Invesco Global Liquidity Monthly

Money market yields changed little as long-term Treasury yields fell

A combination of risk-off sentiment, economic slowdown concerns, geopolitical tensions, and market expectations for future Federal Reserve (Fed) policy pulled longer-term yields lower in February. The yield on the US 10-year Treasury note declined steadily over the month, dropping 29-basis points to fall below the 4% mark, while the 3-month Treasury bill held essentially steady at 3.66%.¹ Investors are still expecting at least two 25-basis point Fed rate cuts this year and have more recently leaned into another 25-basis point cut in 2027.¹ The evolving Middle East conflict has already put February to bed and amplified risk-off sentiment, generally pushing the dollar, oil, and natural gas higher, and stocks lower. Interestingly, Treasury yields were initially higher, which seems counterintuitive as investors may be focused on potential inflationary impacts.

Ultrashort up in credit bias

We’re maintaining our up-in-quality bias in our active ultrashort strategies, even as credit spreads have leaked slightly higher. Short-term credit spreads widened by seven basis points in February but are still relatively tight by historical standards.²

Money market funds are driving demand for short-term US Treasury securities

A February 2026 report from the US Treasury Borrowing Advisory Committee (TBAC) highlighted that money market funds (MMFs) have become major holders of short-term Treasury securities, especially as the Fed has reduced its balance sheet through quantitative tightening. The report emphasized that MMFs’ rapid growth from 2022–2025 has increased demand at the short end of the yield curve, though future growth is expected to moderate. Additionally, payment stablecoins were seen as another potential source of short-end Treasury demand. US money market funds owned $3.37 trillion of US Treasury securities, according to Crane Data, as of January 31.³

New Treasury, Secured Overnight Financing Rate (SOFR), floating rate note (FRN) could be in the cards

TBAC also supported efforts to explore the viability of a Secured Overnight Financing Rate (SOFR) Floating Rate Note (FRN), echoing support from a majority of primary dealers. As opposed to current Treasury floaters, which are based on the 3-month US Treasury bill auction rate, this new floater benchmark would be closely tied to an overnight rate level.

Warsh confirmation is still in the wings

The timing of Kevin Warsh’s confirmation hearing for Fed Chairman hasn’t been announced, and therefore, there’s no expected confirmation date. The process is effectively paused until the Department of Justice investigation into Fed Chair Jerome Powell concludes, or Senator Thom Tillis lifts his procedural hold that prevents the nomination from advancing out of committee.