Money Fund Yields Slide to Record Low

How much more pain can owners of money market mutual funds take?

Capping a dismal year for savers who depend on money funds for income, taxable money fund yields sank this week to an average 1.58%, the lowest ever, Imoneynet.com of Westborough, Mass., said Wednesday.

The average was down from 1.64% a week ago.

Tax-free money market funds, which invest in short-term debt of states and cities, yielded an average 1.15% in the latest survey, up from 0.93% a week ago. Tax-free fund yields tend to be more volatile on a weekly basis.

Money fund yields tend to closely track the Federal Reserve’s key short-term interest rate. The Fed has cut that rate 11 times this year, trying to boost the struggling economy.

Despite the record low yields on money funds, analysts note that many investors who kept assets in those funds avoided what could have been deep losses in the stock market.

The blue-chip Standard & Poor’s 500 index is down 13% year to date; the Nasdaq composite index is down nearly 21%.

“It has been a bad year for savers, rate-wise, but asset-wise it has been a good year to be in savings because of market turmoil elsewhere,” said Peter Crane, Imoneynet.com’s vice president and managing editor.

Still, there have been some signs that American investors are beginning to shift cash from money funds to other assets, including stocks.

Led by institutions, investors pulled a net $10.4 billion from money funds in the latest week, leaving total assets at $2.29 trillion, Imoneynet.com said.