Fed’s Hikes Push Average Yield on Money Market Funds Past 6%

The average money market mutual fund’s seven-day compound yield crossed the 6% mark this week for the first time since 1991, a direct beneficiary of the Federal Reserve’s campaign to raise interest rates during the last 12 months.

But fund shareholders may wonder how long yields will stay at this level, if the economy is slowing.

The average fund’s yield rose to 6.02% from 5.98% the week before, reported Imoneynet.com, a Massachusetts firm that tracks yields.

The seven-day compound yield reflects the latest seven-day return on an annualized basis. The average fund’s 30-day compound yield, 5.93%, is lower because the funds still own some securities issued at lower yields in recent months.

But in recent weeks, yields on some short-term Treasury bills--one type of security owned by many money funds--have been sliding, as investors have focused on economic data suggesting that a slowdown is in progress. That could mean the Fed is near the end of its credit-tightening campaign.

The six-month Treasury bill yield was at 6.23% on Wednesday, down from 6.53% in mid-May.

Some money funds have been lengthening the average maturity of their portfolios, which would prolong higher yields even if market rates continue to turn down.

The average maturity of securities in the funds now is 52 days, up from 51 days a week ago.