The Federal Reserve did not raise short-term interest rates in the first quarter of 2016. The central bank kept the fed funds target rate in the 0.25% to 0.50% range that it established when it raised rates in December 2015 for the first time in nine years. Despite that initial rate increase, yields for money market investors remain low.
The Prime Reserve Fund returned 0.00% in the quarter compared with 0.01% for the Lipper Money Market Funds Average. For the 12 months ended March 31, 2016, the fund returned 0.01% versus 0.03% for the Lipper Money Market Funds Average. The fund's average annual total returns were 0.01%, 0.01%, and 1.11% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.53% as of its fiscal year ended May 31, 2015. The fund's seven-day simple annualized yield as of March 31, 2016, was 0.0100%. Its seven-day simple annualized yield without waiver was −0.0700%.* The fund's yield more closely reflects its current earnings than the total return.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance,
which cannot guarantee future results. Return and yield will vary.
You could lose money by investing in the Fund.
Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee
it will do so. An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The Fund's
sponsor has no legal obligation to provide financial support to the Fund, and
you should not expect that the sponsor will provide financial support to the
Fund at any time.
* In an effort to maintain a zero or positive net yield for the fund, T. Rowe Price has voluntarily waived all or a portion of the management fee it is entitled to receive from the fund. A fee waiver has the effect of increasing the fund's net yield. The 7-day yield without waiver represents what the yield would have been if we were not waiving our management fee. This voluntary waiver is in addition to any contractual expense ratio limitation in effect for the fund and may be amended or terminated at any time without prior notice. Please see the prospectus for more details.
The Treasury bill market remains somewhat bifurcated, with yields among shorter maturities suppressed by strong demand for T-bills while yields among longer maturities have risen somewhat. As many money funds revise their investment mandates to reflect all-Treasury strategies, we expect short T-bill rates to remain lower than other taxable money market rates. In the municipal money market, the dominant factor suppressing yields remains persistently low supply. Historically low interest rates have encouraged many municipal issuers to borrow for longer periods to lock in favorable financing costs, leading to less short-term issuance. At the end of March, close to half of the fund was invested in Treasuries and other U.S. government and agency securities. Approximately 33% of the portfolio was allocated to commercial paper and medium-term notes, while municipal securities represented about 12%. The remainder of the fund was invested primarily in certificates of deposit and repurchase agreements.
A rising fed funds rate should eventually translate into higher income for money market investors, but Fed officials are likely to be cautious as they pursue monetary policy normalization. We expect them to take some time assessing each rate hike's impact on financial markets and economic conditions before acting again. In any event, principal stability and liquidity remain our highest priorities, so we will remain diligent in monitoring the price pressures that higher rates may bring.