BOSTON — Three months after the government stepped in to prop up reeling money-market funds, the $3.8 trillion industry is largely healthy again, with money flowing back to the safe-harbor investments at a steady clip.
But there’s one problem: Yields for the safest category of money funds, those that invest in Treasury bills, have sunk to near zero.
That means fund companies’ returns are barely enough to offset expenses to run the funds unless yields creep back up again soon — a prospect considered unlikely given the Federal Reserve will need more time for its rate-cutting campaign to take hold.
Dropping yields at Treasury- only money-market funds aren’t expected to trigger investor losses, and money-market funds — including higher- yielding prime funds that invest in corporate debt — remain safe places to park cash after the hit stocks have taken this year.
“If Treasury funds yielding zero is your biggest problem in these markets, congratulations,” said Peter Crane of Crane Data, publisher of the newsletter Money Fund Intelligence.
But declining yields are eating away at the already slim returns clients expect from money funds. The average yield for funds investing exclusively in T-bills now stands at 0.20 percent, according to iMoneyNet, another money fund research firm. That means an investor plowing $1,000 into a Treasury-only fund would see a return of $20 after a year.
With the realistic possibility that fund companies may temporarily start to suffer losses at their lowest-yielding funds, some providers are responding by closing Treasury-only funds to new investors, or limiting new investments by existing clients.
