Reference no: EM13216674
Money market securities are debt securities that have a one year or less maturity and are issued by the Treasury, corporations, and financial institutions looking for short-term financing (Madura, 2013). Treasury issues them to finance the budget deficit, corporations issue them to support existing operations or to finance the expansion of operations, and financial institutions issue them to raise funds for lending to households and corporations (Madura, 2013). The funds are to finance household purchases such as cars and homes and corporations use the funds to invest in machinery and buildings (Madura, 2013). Popular money market securities consist of Treasury Bills (T-Bills), Commercial Paper, Negotiable Certificates of Deposits (NCDs), Repurchase Agreements or repo, Federal Funds, and Bankers Acceptances (Madura, 2013). All securities carry a different degree of credit risk and a different degree of liquidity making quoted yields vary (Madura, 2013). All prices change according to shifts in required rate of return which fluctuates in accordance with interest rate movements or credit risk (Madura, 2013).
Using Treasury Bills as an example the following are change in rates since the beginning of the year:
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Month ending
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26 week rate
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52 week rate
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January 31
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.06
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.09
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March 31
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.07
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.12
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|
June 30
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.07
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.11
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Source: (Daily Treasury Bill Rates Data)
As you the chart shows there has not been much change in rates since the beginning of the year. Since the rates on securities change in accordance with shifts in interest rates this would make sense since interest rates have not changes much either. This being true and maintaining that will not be any major events that affect the risk of these securities and that of my prior statements that interest rates should not expect to change much in the future, it would be reasonable to expect that the money market interest rates will stay steady as well.
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