What are the expectations of bioinformatics Masters students?
Hopefully I can help - graduated a similar Master's in EU.  

At least here, a PhD student is expected to produce 3-4, not 1 paper, so it is reasonable to expect contributions equivalent to one paper from a Master's student. Of course, time is limiting, so students usually finish the actual paper later on (sometimes even during the PhD), but I would suggest working with that goal (i.e. 1 paper) in mind.  

Now, as to what constitutes a paper in this field: improving a tool is fine, as long as you provide proof of the improvement. Proof usually comes from simulation studies, or it could be a demo of application using some publicly available data (I assume your tool is somehow connected to data analysis). In my field, this might be one of the best known examples - improving the efficiency of a popular tool from O(n^2) to O(n) is a direct way to Nature Genetics and hundreds of citations.