Money Market Yield
Candlefocus EditorMoney market yields are typically much lower than the returns of other investments, such as stocks and bonds. This is because of the short duration of the instruments and their relative safety, meaning that an investor is likely to get his or her money back, plus an expected return, when investing in these instruments. As a result, money market yields tend to have an inverse relationship with interest rates. When interest rates decrease, money market yields tend to decrease as well.
The money market yield can be impacted by liquidity, supply and demand, and investor sentiment. Liquidity refers to the level of funds available in the market to finance investments. Higher levels of liquidity usually result in higher yields, while lower levels of liquidity usually create lower investors yields. Supply and demand can also affect money market yields. If the demand for money market instruments is high, then expect yields to increase. On the contrary, if the supply outstrips the demand, then there is downward pressure on the yields of these instruments.
The investor sentiment in the market also has an impact on the money market yield. Investors may be attracted to money market type investments due to their relative safety. Alternatively, when market sentiment is pessimistic, investors may choose to stay away from money market instruments and this will push the money market yields lower.
In a nutshell, when considering whether to invest in money market instruments, it is important for investors to know the expected return on their investment. The money market yield is the return that investors can expect when investing in money market instruments. Yields tend to move inversely with interest rates, and can be impacted by factors such as liquidity, supply and demand, and investor sentiment. The higher the money market yield, the higher the return for money market investors.