US Rates Watch: MMF update: Tax date and equity flows

Research evidence excerpt

US Rates Watch: MMF update: Tax date and equity flows

has since recovered and is now $105b above its March peak. FOMC: Federal Open Market Committee

GC: General Collateral

We are not surprised by the slow start to the year. Inflows typically pick up more Gov't: Government

meaningfully after the April tax date, and that pattern appears to be emerging in recent Inst’l: institutional

weeks. We expect MMF inflows to rise in 2H ’26 especially with money market rates MMF: Money market fund

around current levels and the Fed on hold (Exhibit 3, Exhibit 4). ME: Month-end

MMF WAM divergence – gov’t funds shorten, prime extend ONQT: RRP:QuantitativeOvernighttighteningreverse repo facility

MMF WAMs little changed YTD for gov’t while prime WAM extended ~6 days (Exhibit 5). QTD: Quarter to date

The divergence in WAM is likely driven by differences in fund-type management RR: Reverse repo

responses. The uncertainty around the Fed’s path has likely driven gov’t MMFs to stay TD: Time deposit

short to preserve optionality with cash largely moving into repo and FRNs. Prime WAM UST: US Treasury

extension is consistent with a large amount of CP issuance YTD which some prime funds WAL: Weighted average life

are likely taking advantage of to pick up some credit spread above gov’t paper. WAMs: Weighted average maturity

Yields have risen off recent lows with Fed repricing WLA:YTD: YearWeeklyto dateliquid assets

MMF yields have risen 3-4bps from their May trough as the market shifted from pricing BNY- Bank of New York

cuts to hikes. BofA base case is for Fed to remain on hold through YE’26, thought the

market now prices in ~20bp of a hike. According to Crane data, the 7d simple yield is

currently 3.32% for gov’t funds and 3.40% for prime, for a spread of 8bps (Exhibit 7).