NEW YORK (Reuters) -U.S. short-term funding costs rose slightly this week due to tax-related outflows and demand for cash to finance the Treasury's debt issuance, but market participants said there was no indication of broader liquidity issues.

Monday was the U.S. federal government deadline for income tax returns, which is generally associated with a drop in financial sector liquidity as individuals draw down cash from bank deposits and money market funds to pay their taxes.

The Secured Overnight Financing Rate (SOFR), the main measure of the cost of borrowing cash overnight collateralized by Treasury securities, was up only one basis point on Monday, at 5.32%, Federal Reserve data showed on Tuesday.

Another gauge measuring the borrowing costs on loans between banks and other participants in the U.S. repurchase agreement (repo) market showed a showed a larger, though still not dramatic, uptick. The DTCC GCF Treasury Repo Index, which tracks the average daily interest rate paid for the most-traded General Collateral Finance (GFC) Repo contracts for U.S. Treasuries, stood at 5.391% on Monday, up nearly five points.

Joe DiMartino, head of the repo desk at prime brokerage firm Clear Street, said the rise in yields was to be expected as cash was leaving the market due to tax payments and to absorb recent Treasury debt sales. Last week, the Treasury sold over $100 billion in three, 10- and 30-year bonds.

Meanwhile, the Federal Reserve's reverse repo facility (RRP) on Monday took in $327.1 billion, down $80.2 billion from Friday, marking the lowest level of inflows since the facility took in $293 billion on May 19, 2021. The RRP facility is a favorite place for money market funds to park their cash.

"There is often some heaviness in repo around the April tax date as cash moves to Treasury. It doesn't seem to be indicative of real liquidity problems though, with outflows from RRP accounting for much of the cash transfer," said Jonathan Cohn, head of US Rates Desk Strategy at Nomura.

Some market participants had been concerned that particularly large tax outflows this year could lead to a surge in short-term interest rates and potential stress in money markets given the Fed's ongoing efforts to tighten liquidity by reducing the size of its balance sheet.

For DiMartino at Clear Street funding rates will likely decline to their normal range by the end of the week. "Liquidity is still very high, client activity is normal, volumes are normal," he said.

The relative stability in short-term rates indicated either that tax outflows were smaller than expected or, more likely, still-abundant liquidity in the financial sector, said Teresa Ho, head of short duration strategy at JPMorgan.

It also suggested that banks have been maintaining more cash ahead of tax season, she said. "I think they were prepared heading into this well-known event, and they were able to manage their outflows in a way that wasn't disruptive to the market."