Money Market [MM]

The money market encompasses trading in short-term debt instruments with maturities of one year or less, providing liquidity for financial systems worldwide. Key instruments include Treasury bills, commercial paper, certificates of deposit, repo agreements, and banker’s acceptances. For example, a corporation needing cash for 30 days might issue commercial paper, while a money market fund purchases it seeking safe, liquid investments. Money markets facilitate efficient cash management for corporations, governments, and financial institutions. Interest rates in money markets closely track central bank policy rates. Money market funds, holding over $5 trillion in assets, offer investors near-cash returns with minimal risk. The 2008 crisis revealed vulnerabilities when the Reserve Primary Fund ‘broke the buck’ (fell below $1 NAV) after holding Lehman Brothers commercial paper. This led to reforms including floating NAVs for institutional funds and liquidity fees/gates. Money markets remain essential for short-term funding and cash management.