December 25, 2008 in Business

Tiny yields challenge money funds, investors

Associated Press
 

Missing OTC

The over-the-counter listings were unavailable Wednesday afternoon.

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 remain safe places to park cash after the hit stocks have taken this year.

The average yield for funds investing exclusively in T-bills now stands at 0.20 percent, according to iMoneyNet, another money fund research firm.

© Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Get stories like this in a free daily email


Please keep it civil. Don't post comments that are obscene, defamatory, threatening, off-topic, an infringement of copyright or an invasion of privacy. Read our forum standards and community guidelines.

You must be logged in to post comments. Please log in here or click the comment box below for options.

comments powered by Disqus