“Money of zero maturity” (MZM) comprises currency, checkable deposits, instant-access savings accounts and money market mutual funds. The measure has been surging in recent weeks, with growth now running at over 12% on a year ago and 18% annualised over the last three months.

The pick-up partly reflects the woes of the asset-backed commercial paper market. The volume of ABCP outstanding has fallen by $256 billion over the last nine weeks. The cash withdrawn appears to have flowed mainly into money market mutual funds, included in MZM. As a “flight to safety”, this does not appear entirely logical since – unlike bank deposits – money funds are not guaranteed by the Federal Deposit Insurance Corporation and the funds themselves invest heavily in commercial paper, including ABCP. (Total CP holdings amounted to 27% of money fund assets at mid-year.)

While this ABCP effect could be distorting MZM, the recent pick-up is flashing a warning signal for the Treasury market. As the chart shows, swings in the three-month growth rate tend to lead movements in 10-year Treasury yields.