J.​P. Morgan Securities' latest "Taxable money market fund holdings update" tells us, "Prime AuM increased $​9bn during January, led by institutional MMFs which grew by$​11bn. Government and Treasury fund AuM fell $​54bn. Prime AuM now stands at $​383bn while government and Treasury fund AuM registers $​2.​1tn. The yield spread between prime and government funds widened out by 2bp to 32bp month-​over-​month. Prime and government MMFs currently offer net yields of 48bp and 16bp, respectively. Prime exposures to banks rebounded after year-​end, increasing by $​63bn. Time deposits grew $​30bn, while CP/​CD grew $​25bn.... Offsetting the upturn in bank debt holdings was a $​43bn reduction in RRP usage.... Additionally, holdings of Treasuries fell $​7bn. The decline in Treasuries was concurrent with a $​40bn reduction of bill supply and general tightening of short-​term Treasury and agency yields." It adds, "Institutional funds tend to run higher liquidity levels than retail MMFs.... Furthermore, retail funds appear to utilize a barbell strategy where they invest in liquid assets such as Treasuries (​Exhibit 4) and reach out on the curve past 90 days to supplement portfolio yields.... Government/​agency money funds are major buyers in the market for agency discount notes. Of the $​1.​5tn in AuM in these funds, close to $​400bn is allocated to discos.... Additionally, government/​agency MMFs own a staggering 74% of the market for the three largest agencies."

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