Yield on Money Market Funds Sinks Below 4%

The seven-day compound yield of the average taxable money market mutual fund sank below 4% on an annualized basis this week for the first time since 1994, according to IMoneyNet Inc.

The yield, which includes reinvested dividends, slipped to 3.92% from 4.14% last week, according to the Westborough, Mass., research firm.

“This is bad news for income investors,” said Peter Crane, managing editor of IMoneyNet, but he said he believes the bottom may be near for money fund yields as the Federal Reserve’s interest rate cuts appear to be stimulating the economy.

But money yields will probably dip to about 3.7% to fully reflect the Fed’s five rate cuts this year, he said.

Meanwhile, assets of U.S. money funds rose $17.7 billion to $2.1 trillion in the week ended Tuesday, according to a separate report from the Investment Company Institute, the industry’s trade group.