A growing chorus of investors is urging the Federal Reserve to act to prevent negative rates taking hold in parts of the US financial markets, as a wall of cash drives down yields on short-term debt and threatens to overwhelm the $4tn money market fund industry.
The Fed is set to discuss the intensifying pressure in US money markets at its meeting this week, after record sums of cash were parked at the central bank overnight on Monday at a zero interest rate.
After more than a year of large-scale economic stimulus from the Fed and the US government, investors say, too much money is seeking a home in short-dated Treasuries and other securities. In some cases in recent weeks, that has pushed the yield on some debt into negative territory.
If pressures continue, the situation could become a “matter of the monetary system functioning”, said Gennadiy Goldberg, a rates strategist at TD Securities. “If you do get…