August 12, 2009

Yields on money markets slip away

Expenses on U.S. money market funds have outgrown dividends in many cases, the editor of a market newsletter said.

Money Fund Intelligence editor Peter Crane told USA Today Wednesday that fund managers were taking more of the funds' yield to pay expenses than to pay investors.

Yields on the average money fund have plummeted, largely due to the Federal Reserve's low bank-to-bank lending rates, which fall between zero and 0.25 percent, a policy meant to add liquidity to the banking system.

Current yields on the average money funds for the week ending Aug. 4 was 0.08 percent, iMoneyNet reported. Of the 1,180 funds it monitors, 23 percent showed no yield that week, the newspaper said.

The Investment Company Institute reported $27.5 billion drop out of the market the week ending Aug. 5.

Money funds are a type of mutual funds regulated by the Securities and Exchange Commission, buy only the highly rated short-term debt, such as government securities and certificates of deposit.