The term “Treasury money market” can be used in two different ways. In the first sense, it refers to a type of money market security issued by the United States Treasury, the Treasury Bill or T-Bill. In the second sense, it can refer to a money market mutual fund which is based exclusively on Treasury securities. In either case, a Treasury money market is accessible to investors at all levels, from individuals to large institutions, and Treasury securities are famous for being highly reliable, although they do not always perform very well.
The money market itself is a market in which short term debt obligations are bought and sold by companies, governments, and institutions trying to manage their cashflow needs. A number of different types of securities are exchanged on the money market, but all of them share the traits of maturing within a year, and generally being highly liquid in nature. Investors can get in on the money market by buying and selling money market securities themselves, or by investing in a money market mutual fund in which funds from numerous investors are pooled to buy money market securities. The advantage of investing in the money market is that it is very low risk, although the rate of return is slower than that of the stock market.
A Treasury money market is a debt obligation issued by the United States Treasury. When the Treasury needs to raise funds, it sells T-Bills, with people paying a portion of the face value, and the Treasury later paying face value for the T-Bill. T-Bills commonly mature in three months, making them a classic short term investment. People can negotiate the price they pay for their T-Bills in a bidding process, with most people trying to lower the amount they pay to maximize their return when the Treasury buys the T-Bill back.
In the case of a Treasury money market mutual fund, the mutual fund uses funds from participants to purchase Treasury money market securities exclusively. This type of mutual fund is highly reliable, because the Treasury will make good on its debts, but the rate of return can be dismally low, especially in a poorly performing economy. Return rates as low as .01% can be seen during difficult economic times, which may not translate into very big earnings for individual investors with a limited amount of money to invest.
People who are considering an investment in a Treasury money market security, whether directly or indirectly, should evaluate the rate of return. The advantage of such securities is that because they are short term, they can be a good place to park money for a few months when other types of investments are risky. The Treasury money market will earn at least some money, rather than not producing any income at all, and investors can be confident that they will not lose their investment while they think about where they want to put their money next.
