Money Market

Money Market Instruments ## Overview Money market instruments are short-term debt securities with maturities of one year or less (most under 270 days). They are designed for safety and liquidity rather than return, and they serve as the "cash equivalents" of the institutional investment world. They typically trade in very large denominations and are used by corporations, banks, governments, and sophisticated investors to manage short-term cash needs. The money market is not a physical exchange but an over-the-counter (OTC) market where institutions trade directly with each other or through dealers. Yields on money market instruments tend to track closely with the federal funds rate set by the Federal Open Market Committee (FOMC). --- ## Treasury Bills — The Benchmark T-Bills (covered in depth in the U.S. Government Securities section) serve as the risk-free benchmark for the entire money market. Because they are backed by the full faith and credit of the U.S. government and mature in under one year, all other money market instruments are priced relative to T-Bills — they must offer a yield premium to compensate for additional credit, liquidity, or regulatory risk. If a banker's acceptance yields 15 basis points above T-Bills, that spread represents the incremental risk investors perceive in non-government paper. --- ## Commercial Paper Commercial paper is unsecured short-term debt issued by corporations to fund day-to-day operating needs (payroll, accounts receivable, inventory). It is essentially an IOU from a corporation. Key characteristics: - Maturity: Maximum 270 days — this threshold is critical because securities with maturities under 270 days are exempt from SEC registration under the Securities Act of 1933. Corporations issue commercial paper specifically to avoid the time and cost of SEC…