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When money market fund (MMF) inflows slow, Treasury bill yields may be higher than they otherwise would be—if the funds would have used that new cash to buy bills. Less marginal demand can mean lower bill prices and, in turn, higher yields. But slower flows do not guarantee that yields will rise: bill supply, expected Federal Reserve policy rates, and where funds direct their cash can outweigh the effect.
Why slower fund flows can put upward pressure on bill yields
A simplified chain explains the direction: slower growth in MMF assets can mean less new cash to invest; if funds would otherwise buy Treasury bills, demand at the margin is weaker. With supply and other conditions unchanged, weaker demand can reduce bill prices. Because bill prices and yields move in opposite directions, the yield would be higher than in the stronger-flow scenario.
The key qualification is that MMF asset growth is not the same as Treasury bill purchases. Funds can invest in Treasury bills, lend cash in repo markets, and hold other permitted assets. Federal Reserve staff describe bills as a significant MMF investment and as close substitutes for repo lending: the Fed staff note published August 26, 2026 states, “Additionally, MMFs invest a significant portion of their portfolios in Treasury bills, which are close substitutes for their lending in repo markets.” A slowdown in fund growth therefore does not reveal by itself how much bill demand has changed.
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Treasury bill supply
More bills for investors to absorb can push yields up; reduced net supply can ease that pressure. In its July 2024 report, the Federal Reserve linked increased net Treasury bill supply with upward pressure on bill yields relative to the overnight reverse repurchase agreement (ON RRP) offering rate. The report also said the later slowing in ON RRP usage declines was primarily associated with reduced net bill supply. These observations show why bill yields and fund flows should not be read in isolation.
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The Federal Reserve’s July 2024 Monetary Policy Report also described MMF assets under management (AUM) trending up as funds shifted toward higher-yielding alternatives, including bills and private repo. The change in ON RRP use is a separate market indicator, not a direct measure of bill yields or MMF bill purchases.
Expected Federal Reserve policy rates
Bill yields reflect expectations about short-term interest rates as well as current supply and demand. If expected policy rates are moving down, bill yields may fall even while slower MMF inflows exert upward pressure relative to a stronger-flow counterfactual. If rate expectations rise, they can reinforce upward pressure. A flow slowdown alone cannot determine the net move.
Where funds send their cash
Funds can direct cash to bills, repo, or other eligible holdings. If inflows slow but funds continue buying bills at a similar pace by reallocating from other investments, the effect on bill demand may be limited. Conversely, a shift away from bills can weaken demand even if total MMF assets remain substantial.
Why the rate cycle matters
Fund flows can respond to the relative appeal of money-market funds and alternatives such as bank deposits and certificates of deposit. Treasury’s Q2 2026 Borrowing Advisory Committee (TBAC) presentation expected MMF growth to moderate after rapid expansion from 2022 through 2025. It cited the spread between money-market and bank deposit rates and an inverted yield curve as contributing factors, while saying recent rate easing could potentially slow or reverse those trends; that change had not yet materialized when the presentation was prepared. The committee also characterized MMFs as likely to remain a very large source of T-bill demand. Those statements were a dated outlook, not a guarantee of later flows. See Treasury’s Q2 2026 TBAC presentation.
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A separate historical observation from Treasury’s Q3 2024 TBAC presentation was that MMFs can receive inflows immediately before rate cuts. Managers may extend weighted average maturity (WAM), which can delay declines in fund yields and make funds more attractive than alternatives such as short-term bank CDs. The presentation characterized MMF AUM as tracking a rate-cutting cycle with a 12-to-24-month lag. That is the committee’s description of the relationship, not a universal timetable for every rate cycle. See Treasury’s Q3 2024 TBAC presentation.
What the available estimates do—and do not—show
A Federal Reserve staff analysis published in 2026 reported that $100 billion of net Treasury bill issuance was associated with a 1.3-basis-point increase in the spread between the Tri-Party General Collateral Rate (TGCR) and interest on reserve balances (IORB). That estimate came from a daily regression covering September 2014 through March 2026. It concerns a repo-rate spread, not the response of Treasury bill yields, and it is not an estimate of the effect of slower MMF flows. The same analysis said the negative association between changes in government MMF AUM and repo spreads was only marginally significant. Neither result should be used as a bill-yield forecast. Read the Federal Reserve staff analysis.
The reviewed official sources do not provide a directly identified estimate of how much Treasury bill yields change solely because MMF flows slow. The defensible conclusion is directional and conditional: weaker MMF demand for bills can put yields higher than otherwise, but it does not establish an absolute rise or a specific basis-point move.
How to assess a slowdown in practice
To judge whether slower MMF flows are likely to matter for bills, consider these factors together:
- Flow direction and destination: Is MMF AUM growing more slowly, and are funds buying bills, lending in repo, or shifting elsewhere?
- Net bill supply: Is Treasury issuance adding bills to private portfolios, or is net supply declining?
- Policy-rate expectations: Are markets expecting short-term rates to rise, hold, or fall?
- Liquidity and repo conditions: Are funds and dealers able to finance transactions smoothly, and are repo rates diverging from administered rates?
These checks help separate a plausible demand channel from a yield forecast. In particular, do not treat repo rates, the ON RRP offering rate, and Treasury bill yields as interchangeable: they are related short-term market rates, but they measure different instruments and conditions.
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