Vanguard Municipal Money Market VMSXX 1.39%

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neurosphere
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Jun 19, 2018 11:08 am

Leif wrote:
Tue Jun 19, 2018 11:02 am
Looking at the Portfolio composition of Prime, VMMXX, the bulk of the holdings is in "Yankee/Foreign" (42.8%). Does anyone know what this is?
viewtopic.php?t=206799#p3180730
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Leif » Tue Jun 19, 2018 11:33 am

Thanks for the link.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Tue Jun 19, 2018 8:44 pm

The downswing in the muni MM funds was deeper relative to Prime MM this cycle than last cycle. However, the upswing so far is steeper than the last upswing (as always, the TEYs are for my marginal tax rates of 27% and 8%, no itemizing).

Image

Both Muni MM and CA Muni MM have been increasing about 3 basis points per day for the last five days, and about 5 basis points of TEY per day for me. Prime MM has continued to increase about 1 basis point every two days. It looks like at this rate, the muni MM funds will once again become more attractive for me in a week or so. Could be sooner, since SEC yield is a lagging 7-day average.

However, I will soon be moving most of my cash to Northern Bank Direct (NBD) money market account at 2.26% APY, and it will be awhile till CA muni MM TEY surpasses that. At the last peak it hit TEY of 2.26%, but with rising rates, it should peak higher than that in this cycle.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by welderwannabe » Wed Jun 20, 2018 11:20 am

Leif wrote:
Tue Jun 19, 2018 11:02 am
Looking at the Portfolio composition of Prime, VMMXX, the bulk of the holdings is in "Yankee/Foreign" (42.8%). Does anyone know what this is?
Yankee bonds are bonds issued by foreign companies in US dollars.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Wed Jun 20, 2018 1:56 pm

Here's a source which explains the seasonal variability in money market funds:

https://www.gsam.com/content/dam/gsam/p ... ?sa=n&rd=n
Second Quarter
Tax-exempt funds can witness outflows as investors pay taxes. Outflows can last through late May as tax payments are
cashed by the government. All other things being equal, this creates upward pressure on fund yields as there is less
demand for product. In June, this process begins to reverse as a majority of the tax-exempt municipal notes generally
mature. As proceeds are reinvested by tax-exempt money market funds, demand for the product can increase, creating
downward pressure on fund yields.
There is no data, just a subjective explanation, and is basically a theory of supply and demand. This is something we've all speculated of course. The fact that there is no arbitrage-away of this effect might be explained by:

-- The variable rate notes that are issued are in $100,000 chunks. Small investors don't buy these. These are essentially designed for money market funds.
-- Very wealthy investors don't want these in their individual portfolios (guessing). Too complicated. These are designed to be a long-term holding, which pays short term rates. They don't ever really expire unless one "gives it back". It just doesn't sound like something easily held in a personal portfolio
-- The wealthiest investors are in the highest bracket. So they don't benefit from moving in and out of muni funds to chase yields. The highest after-tax yields are probably almost always munis. And it's these people who drive supply in demand. When they need cash, yields fall.
-- The people who CAN take advantage of the fluctuating yields (e.g. some Bogleheads :D ) do not have enough assets in aggregate to move the market. The top 1% is a tiny fraction of the top 0.1%, in terms of money market balances.
-- It must be that institutions, hedge funds, GS and ML, etc. cannot or do not want to buy/sell these regularly to take advantage of inefficiencies? Perhaps prohibited if they also run money market funds? I still don't know if corporations have any incentives to buy muni funds. Are there tax breaks to corporations?

I'd like to emphasize, this is WAY outside of my sphere of knowledge. I'm just totally guessing, having fun with thinking about an interesting observation. 8-)

Edited to add: According to this source (see the figure on page 8) https://funds.eatonvance.com/includes/l ... t=fundPDFs , total muni market fund assets dropped by half in the past few years due to new MM regulations. That can only have exacerbated short-term fluctuations by decreasing liquidity. So the variability in muni MM may be higher in the future than it was in the past.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Wed Jun 20, 2018 3:03 pm

neurosphere wrote:
Wed Jun 20, 2018 1:56 pm
Here's a source which explains the seasonal variability in money market funds:

https://www.gsam.com/content/dam/gsam/p ... ?sa=n&rd=n
This seems to kind of explain some of it, but some of the explanations do not match what we've seen over the last two cycles.
First Quarter
January is a popular coupon payment and maturity month. These coupons and maturities are frequently reinvested into the funds. Additionally, in February and March, investors begin to prepare for tax-time and we see continued net inflows. In our experience, this tends to be a time of downward pressures for yields of tax-exempt money market funds; all other things being equal.
So yields falling Jan - Mar, but we saw yields fall Jan through mid-Feb, and climb from mid-Feb through end of March.
Second Quarter
Tax-exempt funds can witness outflows as investors pay taxes. Outflows can last through late May as tax payments are cashed by the government. All other things being equal, this creates upward pressure on fund yields as there is less demand for product. In June, this process begins to reverse as a majority of the tax-exempt municipal notes generally mature. As proceeds are reinvested by tax-exempt money market funds, demand for the product can increase, creating downward pressure on fund yields.
So rising yields Apr-May, and falling yields starting in June. We saw rising yields mid-Feb through late-April, and falling yields from mid-April through mid-June. So quite a bit off from this explanation.
Third Quarter
Tax-exempt funds can experience net inflows as July is a popular coupon payment and maturity month. Similar to the first quarter, these inflows can cause demand for the product to increase, creating downward pressure on fund yields.
So falling yields in July. Yields did fall a bit in July 2017, but we haven't seen what happens since we started seeing the much larger swings.
Fourth Quarter
Tax-exempt funds have been experiencing inflows in the months of November and December since approximately 2008. We believe this is due to the numerous changes in tax laws as well as outflows from other asset classes.
So logic is inflows cause yields to fall, so falling yields in November and December. We saw a small increase in Nov through mid-Dec, and a large increase in yields in mid-Dec through early Jan (the first large increase of the last two cycles). So this one seems to not be working as in the past.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Thu Jun 21, 2018 12:44 pm

Kevin M wrote:
Wed Jun 20, 2018 3:03 pm
This seems to kind of explain some of it, but some of the explanations do not match what we've seen over the last two cycles.
Agreed. I wonder if there are two or more overlapping influences which affect the cycles, e.g. investor behavior, underlying economic conditions, one-time events such as new tax-law affecting one or more of the past-few cycles, etc.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Thu Jun 21, 2018 4:21 pm

neurosphere wrote:
Thu Jun 21, 2018 12:44 pm
I wonder if there are two or more overlapping influences which affect the cycles, e.g. investor behavior, underlying economic conditions, one-time events such as new tax-law affecting one or more of the past-few cycles, etc.
The supply of new paper versus ongoing investor demand may be quite difficult to predict. It's possible that stock market traders including hedge funds park short term money in tax exempt funds. I also see that the National Municipal Bond funds at Vanguard all use the Vanguard Municipal Cash Management Fund for temporary cash investments.

Here is an interesting article from Morgan Stanley on the VRDO Market which makes up approximately 75% of the total U.S. Municipal Money Market.

https://www.morganstanley.com/im/public ... ons_us.pdf

There is currently one VRDO ETF trading with symbol PVI although assets appear to be relatively low.

The trend in Money Market fund yields definitely looks attractive for the saver. In the case of the taxable funds, the distribution yield has been rising steadily every month. Here is the data provided by Vanguard for Prime Money Market fund going back to December 2016.

1.87%, 1.78%, 1.62%, $1.48%, 1.43%, 1.30%, 1.16%, 1.13%, 1.12%, 1.10%, 1.09%, 1.02%, 0.96%, 0.91%, 0.83%, 0.79%, 0.77%, 0.69%
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by ivk5 » Fri Jun 22, 2018 4:02 am

Electron wrote:
Thu Jun 21, 2018 4:21 pm
It's possible that stock market traders including hedge funds park short term money in tax exempt funds.
Under the new regs my understanding is that municipal MM funds (and other MM funds apart from federal/treasury funds) are only open to individual investors. Hedge funds (along with other institutional investors) are limited to the federal/treasury MM funds. Not an expert though, perhaps I misunderstood.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Fri Jun 22, 2018 2:48 pm

ivk5 wrote:
Fri Jun 22, 2018 4:02 am
Under the new regs my understanding is that municipal MM funds (and other MM funds apart from federal/treasury funds) are only open to individual investors. Hedge funds (along with other institutional investors) are limited to the federal/treasury MM funds.
Here is a list of Institutional Money Market funds which includes both taxable and tax-exempt.

https://financialintelligence.informa.c ... rket-funds

It appears that institutions do have access to Money Market funds with Floating Net Asset Value. The Blackrock fund information below mentions the Floating NAV which became effective October 2016. Morningstar covers the fund under symbol MCSXX.

https://www.blackrock.com/cash/en-us/products/282802/

The Floating NAV may not be an issue under normal circumstances with only minor variations in NAV. Some very interesting information is provided if you check the three tabs labeled NAV, Liquidity, and Daily Flows. The NAV tab includes a chart showing the NAV history going back to 10-01-15.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Mon Jun 25, 2018 7:30 pm

Continued steep increase in muni yields. National and NY muni MM fund shown in chart (because I'm in NY). :D These are tax equivalent yields of 12.6% state tax and 42% federal tax (which are not my personal tax, lol).

There seems to be an inflection point, aka deceleration which has happened in the past few days.

Image

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Mon Jun 25, 2018 8:05 pm

neurosphere wrote:
Mon Jun 25, 2018 7:30 pm
There seems to be an inflection point, aka deceleration which has happened in the past few days.
Yes, there has been. Yields for the national muni fund were increasing about 3 basis points per day starting 6/14, but slowed down to 1-2 bps/day starting 6/21. For the CA muni fund it went from about 3 bps/day to about 1 bp/day.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Mon Jun 25, 2018 8:10 pm

Kevin M wrote:
Mon Jun 25, 2018 8:05 pm
neurosphere wrote:
Mon Jun 25, 2018 7:30 pm
There seems to be an inflection point, aka deceleration which has happened in the past few days.
Yes, there has been. Yields for the national muni fund were increasing about 3 basis points per day starting 6/14, but slowed down to 1-2 bps/day starting 6/21. For the CA muni fund it went from about 3 bps/day to about 1 bp/day.

Kevin
We should take bets, aka do a contest, to see who can come closest to predicting the peak each quarter. :)
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Mon Jun 25, 2018 8:53 pm

For someone in 32% fed bracket, would sticking with muni mm through the yield fluctuations still be better than going with the stable prime mm? I hate having to monitor the yields and would rather just stick with one fund and forget about it.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Tue Jun 26, 2018 7:05 am

am wrote:
Mon Jun 25, 2018 8:53 pm
For someone in 32% fed bracket, would sticking with muni mm through the yield fluctuations still be better than going with the stable prime mm? I hate having to monitor the yields and would rather just stick with one fund and forget about it.
At 32% marginal rate, over the past 12 months it has essentially been a tie. It maybe favors a muni fund, but not by enough to make a difference unless you are parking $2M in money market funds.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Tue Jun 26, 2018 1:07 pm

The rise in the SEC yield of VMSXX last year was from 6-14-17 through 7-06-17 so it will be interesting to see how things compare in 2018. However, note that the Federal Funds Rate was increased on both 6-14-17 and 6-13-18. In fact, many of the recent spikes in yield coincided with hikes by the Fed. Those hikes may have combined with other factors coming into play near the end of the quarter.

https://en.wikipedia.org/wiki/History_o ... al_actions

The issue of Arbitrage has been mentioned in this thread. There may not be any practical way to arbitrage other types of money market instruments with VRDOs which have a floating interest rate. The put feature allows redemption at par so there are no price differentials to exploit.

However, there is still the issue of why supply and demand does not always influence yields in the same way it does with Treasury paper, Agency paper, and Commercial paper. The explanation may involve the fact that the municipal market is less liquid.

The Blackrock Institutional Tax Exempt fund with floating NAV that I mentioned earlier has been tracking the yield of VMSXX quite closely. The expenses are 0.20% versus 0.15% for VMSXX.

https://www.blackrock.com/cash/en-us/products/282802/
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Ricchan » Fri Jun 29, 2018 8:37 am

Just a friendly reminder it's that time of year (quarter?) again to (possibly) switch funds. Also reminder that the yields for any given day are calculated based on the annualized return over the previous 7 days, so the latest data point is going to lag behind actual present day yields.

Image

Last data point on chart is 6/28/2018

Code: Select all

Date		Prime	Muni	24% 	32% 	35% 	37% 	
6/28/2018	2.03%	1.36%	1.79%	2.00%	2.09%	2.16%

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Fri Jun 29, 2018 9:27 am

Electron wrote:
Tue Jun 26, 2018 1:07 pm
The rise in the SEC yield of VMSXX last year was from 6-14-17 through 7-06-17 so it will be interesting to see how things compare in 2018. However, note that the Federal Funds Rate was increased on both 6-14-17 and 6-13-18. In fact, many of the recent spikes in yield coincided with hikes by the Fed. Those hikes may have combined with other factors coming into play near the end of the quarter.
I agree with you that of course the yields are a combination of economic issues (Fed hikes, other "natural" forces on rates) and behavioral/liquidity issues. This is probably one explanation for why the ebbs and flows and peaks might vary from month to month or quarter to quarter.
The issue of Arbitrage has been mentioned in this thread. There may not be any practical way to arbitrage other types of money market instruments with VRDOs which have a floating interest rate. The put feature allows redemption at par so there are no price differentials to exploit.

That's a good point. The rates on VRDO can be reset daily, weekly or monthly. If a large percentage of VRBOs in an MM fund reset at the same time (perhaps somewhat analogous to a triple-witching effect in options) this might cause more sudden changes in the rates and cause discontinuities of sorts. E.g. there seems to be a "hitch" in the yields each month, in addition to the larger direction changes each quarter.
The Blackrock Institutional Tax Exempt fund with floating NAV that I mentioned earlier has been tracking the yield of VMSXX quite closely. The expenses are 0.20% versus 0.15% for VMSXX.
I would expect that all muni funds would track nearly identically, as most hold mostly variable rate debt, and these are all pegged to the same SIMFA index. There probably isn't much difference in credit quality, as these can be backed out of at basically any time, and most are effectively guaranteed by an outside bank. That is, I think that just about all variable rate debt essentially enjoys the same high credit rating, so muni MM yields will be the same except for expenses. Although, I'm sure there are muni fund which attempt to goose yields with some lower quality debt perhaps?

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Fri Jun 29, 2018 12:32 pm

neurosphere wrote:
Fri Jun 29, 2018 9:27 am
That is, I think that just about all variable rate debt essentially enjoys the same high credit rating, so muni MM yields will be the same except for expenses. Although, I'm sure there are muni fund which attempt to goose yields with some lower quality debt perhaps?
Here is an article that may provide some insight. I was planning to post this article as it helps answer several other interesting questions. These include how VRDO securities are reset and why VRDO yields took several months to respond after the Fed Rate Hike on 12-16-15.

https://www.bondbuyer.com/news/banks-br ... over-vrdos

If you read carefully, the article reveals a lot of information about VRDOs separate from the primary topic. The article is a reminder that VRDOs are a derivative security. Here are a few key paragraphs from the article.

"According to the MSRB, the interest rates can be determined at reset dates in one of three ways: by the remarketing agent, according to a formula, or at the highest allowable interest rate as specified in the VRDO documents. However, rate reset data published by the MSRB show the vast majority of rates are reset by remarketing agents."

"VRDOs are usually secured by letters of credit or standby purchase agreements from high-rated commercial banks that require the banks to purchase the VRDOs if holders exercise their put rights and the VRDOs cannot be remarketed. The issuers pay fees for the LOCs, which provide credit enhancement and liquidity, and for standby purchase agreements, which just provide liquidity."

"But instead of marketing and pricing the VRDOs at the lowest possible interest rates at the reset dates as required, these eight banks and broker-dealers engaged in a “Robo-Resetting” scheme in which they mechanically set rates “en masse without any consideration of the individual characteristics of the bonds, the associated market conditions, or investor demand,” the suit charges."

"Lissack believes Robo-Resetting started in the 1990s as firms’ remarketing desks shrank and they didn’t have the remarketing agents needed to reset rates of individual VRDOs."

"Another example cited is Moody’s Investors Services’ threatened and then actual downgrade of Bank of America’s credit rating in 2012. That had very little impact on the rates of the $35 million of VRDOs with credit support from the bank even though it lessened the attractiveness of the VRDOs to tax-exempt money market funds, the suit alleges."

“The Bank of America downgrade should have caused tax-exempt money market funds to sell many of their VRDOs backed by Bank of America,”

"One example cites the Federal Reserve Board’s Dec. 15, 2015, decision to raise the federal funds rate by 25 basis points. Commercial paper rates responded by moving from single- digit rates to 30 to 35 basis points. But the remarketing agents “did not react at all for several months, and then in March suddenly in unison drove the interest rates on the VRDOs they managed well past commercial paper rates,” the suit alleges."
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by welderwannabe » Sat Jun 30, 2018 11:17 am

ivk5 wrote:
Fri Jun 22, 2018 4:02 am
Under the new regs my understanding is that municipal MM funds (and other MM funds apart from federal/treasury funds) are only open to individual investors. Hedge funds (along with other institutional investors) are limited to the federal/treasury MM funds. Not an expert though, perhaps I misunderstood.
That only applies to money markets with a fixed NAV. Floating NAV can in theory be owned by anyone, but in practice I haven't seen any without 7 figure minimum buy-in.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by WanderingDoc » Sat Jun 30, 2018 10:01 pm

Kevin M wrote:
Tue Jun 19, 2018 8:44 pm
The downswing in the muni MM funds was deeper relative to Prime MM this cycle than last cycle. However, the upswing so far is steeper than the last upswing (as always, the TEYs are for my marginal tax rates of 27% and 8%, no itemizing).

Image

Both Muni MM and CA Muni MM have been increasing about 3 basis points per day for the last five days, and about 5 basis points of TEY per day for me. Prime MM has continued to increase about 1 basis point every two days. It looks like at this rate, the muni MM funds will once again become more attractive for me in a week or so. Could be sooner, since SEC yield is a lagging 7-day average.

However, I will soon be moving most of my cash to Northern Bank Direct (NBD) money market account at 2.26% APY, and it will be awhile till CA muni MM TEY surpasses that. At the last peak it hit TEY of 2.26%, but with rising rates, it should peak higher than that in this cycle.

Kevin
What would you recommend for someone in the 24% federal, 0% state bracket? Prime vs. Muni
I think I have a small amount of "cash" in Prime currently, the majority is in a savings account. I have no idea how to determine if more should be in the MM fund vs. savings account.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Sat Jun 30, 2018 10:06 pm

WanderingDoc wrote:
Sat Jun 30, 2018 10:01 pm
What would you recommend for someone in the 24% federal, 0% state bracket? Prime vs. Muni
I think I have a small amount of "cash" in Prime currently, the majority is in a savings account. I have no idea how to determine if more should be in the MM fund vs. savings account.
During the past year, there have been rare, brief times (about 2 month out of 12) where a muni MM would have beaten Prime in your case. On average, Prime MM is clearly better for you. In my opinion, unless you plan to move many many millions in cash back and forth for a few weeks a year, you should just stick with the Prime and not think about it. Check back in a year to this thread and see if that advice needs to be updated. :)
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by WanderingDoc » Sat Jun 30, 2018 10:18 pm

neurosphere wrote:
Sat Jun 30, 2018 10:06 pm
WanderingDoc wrote:
Sat Jun 30, 2018 10:01 pm
What would you recommend for someone in the 24% federal, 0% state bracket? Prime vs. Muni
I think I have a small amount of "cash" in Prime currently, the majority is in a savings account. I have no idea how to determine if more should be in the MM fund vs. savings account.
During the past year, there have been rare, brief times (about 2 month out of 12) where a muni MM would have beaten Prime in your case. On average, Prime MM is clearly better for you. In my opinion, unless you plan to move many many millions in cash back and forth for a few weeks a year, you should just stick with the Prime and not think about it. Check back in a year to this thread and see if that advice needs to be updated. :)
Thats what I thought, thank you! Maybe you know, how "liquid" is having cash in Vanguard's Prime MM fund? If I wanted to wire money on a moments (1-2 days) notice, could I do it from the Prime MMF, or do I need to move it into a savings/checking account first? ty in advance
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat Jun 30, 2018 10:20 pm

neurosphere wrote:
Sat Jun 30, 2018 10:06 pm
WanderingDoc wrote:
Sat Jun 30, 2018 10:01 pm
What would you recommend for someone in the 24% federal, 0% state bracket? Prime vs. Muni
I think I have a small amount of "cash" in Prime currently, the majority is in a savings account. I have no idea how to determine if more should be in the MM fund vs. savings account.
During the past year, there have been rare, brief times (about 2 month out of 12) where a muni MM would have beaten Prime in your case. On average, Prime MM is clearly better for you. In my opinion, unless you plan to move many many millions in cash back and forth for a few weeks a year, you should just stick with the Prime and not think about it. Check back in a year to this thread and see if that advice needs to be updated. :)
Pretty much agree. Here is the way things look for your tax rates, assuming that the fed rate is your marginal rate and not just your tax bracket (they often are different):

Image

Regarding choosing between Prime MM and savings account, it depends on the savings account rate and how much you value the FDIC insurance (which you don't get with a money market fund). Prime MM SEC yield was at 2.03% on Friday. Personally, I'm very comfortable with Vanguard money market funds even without the FDIC insurance, but if the economy were to go into a tailspin, I'd re-evaluate.

Also personally, I would switch into muni MM when the TEY increased above Prime MM yield, since it takes less time than it does to write this reply, and I'm an optimizer/maximizer (as opposed to a satisficer), but it won't make much difference.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Sun Jul 01, 2018 12:57 pm

The after-tax yield advantage I've had with the Treasury Money Market Fund has been slowly shrinking away! The difference in after-tax yield was 0.30% a few weeks ago and now it is 0.071%.

There is an interesting effect in play with the different taxation for the Treasury Money Market fund and VMSXX. One basis point in the Treasury fund comes through as 0.722 basis points for my tax bracket. One basis point in VMSXX comes through as 0.907 basis points.

The Vanguard profile for each Money Market fund includes information on liquidity. VMSXX is showing Daily Liquid Assets at 0% and Weekly Liquid Assets at about 70%.

https://investor.vanguard.com/mutual-fu ... olio/vmsxx

Here are the approximate figures for the other Money Market funds.

Code: Select all

       Daily Liquid Assets  Weekly Liquid Assets

Treasury MMF     95-99.9%        91-99.9%
Federal MMF      50%             80%
Prime MMF        20%             40%
Municipal MMF    0%              70%
California MMF   0%              64%
Lastly, the prospectus for Money Market funds no longer includes credit rating requirements. Changes were made in 2015 as shown below.

https://www.sec.gov/news/pressrelease/2015-193.html
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sun Jul 01, 2018 2:17 pm

Electron wrote:
Sun Jul 01, 2018 12:57 pm
The after-tax yield advantage I've had with the Treasury Money Market Fund has been slowly shrinking away! The difference in after-tax yield was 0.30% a few weeks ago and now it is 0.071%.
Yep. For me, the advantage of Treasury MM over Prime MM now is only 1 basis point of after-tax yield (ATY), so 1.33% vs. 1.32%, and ditto for taxable-equivalent yield (TEY), at 2.04% vs. 2.03%. But for me the maximum advantage was only 8 basis points of TEY on 6/4/2018.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Sun Jul 01, 2018 4:34 pm

Kevin M wrote:
Sun Jul 01, 2018 2:17 pm
For me, the advantage of Treasury MM over Prime MM now is only 1 basis point of after-tax yield (ATY), so 1.33% vs. 1.32%, and ditto for taxable-equivalent yield (TEY), at 2.04% vs. 2.03%. But for me the maximum advantage was only 8 basis points of TEY on 6/4/2018.
The 7.1 basis point advantage I mentioned was for Treasury Money Market relative to VMSXX for my federal and state marginal brackets. Treasury Money Market relative to Prime Money Market for my case is currently showing 3.7 basis points. My data shows the largest advantage for the two taxable funds relative to VMSXX around June 12.

It looks like I've been asleep at the wheel with my account at Ally Bank. I didn't care when rates were lower but will now move a portion of that account to the Treasury Money Market fund. I'm not overly concerned about the FDIC Insurance especially with the Treasury fund. The higher tax brackets in California really make you sit up and take notice.

I never thought I'd wind up with four different Money Market funds. The Federal Money Market was forced on me as the only sweep option available with the brokerage account.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Sat Jul 07, 2018 7:20 am

Why’s muni mm going down again from 1.38% earlier this week now to 1.31%? Thought this was a quarterly phenomenon?

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by FactualFran » Sat Jul 07, 2018 11:53 am

am wrote:
Sat Jul 07, 2018 7:20 am
Why’s muni mm going down again from 1.38% earlier this week now to 1.31%? Thought this was a quarterly phenomenon?
The calendar quarter ended a week ago. A calendar quarter phenomenon that results in muni mm yields temporarily rising as the end of a quarter is approached, is now in the decreasing yield phase. In addition, the yield changes for reasons other than a quarterly phenomenon.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Sat Jul 07, 2018 12:16 pm

Why is it that longer term muni funds don’t fluctuate as much? Seems like short-intermed. Muni funds have been more stable in yield. I’m tired of constantly having to watch this fund for better alternatives. Thinking of switching to short-Ltd term muni for most of my cash reserves.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by FactualFran » Sat Jul 07, 2018 12:45 pm

am wrote:
Sat Jul 07, 2018 12:16 pm
Why is it that longer term muni funds don’t fluctuate as much? Seems like short-intermed. Muni funds have been more stable in yield. I’m tired of constantly having to watch this fund for better alternatives. Thinking of switching to short-Ltd term muni for most of my cash reserves.
A difference between a muni MM fund and longer term muni funds is a MM fund maintains a constant NAV, or at least tries to maintain a constant NAV. With the longer term funds, changes in the market value of holdings of the fund affect the NAV of the fund. With MM funds, changes in the market value of the holdings of the fund affect the yield of the fund.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Sat Jul 07, 2018 1:08 pm

FactualFran wrote:
Sat Jul 07, 2018 12:45 pm
am wrote:
Sat Jul 07, 2018 12:16 pm
Why is it that longer term muni funds don’t fluctuate as much? Seems like short-intermed. Muni funds have been more stable in yield. I’m tired of constantly having to watch this fund for better alternatives. Thinking of switching to short-Ltd term muni for most of my cash reserves.
A difference between a muni MM fund and longer term muni funds is a MM fund maintains a constant NAV, or at least tries to maintain a constant NAV. With the longer term funds, changes in the market value of holdings of the fund affect the NAV of the fund. With MM funds, changes in the market value of the holdings of the fund affect the yield of the fund.
You seem to be saying that new rules allows them some leeway on NAV. I didn't realize that, but I have to wonder why there are so many daily NAV changes down to the fourth or 5th decimal if that's the case?

I suspect the yield fluctuations are largely caused by relatively poor liquidity. Unlike T-bills or corporate paper, all a trader really knows about a lot of muni paper is the duration; solvency is murky due to the lax standards of muni disclosure. For that reason, I would think there are relatively few market makers for this paper, so the lack if daily liquidity will make the daily yields lumpy. I also wonder what role Nuveen has in creating or contracting the supply of the short stuff. Probably a big one.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by FactualFran » Sat Jul 07, 2018 1:45 pm

gmaynardkrebs wrote:
Sat Jul 07, 2018 1:08 pm
FactualFran wrote:
Sat Jul 07, 2018 12:45 pm

A difference between a muni MM fund and longer term muni funds is a MM fund maintains a constant NAV, or at least tries to maintain a constant NAV. With the longer term funds, changes in the market value of holdings of the fund affect the NAV of the fund. With MM funds, changes in the market value of the holdings of the fund affect the yield of the fund.
You seem to be saying that new rules allows them some leeway on NAV. I didn't realize that, but I have to wonder why there are so many daily NAV changes down to the fourth or 5th decimal if that's the case?
I did not mention anything about new rules versus old rules. I know NAVs to only the usually reported two decimal places, not to the fourth or 5th decimal place.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Sat Jul 07, 2018 2:05 pm

FactualFran wrote:
Sat Jul 07, 2018 1:45 pm
gmaynardkrebs wrote:
Sat Jul 07, 2018 1:08 pm
FactualFran wrote:
Sat Jul 07, 2018 12:45 pm

A difference between a muni MM fund and longer term muni funds is a MM fund maintains a constant NAV, or at least tries to maintain a constant NAV. With the longer term funds, changes in the market value of holdings of the fund affect the NAV of the fund. With MM funds, changes in the market value of the holdings of the fund affect the yield of the fund.
You seem to be saying that new rules allows them some leeway on NAV. I didn't realize that, but I have to wonder why there are so many daily NAV changes down to the fourth or 5th decimal if that's the case?
I did not mention anything about new rules versus old rules. I know NAVs to only the usually reported two decimal places, not to the fourth or 5th decimal place.
Vanguard reports to the 4th decimal place. I don't know if that many digits is required under the new rules (by new, I mean, the post-crisis rules on breaking the buck. I think they came into effect a year or two ago, but I'm not sure exactly when.)

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat Jul 07, 2018 3:28 pm

am wrote:
Sat Jul 07, 2018 7:20 am
Why’s muni mm going down again from 1.38% earlier this week now to 1.31%? Thought this was a quarterly phenomenon?
Interesting that we seem to have hit the peak before my muni MM fund TEYs rose above Prime MM, unlike the last two cycles.

Image

Note that there were almost four months between the peak in early January and the peak in late April, but only a little over two months between the peak in late April and the peak in early July. Also, the previous increase in the muni MM yields lasted from mid-Feb to late Apr, so about 2.5 months, while the most recent increase lasted from about mid-June to early-Jul, so only a little more than two weeks.

Assuming the current downturn is not just a short dip before the trend resumes upward, what we have been seeing is not a quarterly cycle.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Sat Jul 07, 2018 4:04 pm

Kevin M wrote:
Sat Jul 07, 2018 3:28 pm
am wrote:
Sat Jul 07, 2018 7:20 am
Why’s muni mm going down again from 1.38% earlier this week now to 1.31%? Thought this was a quarterly phenomenon?
Interesting that we seem to have hit the peak before my muni MM fund TEYs rose above Prime MM, unlike the last two cycles.

Image

Note that there were almost four months between the peak in early January and the peak in late April, but only a little over two months between the peak in late April and the peak in early July. Also, the previous increase in the muni MM yields lasted from mid-Feb to late Apr, so about 2.5 months, while the most recent increase lasted from about mid-June to early-Jul, so only a little more than two weeks.

Assuming the current downturn is not just a short dip before the trend resumes upward, what we have been seeing is not a quarterly cycle.

Kevin
Where do you get this data for yields? Would like to see it for short term and Ltd. term muni.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Sat Jul 07, 2018 5:00 pm

Here is an updated chart which includes the Fed rate hike on 12-16-15. You can see that VMSXX did not immediately respond to the rate increase as mentioned in the article I posted earlier.

The chart provides a date label and tick mark on 12-15-15. That increase was the first rate hike of the current tightening cycle. The SEC yields rose in advance of the rate hike in both Prime Money Market and Treasury Money Market. You can also see that Prime Money Market was the first of the three funds to see its yield rise above 0.01%.

The delayed increase in VMSXX makes you wonder exactly how the VRDO remarketing agents reset rates and how that market really works. The rise was quite steep and started around 3-18-16 near the end of the quarter. As discussed earlier, supply may have increased and demand may have decreased as a result of redemptions from tax-exempt money market funds.

The latest rise in yield peaked on 7-03-18 at 1.38%. The rise in 2017 was similar with its peak on 7-05-17. This does make you wonder if new paper is issued near the end of the quarter.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat Jul 07, 2018 5:55 pm

am wrote:
Sat Jul 07, 2018 4:04 pm
Where do you get this data for yields? Would like to see it for short term and Ltd. term muni.
I shared the spreadsheet I use to create the chart earlier in the thread:
viewtopic.php?f=1&t=246263&start=100#p3971385.

You can either use the spreadsheet, and add columns for the funds you're interested in, or you can just use the Vanguard price history search tool for each fund. Go to the web page for the fund, click on Price & Performance, then below the Historical prices on the right, click the link "Search for more historical price information". Then enter start date and end date, with a maximum of one year (actually you can get slightly more than a year).

Here is the price history search for limited-term tax-exempt: https://personal.vanguard.com/us/funds/ ... &year=#res.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by neurosphere » Sun Jul 08, 2018 9:00 am

Kevin M wrote:
Sat Jul 07, 2018 3:28 pm
Note that there were almost four months between the peak in early January and the peak in late April, but only a little over two months between the peak in late April and the peak in early July. Also, the previous increase in the muni MM yields lasted from mid-Feb to late Apr, so about 2.5 months, while the most recent increase lasted from about mid-June to early-Jul, so only a little more than two weeks.
About about that "corner" at April 1? Perhaps that the quarterly "peak", and the subsequent peak/rise a few weeks later is something else? I do think that April 1 discontinuity is not a coincidence.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by FactualFran » Mon Jul 09, 2018 1:50 pm

gmaynardkrebs wrote:
Sat Jul 07, 2018 2:05 pm
Vanguard reports to the 4th decimal place. I don't know if that many digits is required under the new rules (by new, I mean, the post-crisis rules on breaking the buck. I think they came into effect a year or two ago, but I'm not sure exactly when.)
That prompts the question: are transactions done using the NAVs to four decimal place or two decimal places? I did not find anything in the prospectus of the Vanguard Municipal Money Market fund about the number of decimal places in the NAV used for transactions.

Looking at the transactions that I have had so far in 2018 with both the Vanguard Municipal and Vanguard Prime Money Market funds, the NAV of each transaction has be $1.0000. The number of shares of some transactions would have been different if the NAV used for the transaction had not been $1.0000 (to four decimal places).

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Mon Jul 09, 2018 2:47 pm

FactualFran wrote:
Mon Jul 09, 2018 1:50 pm
That prompts the question: are transactions done using the NAVs to four decimal place or two decimal places? I did not find anything in the prospectus of the Vanguard Municipal Money Market fund about the number of decimal places in the NAV used for transactions.
Fidelity provides some information as seen in the link below.

"Retail prime (general purpose) and retail municipal money market mutual funds will be eligible to use amortized cost accounting to price and transact shares at $1.00."

https://www.fidelity.com/bin-public/060 ... ng-nav.pdf

Here is some information from Vanguard discussing Money Market Fund Fees and Gates. The implication seems to be that NAV would remain at $1.00 if Fees or Gates need to be implemented.

https://investor.vanguard.com/mutual-fu ... tor-impact
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Tue Jul 10, 2018 7:04 am

Down to 1.2% sec yield today from 1.31%. Now I’m below TEY at my bracket compared to prime. Maybe time to switch, again!

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Tue Jul 10, 2018 1:37 pm

am wrote:
Tue Jul 10, 2018 7:04 am
Down to 1.2% sec yield today from 1.31%. Now I’m below TEY at my bracket compared to prime.
There must be a lot of demand from people in the 35% and 37% brackets. Even then the current rate is not overly attractive depending on the taxable rate used for comparison. The Treasury Money Market fund is still looking good for my case with the 100% state tax exemption.
neurosphere wrote:
Sun Jul 08, 2018 9:00 am
About that "corner" at April 1? Perhaps that quarterly "peak" and the subsequent peak/rise a few weeks later is something else? I do think that April 1 discontinuity is not a coincidence.
That discontinuity could be explained by new paper being issued followed by Money Market fund redemptions to pay taxes. Those kinds of factors would vary from year to year.

I came across a document on VRDOs with all kinds of interesting information. Note the statement about VRDOs trading outside the formal tender process. Prices other than par could offer an opportunity for arbitrage but there may not be enough liquidity for it to be profitable.

https://www.sifma.org/wp-content/upload ... 8-2012.pdf

"In some cases, the remarketing agent, in its sole discretion, may acquire tendered VRDOs for its own inventory in order to achieve a successful remarketing (i.e., because there otherwise are not enough buyers to purchase the VRDOs or for other reasons), thereby avoiding the need to draw on any liquidity facility to pay the tendering bond owners. The remarketing agent, however, is not obligated to purchase VRDOs and may cease doing so at any time without notice. Although not required to do so, the remarketing agent also may make a market in the VRDOs by purchasing and selling VRDOs outside of the formal tender process. Any such purchases and sales may be at prices other than par. The remarketing agent also may sell VRDOs that it owns to one or more affiliated investment vehicles or enter into derivative arrangements with affiliates or others in order to reduce its exposure to the VRDOs. The purchase of VRDOs by the remarketing agent may create the appearance that there is greater demand for the VRDOs in the market than is actually the case."
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Tue Jul 10, 2018 6:59 pm

Now 1.17 sec yield!

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Fri Jul 13, 2018 4:00 pm

Here are two articles that may help explain some of the recent yield spikes seen in VMSXX. Note the comment in the Blackrock article about the spring supply push.

https://www.bloomberg.com/news/articles ... orm-damage

November 30, 2017 "In the rush to borrow before the Republican tax bill reshapes the debt market, states and municipalities are paying up. The biggest spree of debt issuance in more than a decade has pushed up borrowing costs and eroded returns in the $3.8 trillion municipal-debt market."

"The flurry is so dense it’s threatening to become the biggest month of issuance in history, surpassing December 1985 when almost $55 billion was sold ahead of the Reagan-era tax reform."

https://www.blackrock.com/investing/lit ... -en-us.pdf

"Heading into the late summer months, historically a period of net negative supply following the spring supply push, we hold a positive view on the muni market, particularly as relative valuations have reset to slightly more attractive levels. Looking further ahead into the fall, we anticipate taking a bit more caution as we watch for event risks relating to a potential third Fed rate hike, midterm elections, and the curtailment of the tax benefit for pension buyers."
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Fri Jul 13, 2018 9:46 pm

Electron wrote:
Fri Jul 13, 2018 4:00 pm
Here are two articles that may help explain some of the recent yield spikes seen in VMSXX. Note the comment in the Blackrock article about the spring supply push.

https://www.bloomberg.com/news/articles ... orm-damage

November 30, 2017 "In the rush to borrow before the Republican tax bill reshapes the debt market, states and municipalities are paying up. The biggest spree of debt issuance in more than a decade has pushed up borrowing costs and eroded returns in the $3.8 trillion municipal-debt market."

"The flurry is so dense it’s threatening to become the biggest month of issuance in history, surpassing December 1985 when almost $55 billion was sold ahead of the Reagan-era tax reform."

https://www.blackrock.com/investing/lit ... -en-us.pdf

"Heading into the late summer months, historically a period of net negative supply following the spring supply push, we hold a positive view on the muni market, particularly as relative valuations have reset to slightly more attractive levels. Looking further ahead into the fall, we anticipate taking a bit more caution as we watch for event risks relating to a potential third Fed rate hike, midterm elections, and the curtailment of the tax benefit for pension buyers."
Where do you think yields will go from here? It’s 1.10% right now and doesn’t make sense any more at my bracket.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat Jul 14, 2018 10:49 am

am wrote:
Fri Jul 13, 2018 9:46 pm
Where do you think yields will go from here? It’s 1.10% right now and doesn’t make sense any more at my bracket.
1.08% as of Friday.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Sat Jul 14, 2018 11:38 am

Kevin M wrote:
Sat Jul 14, 2018 10:49 am
am wrote:
Fri Jul 13, 2018 9:46 pm
Where do you think yields will go from here? It’s 1.10% right now and doesn’t make sense any more at my bracket.
1.08% as of Friday.

Kevin
Yes I’ve switched to prime again. I think I’m going to stick with it because the yield is stable and only going up. 2.05% is competitive with the best non risk liquid yields.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Sat Jul 14, 2018 11:40 am

am wrote:
Fri Jul 13, 2018 9:46 pm
Where do you think yields will go from here? It’s 1.10% right now and doesn’t make sense any more at my bracket.
The only thing I can suggest is reviewing the pattern in previous years. The most recent peak on 7-03-18 appears consistent with the peak on 7-05-17.

It might be worth estimating the annual dollar difference between the two alternatives that you are considering. You can also keep both funds open and maintain a small balance in the lower yielding fund.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by am » Sat Jul 14, 2018 11:43 am

Electron wrote:
Sat Jul 14, 2018 11:40 am
am wrote:
Fri Jul 13, 2018 9:46 pm
Where do you think yields will go from here? It’s 1.10% right now and doesn’t make sense any more at my bracket.
The only thing I can suggest is reviewing the pattern in previous years. The most recent peak on 7-03-18 appears consistent with the peak on 7-05-17.

It might be worth estimating the annual dollar difference between the two alternatives that you are considering. You can also keep both funds open and maintain a small balance in the lower yielding fund.
It’s so easy to switch between the funds that any additional yield is like picking up money off the ground. Although constantly watching the yields does take some of my time so not exactly.

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