J.​P. Morgan'​s latest "US Short Duration Update features a "May MMF Holdings Update, which tells us, "As we'​ve discussed in recent research, since the regional bank failures in March drove a flight to safety into government MMFs, MMFs have continued to experience inflows. Though the bulk of inflows occurred in March ... both institutional and retail government MMF AUMs have risen considerably since then, increasing by about $​69bn and $​68bn, respectively, during May alone.... We suspect that inflows will likely continue, particularly as MMF yields are noticeably higher relative to other cash alternatives. Meanwhile, retail prime MMF AUMs have been gradually picking up since their March dip as retail investors have sought to benefit from rising interest rates, though these inflows haven'​t matched the pace of those prior to the banking crisis." They write, "In May, government MMF portfolios shifted considerably more into Treasury repo (+$​250bn ex-​Fed) and away from ON RRP (-$​136bn) and T-​bills (-$​77bn).... Prime MMF portfolios also saw a slight decline in ON RRP (-$​34bn) and an increase in repo holdings (+$​28bn ex-​Fed), though to a lesser degree.... With regard to MMFs' month-​over-​month repo pickup, they primarily increased holdings of FICC sponsored repo (+$​104bn) and US repo (+$​72bn), followed by Canadian (+$​39bn), UK (+$​26bn), and French (+$​21bn) repo.... These portfolio shifts came as the TGCR-​RRP spread rose to 0bp at month-​end, as the anticipated June debt ceiling X-​date still loomed, and as funds continued to extend their portfolios in anticipation of a nearing end to the hiking cycle. With regards to extension, government and prime MMFs alike increased WAMs by around 3.​5 days month over month as of May month-​end." The piece adds, "​As we saw, MMFs' ON RRP usage fell somewhat in May, though uptake at the facility remains elevated. Of the $​2255bn balance at the ON RRP at May month-​end, government MMFs made up about 76%, and prime MMFs about 14%, totaling $​2036bn in MMF RRP usage.... The facility has remained an attractive place for MMFs to park cash, but as front-​end supply expands in 2H23 and more clarity sets in on the hiking cycle'​s end, we'​d expect RRP balances to continue to diminish."

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