Lynagh is adjusting as best he can. He’s finding value in two-year floating rate Treasury notes. And to expand his options in secured lending he uses sponsored repo -- where dealers grant access to Fixed Income Clearing Corp.’s cleared repo platform rather than burdening their own balance sheets. The last resort, he says, is stowing cash in the Fed’s overnight reverse repurchase operations at a rate of 0%.

One place to find better returns is in the agency-backed mortgage space, said Goldthwait of State Street. Another option for money-fund managers is to buy short-dated Treasury coupons, or notes and bonds that are close to maturity and fit the funds’ maturity profile. However, caution is warranted since those aren’t the most liquid assets and money funds are relied upon to be highly liquid.

‘Only So Much Creativity’
“After that, there’s only so much creativity you can do in those portfolios given permissible investments,” he said.

Still, with trillions of dollars of developed-market debt trading with yields below 0%, Goldthwait said he’s encouraged that the Fed has pushed back on negative interest rates. But until he sees signs of recovery, he said, “there’s going to be some pain that’s felt both by clients and fund managers.”

“One of the handful of questions I got is, ‘When are yields going to zero?’” Goldthwait said. “This is cash. This is just the cost of owning cash, and you gotta be there.”

JPMorgan Chase strategists led by Alex Roever said in a note to clients last month that there are concerns over whether the supply of Treasury bills will remain as robust as it’s been over the last few months, leaving money-market funds to operate with lower yields for some time.

On the other hand, there is reason to believe that the crush of flows into money-funds may subside.

One reason is that the federal tax deadline was pushed back to July 15 from April 15, which could result in outflows then by corporations that need to pay their bill.

And while seasonal trends suggest that money-market balances tend to peak in the second half of the year, this year they could go higher in the near term, Roever said. But the “need to spend” by companies with cash in the funds will bring them down soon after, he said.

“If you think of a company that has ongoing expenses, and right now they may not be bringing in normal revenue, expect them to draw on their MMF shares and deposits.” Roever said. “They’ll need to take some of that cash and spend it.”