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So if we have money in bond mutual funds that hold some gov bonds, we might be better off in a money market fund with a yield of about 2.7%?

Might be. Goobermint paper simply is not going to pay anything over the inflation rate, and maybe not that much, for quite a time to come, imnnho.

Keep in mind that (most) money-mkt funds are not insured by FDIC, SDLIC, or any other goobermint organisation, so exercise some care in your choice. No matter how painful it is, READ the bloody prospectus of the mm you're considering, or have a pro translate it for you, esp. regarding what can go wrong. Some mm's are in big trouble right now.

My choice? Buy September or December 2012 Eurodollars and sell December 2009 or March 2010 against them...but, then, I don't mind a bit (a very tiny bit) of risk.