Bogleheads

[soaring]

Disregarding the tax consequences of the two funds.

I don't understand the SEC yield difference between these two funds.

Vanguard Prime MM, VMMXX, is 2.2% and Vangurard Tax exempt MM, VMSXX, is 5.0%.

Why such a difference? What are differences in safety? any other thoughts?

average quality:

Exempt MM: MIG-1 with avg maturity 35 days and .10% expense ratio.
Prime MM: Aaa with avg maturity 65 days and .24% expense ratio.

thanks
gene
_________________
Desiderata

[Hemispheres]

I believe Vanguard says Prime has ~50% Treasuries and US government holdings. There's your difference.

[mudfud]

Explanation from Vanguard:

What's causing yields to rise for tax-exempt money market funds?

https://personal.vanguard.com/....08_ALL.jsp

Quote:

The yields of Vanguard's municipal money market funds have risen dramatically in recent days. In a reversal of the usual relationship between yields of municipal and taxable money market funds, the yields of Vanguard Tax-Exempt Money Market Fund and similar state-specific funds have risen far above those of taxable funds, including Vanguard Prime, Federal, and Treasury Money Market Funds. The unusual situation is being caused by current conditions in the short-term debt market. Many firms that help create and market short-term municipal securities for state and local governments are finding they need to boost yields to create greater demand for these securities. As a result, securities with extremely short maturities—including those that mature in one day or one week—are being offered at exceptionally attractive yields. --snip--- "These unusually high yields are simply a function of how the money market arena is reacting to events in the credit markets right now," said Pamela Wisehaupt Tynan, who oversees Vanguard's municipal money market funds. "These yields are not coming from lower-quality securities, nor are they related to problems with the creditworthiness of municipalities."

_________________
"Are you sure you have tested an a priori hypothesis?"

[livesoft]

Don't get caught up in the short-term anomalous yield of VMSXX.

Here's my guess at what happened: Some firm(s) that needed cash had to sell their holdings of some tax-exempt paper. In a desperate move to stay afloat, they sold some at half-price to Vanguard. Or maybe a government entity needed some cash quickly to cover hurricane damage or what not. They figure they can pay 5% for 30 days to bridge them over.

In a month, the yields will go back to normal. Let's calculate what you might gain on a $25,000 investment in one month. The difference in yields is 2.8%, but let's say the difference averages 2.4% for the month, so divide by 12 (2.4 / 12 ) = 0.2%. So you make an extra $25K * 0.002 = $50.

$50 is about 1.5 trips to a favorite restaurant for my family.

[mudfud]

[YDNAL]

Gene,

Prime has over 80% in CDs and US Gov't.

[Eureka]

Looks like free money to me, albeit not likely to last long. So I moved some Prime to Tax-Ex this afternoon. If I didn't already own the latter, I probably wouldn't have bothered.

These are strange days, and it's hard to tell what's safe.

[nittybitty]

[Eureka]

Nittybitty, can you elaborate why we should be frightened?

[mithrandir]

Perhaps I am a fool but one piece of sage investment advice pops in my head at the current moment:

The best time to buy is when the market sentiment is the bleakest.

Just as it's the darkest just before dawn.

[Eureka]

[jh]

...

[Eureka]

[Ted Valentine]

[nittybitty]

[Shireman28]

If states and cities can't pay back 90-day loans, then I'm shifting my emergency money to guns, ammo, and canned goods.

Seriously, if you saw a $100 bill laying in the street, would you pick it up?

[tdhg566]

[uifearaigh]

Nitty's right, the high yields reflect the municipalities real risk of default.

There's a recent rule that they must begin carrying their employee benefit liabilities on their balance sheets. -just like private companies do.
Couple that with lower tax revenues due to poor economy plus higher costs due to govt. inneficiency = panic time.

Our term 'Whoops' comes from a municipal power plant default. (Washington State). It happens, sometimes in droves (all at once).

Now cash Money Markets have been 'guaranteed' supposedly from default by the Feds, with a printing press.

It hasn't happened, but many expect the Feds will end up 'guaranteeing' many of the defaulting debts of our towns, cities, countys & states. -by printing away your earnings & savings.

So yes, the high yields represent real 'danger'. of 'default'.

[andrewj]

It seems, based on what I've read on this forum so far, a large number of people have money in the prime money market fund (VMMXX). However, why don't more people have their money in the tax exempt (VMSXX) if you may come out ahead with the tax exemption.

Specifically, wouldn't the 1 yr yield of VMSXX of 2.46% = 3.417% effectively if you're in the 28% tax bracket, higher than VMMXX?

Or am I missing something?

[Laura]

Andrew,

You can use The Finance Buff Taxable-Equivalent Yield Calculator to compare after-tax yields.

Laura

[vectorizer]

[andrewj]

[richard]

You might want to check on the current yield of these funds. The yield on the muni MM has plummeted to under 1% (perhaps due to the federal guarantee) and prime has risen a bit. Prime MM is now preferable on a yield basis.

[mymer]

Which funds are participating in the Treasury program?

All of our money market funds are covered. They're listed below.

Fund Name Fund Number Ticker Symbol
Admiral Treasury Money Market 0011 VUSXX
Federal Money Market 0033 VMFXX
Prime Money Market (Institutional and Investor Shares) 0030 VMMXX
CA Tax-Exempt Money Market 0062 VCTXX
NJ Tax-Exempt Money Market 0095 VNJXX
NY Tax-Exempt Money Market 0163 VYFXX
OH Tax-Exempt Money Market 0096 VOHXX
PA Tax-Exempt Money Market 0063 VPTXX
Tax-Exempt Money Market 0045 VMSXX
Treasury Money Market 0050 VMPXX
Vanguard Variable Insurance Fund–Money Market Portfolio 0064
—
These funds are participating in the Treasury Guarantee program, so the risk to me seems very minimal.