Joy Wiltermuth

Wed, Jun 11, 2025, 6:26 PM4 min read

The booming money-market-fund industry could soon face a shortage of its favorite assets to buy.

The supply of Treasury bills, a kind of short-term debt used to fund the federal government, has been shrinking since January, when the U.S. hit its $36.1 trillion debt limit.

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That matters because investors poured more than $7 trillion into U.S. money-market funds. The industry ranks as the second-largest group of investors in the $6 trillion T-bill sector, behind the category of households and others.

T-bills are considered a cash equivalent because they tend to be liquid and mature in a year or less. But as the supply dwindles, competition for fewer assets increases, which can lead to shrinking yields.

“Cutbacks so far have been manageable,” Deborah Cunningham, chief investment officer for global liquidity markets at Federated Hermes, told MarketWatch. Yet she expects it to become more problematic the longer the debt-ceiling issue drags out.

After the U.S. debt limit was reached in January, the Treasury began running down the supply of outstanding bills. Barclays analysts estimate the sector shrunk by $375 billion through May.

See: Trump’s Treasury is running out of money fast. Why the ‘X date’ matters for markets.

The yield on the 3-month Treasury bill BX:TMUBMUSD03M was at 4.35% on Wednesday, down from closer to 5.4% a year ago, according to FactSet data. The drop in yield largely traced the series of Federal Reserve rate cuts last year.

While the bond market has been hyperfocused on the U.S. deficit, House Republicans passed a massive tax and spending bill in May that would add $4 trillion to the nation’s debt limit, providing the U.S. more runway to borrow.

The plan would add $2.4 trillion to the U.S. deficit over the next decade, with another $551 billion in debt-servicing costs over that time frame, according to the Congressional Budget Office. The Senate now must weigh in on the bill.

As those negotiations continue, the supply of T-bills will keep shrinking and the U.S. will draw closer to its “X date,” the estimated point at which the Treasury will have exhausted all its emergency cash-management strategies and won’t be able to pay all of its bills on time.