The U.S. economy grew at 1.8% in the first half of 2013, and the effects of federal sequestration continued to weigh on growth in the third quarter. To support the economy, the Federal Reserve kept its fed funds target rate in the 0.00% to 0.25% range and unexpectedly announced in September that it would maintain the current pace of its monthly asset purchases. However, we expect the Fed will begin tapering by year-end and modest rate hikes at some point in mid-2015. The Fed sees the target fed funds rate at 1% at the end of 2015 and expects it to be at 2% a year later. This gradual removal of accommodation should allow money fund yields to rise, a welcome development for shareholders.
The U.S. Treasury Money Fund returned 0.00% in the quarter compared with 0.00% for the Lipper U.S. Treasury Money Market Funds Average. For the 12 months ended September 30, 2013, the fund returned 0.01% versus 0.01% for the Lipper U.S. Treasury Money Market Funds Average. The fund's average annual total returns were 0.01%, 0.05%, and 1.33% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.44% as of its fiscal year ended May 31, 2013. The fund's seven-day simple annualized yield as of September 30, 2013, was 0.01%. Its seven-day simple annualized yield without waiver was −0.37%.* 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.
An investment in money market funds is not insured or guaranteed by the FDIC
or any other government agency. Although the fund seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
*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.
Continued demand for the safety and liquidity of Treasuries, along with the Fed's asset purchase program, continued to suppress Treasury rates. Given the various sources of investor demand for Treasury bills, which remain anchored by a 0% monetary policy, it is surprising that T-bills produce any yield at all. Treasury bill supply has continued to decline in recent months. The buoyant demand and reduced supply have produced the low yields in the short-term Treasury market.
Over the longer term, a reversal in Fed monetary policy, such as raising its fed funds target rate, will be needed to push Treasury money market rates higher. In the near term, however, money markets will remain anchored by the fed funds target range, which we don't expect to change until 2015. Therefore, we expect yields to remain range-bound for the foreseeable future. Given this outlook, we continue to maintain a target-weighted average maturity at the long end of our permissible range. As always, we are committed to managing a high-quality, diversified portfolio focused on liquidity and stability of principal.