Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Money Market Funds

Given recent questions about money market funds, it seemed worthwhile to post a few links with comments.

Basic background on types of MMFs (from Vanguard):
Money market reform: What you need to know (2014)
https://personal.vanguard.com/pdf/VGMMR.pdf

Aside from institutional MMFs, there are government MMFs, prime MMFs, and muni MMFs. Government MMFs keep 99.5% of assets in federal government securities, cash, and repurchase agreements backed by federal securities. They are considered the safest (but see below), and are not required to impose redemption restrictions in times of stress. Prime MMFs are taxable MMFs that don't meet the 99.5% requirement (e.g. holding corporate paper). Muni MMFs hold (mostly) state, municipal, and territorial (e.g. Virgin Islands) paper.

Splitting hairs on government MMFs, the safest are pure Treasury funds. While the funds themselves are not guaranteed by the Treasury, the underlying securities are. Other government funds may hold agency securities that are not backed by the full faith and credit of the government. See, e.g. Northern Trust US Government MMF NOGXX.

Non-Treasury funds may also hold repurchase agreements. These not only introduce another (small) level of risk (see this Schwab paper) but are also not state tax-exempt. A few states (Calif., NY, Conn.) tax 100% of a MMF's income if too much of it comes from state-taxable paper like repurchase agreements.

Retail prime and muni MMFs must impose gates and/or redemption fees in times of stress. That's said to happen if a fund's percentage of "highly liquid" assets fall below certain thresholds. Except for muni MM funds, at least 10% of assets must be in cash, Treasuries, or securities that mature within one day. There's also a weekly threshold of 30% which applies to muni funds as well as to prime funds.
https://www.sec.gov/news/press/2010/2010-14.htm

Because of the possible restrictions on redemptions, I would keep some cash in a bank or government MMF. At least enough for a couple of weeks, which is about as long as redemptions can be held up (10 business days).

Aside from liquidity, there's the risk of breaking a buck. "[G]overnment and retail money market funds are allowed to try to keep their NAV at a stable $1.00 per share. These funds do this by using special pricing and valuation conventions when valuing the fund assets. ... If one of these money market fund’s NAV deviates by more than half a cent from $1.00, the fund would have to re-price its shares to something other than $1.00, which is known as “breaking the buck.” Therefore, if it deviates by more than half a cent below $1.00 (as one money market fund did in 2008 due to losses in the underlying investments), investors in the fund will likely lose money."
https://www.sec.gov/oiea/investor-alerts-bulletins/investor-alerts-mmf-investoralerthtm.html

Funds are now required to post their liquidity figures and their NAVs (out to four places) daily. So you can see how close they are coming to imposing redemption gates or breaking a buck. OJ asked about SWKXX. This is a good case study, and I suspect typical of muni MMFs these days. Its NAV has dropped in the past week from $1.0002 to $0.9987. While still comfortably about 99½¢, the speed of the drop invites close monitoring. On the other hand, its weekly liquidity has been quite stable.

One keeps hearing that "we're in uncharted territory." That's often an exaggeration, but in this case I believe apt. These are new disclosure and enforcement regulations. Combined with the precipitous drop in security prices, we are at a place we have not seen before.

Comments

  • @msf, Really appreciate your detail posting on MMF.
    Aside from liquidity, there's the risk of breaking a buck. "[G]overnment and retail money market funds are allowed to try to keep their NAV at a stable $1.00 per share. These funds do this by using special pricing and valuation conventions when valuing the fund assets. ... If one of these money market fund’s NAV deviates by more than half a cent from $1.00, the fund would have to re-price its shares to something other than $1.00, which is known as “breaking the buck.” Therefore, if it deviates by more than half a cent below $1.00 (as one money market fund did in 2008 due to losses in the underlying investments), investors in the fund will likely lose money."
    https://www.sec.gov/oiea/investor-alerts-bulletins/investor-alerts-mmf-investoralerthtm.html
    I notice that Vanguard Federal money market, VMFXX, has a 7 day yield of 0.82% while the Vanguard Municipal money market, VMSXX has a 7 day yield of 4.05%. The NAVs are still at $1.00. Any insights? Thanks.
  • @msf- Thanks yet again. Stay safe back there.

    Best regards- OJ
  • edited March 26
    msf, could Vanguard prop up or support (I am not certain what this mean) VMSXX so that it does not deviate by more than a cent from $1.00, thus not have the need to re-price its shares to something other than $1.00 (breaking the buck), resulting in no loss of money by the investors?

    Mona
  • msf
    edited March 26
    @Sven - Just that the muni bond market is in chaos. Keeping in mind that average maturities of MMFs tend to run in the 60 day range, we have this from Bloomberg (via Yahoo):
    Take a note issued by New York’s Metropolitan Transportation Authority that’s due in about two months. It traded among securities dealers at yields as high as 11.2% on Friday and hit 90% the day before that -- an unheard of payout for securities that not long ago yielded 0.6%
    https://finance.yahoo.com/news/wreckage-muni-market-crash-brave-152948684.html

    Fill a MMF with bonds like this, and 4.05% will seem low!

    MTA bonds I believe are A or AA rated. They could have taken a nosedive because the New York MTA is projecting massive deficits ($6.5B) by year end, due to drop in ridership. It is cutting service service by 25%.
    https://patch.com/new-york/new-york-city/mta-loses-125m-week-amid-coronavirus-outbreak-chairman-says

    Indicating a flight to quality, VMFXX has a much lower yield than VMMXX (prime), which is now at 1.29%. That at least seems sane.
  • Mona said:

    msf, could Vanguard prop up or support (I am not certain what this mean) VMSXX so that it does not deviate by more than a cent from $1.00, thus not have the need to re-price its shares to something other than $1.00 (breaking the buck), resulting in no loss of money by the investors?

    In the GFC, there were many families propping up their MMFs. Two reasons why the Reserve Fund broke a buck were that (a) it invested for highest yield and virtually disregarded safety, and (b) unlike Vanguard, Fidelity, etc., The Reserve did not have deep pockets. Its main business was money market funds and similar offerings.

    I don't know if or how the regulations have changed since then that might prohibit Vanguard from supporting its funds.
  • @msf- Could you do me a favor and explain how you obtained that "Its NAV has dropped in the past week from $1.0002 to $0.9987" info? I looked around the Schwab site but couldn't find any NAV info at all.

    Thanks- OJ
  • @Old_Joe - I am not familiar with Schwab's website but here is the page from Vanguard. Same idea.

    https://investor.vanguard.com/mutual-funds/profile/portfolio/vmsxx


  • I guess I shouldn't use so much hypertext (embedded links). They can be hard to spot in the text. Here's the link to the fund's NAVs:

    https://www.schwabfunds.com/public/csim/home/products/mutual_funds/current_nav.html?symbol=SWKXX
  • edited March 26
    @Mona- Thanks for that- it's very similar to the Schwab layout. I need a list that is able to include funds from Schwab, American Funds, and American Century, and no mutual fund company is going to provide that kind of info for competing fund companies. M* does, but it's getting increasingly flaky to use.

    With respect to the SWKXX NAV, Schwab only shows the $1 share price, and not the actual internal accounting value that msf found.
  • @msf, thank you for explaining the MMFs. Currently I am using VMMXX (prime) as our longer term cash position.
  • edited March 26
    @msf- thanks again. Actually, I had found that page and downloaded the pdf file. After your link reference, I did so a number of times and was getting really frustrated because there was NO reference to NAV.

    FINALLY I noticed that the script blocker on this computer's browser (a Firefox-based variant optimized for these old Apple G5's) was indicating that some resource had been blocked. When I overrode that the section with the NAV info appeared as if by magic. I'll certainly keep an eye on that info.

    We actually have a couple of mac Mini's which are much faster and able to handle browsing with no problems, but I generally use the old G5 because it can handle the ancient (Apple OS 9) financial SS which I've been using for some 20 years. It has certain macro functionality which can't be replicated in current spreadsheets, and the financial SS uses a fair number of those automated macro computing routines. All I have to do is copy the daily M* portfolio report, paste it into the SS, push a couple of buttons, and it's all done... everything computed and updated, with graphs showing complete results quarter-by-quarter, and a page showing each fund's performance, both since the previous entry session and YTD.

    The SS is certainly dated- Apple had this SS when MS was still using DOS. Old, but good. Like my wife.:)
  • Old_Joe said:

    @Mona- Thanks for that- it's very similar to the Schwab layout. I need a list that is able to include funds from Schwab, American Funds, and American Century, and no mutual fund company is going to provide that kind of info for competing fund companies. M* does, but it's getting increasingly flaky to use.

    Old_Joe, my suggestion is to bookmark each of those pages from Schwab, American Funds, and American Century that contain the data. I have a total of four pages bookmarked. Treasury Money Market Fund and Municipal Money Market Fund for Vanguard and Schwab. Immediate access.

    Mona
  • @Mona- yes, of course I can go directly to each of those sites and gather the data manually. The need for a listing like M*is that I can copy the entire portfolio data table with one click and paste it directly into the spreadsheet input table with another click, then push a button on the SS, and that's it- all done.
  • @Old_Joe: And the total portfolio gain or loss is all you're looking for ?
    Have a good weekend, Derf
  • edited March 27
    Hi @Derf- When new data from M* is input, the spreadsheet automatically calculates the actual totals for each fund and computes the YTD, "since purchase", and "since last entry" gain or loss update for each fund, generates multiple charts showing performance by category- by YTD and by quarter.

    The spreadsheet deals not only with the input data from M*, but also covers each and every source of financial data- bank accounts, CD's, MMKT funds, the estimated value of our weekend place, etc. Basically, all assets other than the value of our home in SF, the value of which isn't covered since we need that to live in.

    Sometimes, like now that we're stuck here at home, I input the M* data daily. Other times it's weekly or maybe just when I feel like it.

    Weekend? We've totally lost track of that because each day we're confined to the house is very much like every other day. Please be careful and stay healthy!

    OJ
Sign In or Register to comment.