, through standing facilities, decide whether a rate spike is possible at all.
Hedge funds finance positions through repo, which makes them the largest source of demand for leverage and the first to be cut in stress.
Corporates park operating cash and are the least sophisticated and largest single group — which is why the deposit franchise is so valuable.
Costly mistakesThe five mistakes that cost the most here
Not a list of ways to be clever — a list of the errors that recur, why each one is structural rather than careless, and which tool on this site settles it.
Treating cash as riskless. It is nominally safe and, at any inflation rate, a certain loss of purchasing power. The risk moved, it did not disappear.
Missing the deposit insurance limit. Cover is per institution, not per brand or account — the coverage tool settles it in seconds.
Comparing quoted rates with different compounding. Convert everything to an effective annual rate first; the converter takes one line.
Assuming a money market fund is a deposit. It is a fund with a market-linked value and no guarantee, however stable the price looks.
Chasing the top of a rate table. The highest advertised rate is frequently an introductory one on a new account, funded by the back book everyone else is on.
Test yourself: five questions
Five quick questions on this asset class — checked entirely on your device, nothing stored or sent. Wrong answers come with explanations; the deep dives above hold every answer. For education only.