Tiny yields challenge money funds, investors

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.