The average maturity of money market funds and Eurodollar futures by Glenn Mancher
The high interest rate environment of the early 1980s resulted in great swings in the average maturity of money market funds (Figure 1). As the yield on short-term instruments dropped from 14-17% to 8%,
fund managers extended the average maturity to a high of 51 days in summer 1980. At this point, a period of four to five months of shortening followed as the average maturity was reduced to a record low of 23 days in December 1980 through January 1981 (needless to say, rates had rocketed back up to 15-20%). From this low of 23 days in January 1981, a long-term trend of increasing average maturity began. By looking at Figure I, it is apparent that within this long-term trend of rising average maturities beginning in 1981, there were intermediate-term periods when fund managers shortened maturities.
For the first half of 1982, Eurodollar futures moved from 83.50 to just above 86.00 while the average maturity of money market funds held in a narrow 30- to 33-day range. Closer examination of both charts indicates that on dips to 30 days in the average maturity, Eurodollars tended to rally. However, when maturities were extended to 32-33 days, Eurodollars moved back toward the bottom of the range. The 30-day level on the average maturity chart was acting as support, while the 32- to 33-day area was resistance from January to July 1982. Then, in mid- to late July, fund managers extended maturities to 34 and 36 days in anticipation of lower interest rates. This extension preceded the breakout above 86.00 (14.00%) for Eurodollars in August.