After interest rates fall, money market fund yields do not fall right away. Yield changes usually lag by 1-3 months, depending on the maturity schedule and reinvestment cycle of the fund's underlying assets.
Where the lag comes from
Money market funds hold short-term assets such as short-term treasury bills and bank certificates of deposit (CDs). Their yields are locked in when the assets are purchased. When market rates fall, the existing assets already on the books still earn interest at the old higher rate. Only when those assets gradually mature and the fund reinvests the money into lower-yielding assets does the fund's overall yield slowly decline.
This lag effect is the main reason money market fund yields take time to catch up with market interest rates. In 2005, when central bank bill rates rose sharply in a short period, money market funds were also held back by the same lag effect. Yields could only catch up slowly after old securities matured or new money entered the funds.
How yields change after a rate cut
In a money market fund's asset mix, the remaining maturity is usually no more than 120 days. That means the fund's total assets turn over about every 3-4 months.
Historical data shows this pattern. During the 2019 rate-cut cycle, the average yield on U.S. money market funds fell from 2.4% to 1.5%, a drop of nearly 40%. The whole process moved down step by step. The change did not happen all at once; it appeared gradually as assets matured and were reinvested.
How on-chain tokenized money market funds behave
Tokenized money market funds follow the same yield-change logic, but they offer greater transparency and faster feedback. Their underlying assets still follow traditional financial market settlement cycles. Their tokenized shares promise more redemption flexibility, but the underlying assets' yield behavior is unchanged.
For products like USYC, net asset value growth reflects realized returns. In the early stage of a rate cut, the yield number you see may still be old. You need to wait for the underlying holdings to roll over once before the new rate level is fully reflected.
What to do next
After rate cuts begin, money market fund yields usually need 1-3 months to fully reflect the new rate level. Look at the maturity structure of the short-term treasury bills and bank CDs held by the fund. Funds with shorter remaining maturity will follow rate cuts faster. During a rate-cut cycle, money market fund yields almost certainly move lower. Holding them is more about keeping liquidity than earning returns.
