If money market funds (MMFs) slow their growth, Treasury bill yields may be higher than they otherwise would be—but that is a conditional effect, not a reliable forecast that yields will rise. It depends on whether funds would have used the additional cash to buy bills, how much Treasury supplies, and what markets expect the Federal Reserve to do with short-term rates.
Why slower fund growth can put upward pressure on bill yields
When an investor buys a Treasury bill, stronger demand tends to raise its price. Because a bill’s yield moves inversely to its price, less demand relative to supply can leave the price lower and the yield higher than it would have been otherwise.
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That is the basic channel: slower MMF asset growth may mean less new cash available to allocate; if funds would otherwise have bought bills, marginal demand is weaker. The key qualification is “if.” A slowdown in fund assets does not tell you where the funds would have invested the money.
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Clear out junk files and repair common Windows errorsFree Scan →Scan for outdated or missing drivers - takes under a minuteDriver Scan →MMF assets do not translate one-for-one into Treasury bill purchases
MMFs are major short-term investors, but they can allocate cash among Treasury bills, repurchase agreements (repo), and other permitted assets. Federal Reserve staff describe bills as a significant MMF investment and as close substitutes for repo lending: “Additionally, MMFs invest a significant portion of their portfolios in Treasury bills, which are close substitutes for their lending in repo markets.” (Federal Reserve staff note, August 26, 2026.)
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So a fund with less new cash might buy fewer bills, lend less in repo, or change its mix of holdings. Total MMF assets—and especially the pace at which they grow—are not the same thing as net purchases of Treasury bills.
Three forces can outweigh the flow effect
Treasury bill supply
More bills competing for investor cash can push yields up, while reduced net supply can ease that pressure. In its July 2024 report, the Federal Reserve said increased net bill supply put upward pressure on bill yields relative to the overnight reverse repo (ON RRP) offering rate. It also linked the later slowdown in the decline of ON RRP usage primarily to reduced net bill supply. That example shows why flows cannot be read apart from issuance.
Expected Federal Reserve policy rates
Bill yields are closely affected by expectations for short-term interest rates. If markets expect policy rates to fall, bill yields may decline even if MMF inflows slow; if expected rates rise, yields may face upward pressure independently of flows. The demand channel therefore describes a relative effect, all else equal—not the whole explanation for a market move.
Where funds put their cash
MMFs can redirect investment between bills, repo, and other eligible assets as relative yields and market conditions change. Slower growth matters more for bill demand when the cash that does not arrive would otherwise have gone into bills. If it would have gone elsewhere, the effect on bill demand may be smaller.
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What recent Treasury commentary says about MMF growth
The Treasury Borrowing Advisory Committee’s Q2 2026 presentation expected MMF growth to moderate after rapid expansion from 2022 through 2025, citing factors including the spread between money-market and bank deposit rates and an inverted yield curve. It said recent rate easing could potentially slow or reverse those trends, although that had not yet materialized when the presentation was prepared. The presentation also described MMFs as likely to remain a very large source of T-bill demand. These were dated committee expectations, not a guarantee of subsequent flows or issuance.
A separate Treasury Q3 2024 presentation described a historical pattern in which MMFs could receive inflows immediately before rate cuts. Managers can extend weighted average maturity (WAM), delaying the decline in fund yields and potentially making funds more attractive than alternatives such as short-term bank CDs. That presentation said MMF assets under management track a rate-cutting cycle with a 12-to-24-month lag. Treat that as the presentation’s account of a historical relationship, not a fixed timetable for every rate cycle.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Do not use repo-rate estimates as a bill-yield forecast
A 2026 Federal Reserve staff analysis estimated that $100 billion of net Treasury bill issuance was associated with a 1.3-basis-point increase in the spread between the TGCR repo rate and the interest rate on reserve balances (IORB). This was a daily regression covering September 2014 to March 2026, and its outcome was a repo-rate spread—not the yield on Treasury bills. The note also found that the negative association between changes in government MMF assets and repo spreads was only marginally significant. Neither result estimates how much a slowdown in MMF flows changes bill yields.
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Repo rates and bill yields are related through short-term funding markets, but they are different rates. A result about the TGCR–IORB spread should not be converted into a basis-point prediction for a Treasury bill.
How to interpret a slowdown in practice
To assess whether slower MMF flows are likely to matter for bills, consider the flow alongside the other conditions that determine demand and supply:
- Fund flow direction and destination: Are MMF assets growing more slowly, and are funds directing cash to bills, repo, or other assets?
- Net bill supply: Is Treasury issuance increasing or reducing the quantity of bills investors must absorb?
- Policy-rate expectations: Are expected short-term rates rising, holding steady, or falling?
- Liquidity and repo conditions: Are funds and dealers able to finance positions smoothly, or are repo rates diverging from administered rates?
A slower-flow headline alone cannot answer whether bill yields will move, or by how much. The useful question is whether marginal demand for bills is weakening relative to supply, after accounting for policy expectations and alternative destinations for cash.
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