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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