Yields continue to ebb on money market mutual funds as the world’s central banks pump cash into the financial system, trying to restore calm.
The average annualized yield on taxable money funds fell to 3.99% in the seven days ended Tuesday, down from 4.08% a week earlier and the first time the average has been below 4% since March 2006, data tracker IMoneyNet Inc. said Wednesday.
Yields have been falling fastest in recent weeks on funds that invest only in U.S. government short-term debt. That reflected a rush into those IOUs early this month as some investors sought safety, fearing that the global credit crunch would worsen.
Since mid-month, the Federal Reserve and other central banks have been trying to bolster the financial system by lending to cash-strapped commercial banks. That has helped to bring down short-term interest rates in general, including the so-called London interbank offered rate. The LIBOR market in turn affects rates on many short-term IOUs that money funds buy.
“There’s a lot of floating-rate paper [in money funds] that resets off LIBOR,” said Pete Crane, head of Crane Data, a money fund research firm.
Still, the slide in yields on general retail money funds (those that don’t limit themselves to government debt) has been slow: Their seven-day average yield was 4.12% this week, down from 4.14% last week and 4.21% in mid-November, IMoneyNet said.