Vanguard Municipal Money Market VMSXX 1.39%

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Leif
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Leif » Tue Jun 12, 2018 5:05 pm

HEDGEFUNDIE wrote:
Sat Jun 02, 2018 11:02 am
You should move the funds to Prime Money Market instead; it’s paying 1.91%
Prime is at 1.97% now. Maybe over 2% before the month is over?

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Kevin M
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Tue Jun 12, 2018 6:12 pm

Kevin M wrote:
Tue Jun 12, 2018 4:44 pm
neurosphere wrote:
Tue Jun 12, 2018 11:03 am
[Edited to add: Although, the muni money market yields have been the same for 4 straight trading days, so perhaps that represents a local minimum and the beginning of the next up-swing has started! lol. ]
CA muni MM actually ticked up one basis point yesterday. It was 43 days from the previous peak (not the most recent one) to the end of the previous trough for CA muni MM, and it's been 43 days since the last peak to last Friday, so it wouldn't surprise me if we're now at the beginning of the next upswing.

Kevin
Another another tick up today. Here are last seven market days for CA Muni MM:

Code: Select all

6/04/2018  0.97%
6/05/2018  0.95%
6/06/2018  0.94%
6/07/2018  0.94%
6/08/2018  0.94%
6/11/2018  0.95%
6/12/2018  0.96%
Muni MM held at 1.03% for the fifth day in a row

Kevin
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am
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by am » Tue Jun 12, 2018 6:17 pm

Kevin M wrote:
Tue Jun 12, 2018 6:12 pm
Kevin M wrote:
Tue Jun 12, 2018 4:44 pm
neurosphere wrote:
Tue Jun 12, 2018 11:03 am
[Edited to add: Although, the muni money market yields have been the same for 4 straight trading days, so perhaps that represents a local minimum and the beginning of the next up-swing has started! lol. ]
CA muni MM actually ticked up one basis point yesterday. It was 43 days from the previous peak (not the most recent one) to the end of the previous trough for CA muni MM, and it's been 43 days since the last peak to last Friday, so it wouldn't surprise me if we're now at the beginning of the next upswing.

Kevin
Another another tick up today. Here are last seven market days for CA Muni MM:

Code: Select all

6/04/2018  0.97%
6/05/2018  0.95%
6/06/2018  0.94%
6/07/2018  0.94%
6/08/2018  0.94%
6/11/2018  0.95%
6/12/2018  0.96%
Muni MM held at 1.03% for the fifth day in a row

Kevin
Muni mm went from a no brainer at 1.55% yield to 1.03% now which doesn’t make sense at my bracket. I switched to prime. I look at the extra yield as free money.

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Kevin M
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Tue Jun 12, 2018 6:30 pm

am wrote:
Tue Jun 12, 2018 6:17 pm
Muni mm went from a no brainer at 1.55% yield to 1.03% now which doesn’t make sense at my bracket. I switched to prime. I look at the extra yield as free money.
Yes, but the point is that the muni MM yields seem to be cyclical, and it looks like we are at the bottom of the trough of the cycle, and in the case of CA muni MM, have already started on the upswing. Last time it was 35 days from the bottom of the trough to where CA muni MM taxable-equivalent yield (TEY) crossed above Prime MM yield for me. However, this time the trough is much deeper relative to Prime MM, so it might take longer for the muni MM funds to gain the advantage this time.

Kevin
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dyangu
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by dyangu » Wed Jun 13, 2018 9:21 am

Kevin M wrote:
Tue Jun 12, 2018 6:30 pm
am wrote:
Tue Jun 12, 2018 6:17 pm
Muni mm went from a no brainer at 1.55% yield to 1.03% now which doesn’t make sense at my bracket. I switched to prime. I look at the extra yield as free money.
Yes, but the point is that the muni MM yields seem to be cyclical, and it looks like we are at the bottom of the trough of the cycle, and in the case of CA muni MM, have already started on the upswing. Last time it was 35 days from the bottom of the trough to where CA muni MM taxable-equivalent yield (TEY) crossed above Prime MM yield for me. However, this time the trough is much deeper relative to Prime MM, so it might take longer for the muni MM funds to gain the advantage this time.

Kevin
Why is there so much fluctuation in muni money market yields? Is it just a quick of how Vanguard reports the yield, or should we actually be moving money back and forth to exploit this?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Wed Jun 13, 2018 9:52 am

dyangu wrote:
Wed Jun 13, 2018 9:21 am
Why is there so much fluctuation in muni money market yields? Is it just a quick of how Vanguard reports the yield, or should we actually be moving money back and forth to exploit this?
I don't understand it either, and worse yet, no one else seems to either. I find anything I don't understand a little worrying as to underlying risks that might be lurking. Probably nothing, but I do recall the ARS mess 10 years ago, which caught me by surprise -- I had no idea that the muni market was so dominated -- dare I say manipulated -- by these complex ARS, which were abandoned by the big brokerages as soon as it suited them (as opposed to their clients, who they stranded high and dry. Oddly, the yields in the muni MM soared so much they closed it temporarily, which is also weird and unsettling.) The vanguard short muni has a 1.1 year duration, and really doesn't fluctuate much lately. At 1.69%, I'm willing to put up with with the modest duration risk, so as not to waste my time switching between the Treasury MM and the muni MM like I was doing, as well as wasting my time getting all OCD over what's going on. Not worth it for a few extra TEY points.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Wed Jun 13, 2018 10:07 am

gmaynardkrebs wrote:
Wed Jun 13, 2018 9:52 am
dyangu wrote:
Wed Jun 13, 2018 9:21 am
Why is there so much fluctuation in muni money market yields? Is it just a quick of how Vanguard reports the yield, or should we actually be moving money back and forth to exploit this?
I don't understand it either, and worse yet, no one else seems to either.
I have spent close to 5 hours googling trying to find some answer to this, or even another mention of this variability, with no success. I emailed SIFMA, which is a trade organization which publishes the SIFMA swap index, which is the index which tracks the variable rate municipal bonds which are in muni money market funds (https://www.sifma.org/resources/research/swap/; note that the graph of the index does not appear if you have an ad blocker), but I did not get a reply. This phenomenon HAS to be a known thing. I can't believe BH are the only people that know about this. :D

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Kevin M
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Wed Jun 13, 2018 1:20 pm

dyangu wrote:
Wed Jun 13, 2018 9:21 am
Why is there so much fluctuation in muni money market yields? Is it just a quick of how Vanguard reports the yield, or should we actually be moving money back and forth to exploit this?
It's not a quirk in how Vanguard reports yield. I've verified it directly by calculating the yield based on the change in daily accrued interest (you must have a large enough balance to calculated it accurately--I tried it on a balance of about $750, and there was not enough precision in the daily accrued interest to calculate it accurately). I shared the results in an earlier reply in this thread.

It's up to you if you want to exchange between taxable and muni MM funds to take advantage of it, but for me it's worth it, since it takes less time to do the exchange than it did to write this reply.

I already have a spreadsheet set up that automatically imports the fund SEC yields, calculates my taxable-equivalent yield (TEY) on the muni MM funds, and charts Prime MM, CA muni MM and Muni MM TEYs (examples of which I've shared in this thread), so I can easily see when one goes above the other by just opening the spreadsheet. I enjoy doing this kind of spreadsheet work, so that part is entertainment for me. Just following this thread will alert you to when it's likely a good time to check.

Kevin
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LSLover
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by LSLover » Wed Jun 13, 2018 1:23 pm

Kevin M wrote:
Wed Jun 13, 2018 1:20 pm
dyangu wrote:
Wed Jun 13, 2018 9:21 am
Why is there so much fluctuation in muni money market yields? Is it just a quick of how Vanguard reports the yield, or should we actually be moving money back and forth to exploit this?
It's not a quirk in how Vanguard reports yield. I've verified it directly by calculating the yield based on the change in daily accrued interest (you must have a large enough balance to calculated it accurately--I tried it on a balance of about $750, and there was not enough precision in the daily accrued interest to calculate it accurately). I shared the results in an earlier reply in this thread.

It's up to you if you want to exchange between taxable and muni MM funds to take advantage of it, but for me it's worth it, since it takes less time to do the exchange than it did to write this reply.

I already have a spreadsheet set up that automatically imports the fund SEC yields, calculates my taxable-equivalent yield (TEY) on the muni MM funds, and charts Prime MM, CA muni MM and Muni MM TEYs (examples of which I've shared in this thread), so I can easily see when one goes above the other by just opening the spreadsheet. I enjoy doing this kind of spreadsheet work, so that part is entertainment for me. Just following this thread will alert you to when it's likely a good time to check.

Kevin
Would you be willing to share the spreadsheet you have set up?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Wed Jun 13, 2018 2:26 pm

LSLover wrote:
Wed Jun 13, 2018 1:23 pm
Would you be willing to share the spreadsheet you have set up?
Sure. It's a Google Sheet, and here's the link to a view-only version: https://docs.google.com/spreadsheets/d/ ... sp=sharing.

With your Google account, you can make a copy to get an editable version.

The core is using IMPORTHTML to get the SEC yields from the Vanguard price history search web page. Here is an example:

Code: Select all

=IMPORTHTML(CONCATENATE("https://personal.vanguard.com/us/funds/tools/pricehistorysearch?radio=1&results=get&FundId=",F1,"&radiobutton2=1&beginDate=",MONTH(TODAY()-$B$1),"%2F",DAY(TODAY()-$B$1),"%2F",YEAR(TODAY()-$B$1),"&endDate=",MONTH(TODAY()),"%2F",DAY(TODAY()),"%2F",YEAR(TODAY())),"TABLE",31)
For this particular formula, cell F1 has the fund ID, which is 30 for Prime, 45 for Muni, and 62 for CA Muni (you can of course change this to the fund ID for any Vanguard fund). Cell B1 has the number of days to load, which for this sheet I set to the maximum of 365 (you can pull one year of SEC yields at a time from the Vanguard price history search page).

Three columns are returned: Date, Price and Yield. I hide the price column, since it's irrelevant for this purpose (and is always 1.00 for retail money market funds). I copy the yield column for Prime to a separate column so I can label the column with the name of the fund, for use in the chart, and for the muni funds I add a TEY column that includes the TEYs for the funds, since it's the TEYs I'm interested in and want to show on the chart.

The most recent yields and TEYs are shown in a summary table, so you don't really even need to look at the chart to see which one is the highest.

The TEY calculations assume no itemized deductions, or at least that state income tax is not deductible in calculating your marginal federal tax rate.

Kevin
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Electron
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Electron » Wed Jun 13, 2018 2:31 pm

Why is there so much fluctuation in muni money market yields?
I believe one factor is variation in the supply of new paper. Increased supply may increase yields while decreased supply may drive down yields. I've also seen a similar effect in longer term municipal securities near the end of the year when supply may increase significantly. If you check the portfolio listings for VMSXX you will also see new paper issued by leveraged closed-end mutual funds such as Nuveen. Short term tax exempt VRDP and VRDO securities are issued to provide the leverage for the closed-end Municipal bond funds.

It's worth comparing after-tax yields for the different types of money market funds available to you. The list includes Treasury Money Market, Federal Money Market, Prime Money Market, Municipal Money Market, and any State Specific Money Market funds. Treasury Money Market is typically fully tax exempt for any state income tax while Federal Money Market may provide a partial exemption. In 2017, 69.86% of income was from U.S. Government obligations.

I just ran the calculations for my case and was surprised with the results. I live in a state with a high tax rate, and my highest after-tax yield would currently be with Vanguard Treasury Money Market. The remaining choices in order would be Vanguard Prime Money Market, Vanguard Federal Money Market, Vanguard California Money Market, and Vanguard Municipal Money Market.
Electron

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Wed Jun 13, 2018 3:06 pm

Electron wrote:
Wed Jun 13, 2018 2:31 pm
I just ran the calculations for my case and was surprised with the results. I live in a state with a high tax rate, and my highest after-tax yield would currently be with Vanguard Treasury Money Market.
Interesting. I normally don't look at this fund, because the minimum investment is $50K, but I'll add it into my spreadsheet.

Kevin
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LSLover
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by LSLover » Wed Jun 13, 2018 3:08 pm

Kevin M wrote:
Wed Jun 13, 2018 2:26 pm
LSLover wrote:
Wed Jun 13, 2018 1:23 pm
Would you be willing to share the spreadsheet you have set up?
Sure. It's a Google Sheet, and here's the link to a view-only version: https://docs.google.com/spreadsheets/d/ ... sp=sharing.

With your Google account, you can make a copy to get an editable version.

The core is using IMPORTHTML to get the SEC yields from the Vanguard price history search web page. Here is an example:

Code: Select all

=IMPORTHTML(CONCATENATE("https://personal.vanguard.com/us/funds/tools/pricehistorysearch?radio=1&results=get&FundId=",F1,"&radiobutton2=1&beginDate=",MONTH(TODAY()-$B$1),"%2F",DAY(TODAY()-$B$1),"%2F",YEAR(TODAY()-$B$1),"&endDate=",MONTH(TODAY()),"%2F",DAY(TODAY()),"%2F",YEAR(TODAY())),"TABLE",31)
For this particular formula, cell F1 has the fund ID, which is 30 for Prime, 45 for Muni, and 62 for CA Muni (you can of course change this to the fund ID for any Vanguard fund). Cell B1 has the number of days to load, which for this sheet I set to the maximum of 365 (you can pull one year of SEC yields at a time from the Vanguard price history search page).

Three columns are returned: Date, Price and Yield. I hide the price column, since it's irrelevant for this purpose (and is always 1.00 for retail money market funds). I copy the yield column for Prime to a separate column so I can label the column with the name of the fund, for use in the chart, and for the muni funds I add a TEY column that includes the TEYs for the funds, since it's the TEYs I'm interested in and want to show on the chart.

The most recent yields and TEYs are shown in a summary table, so you don't really even need to look at the chart to see which one is the highest.

The TEY calculations assume no itemized deductions, or at least that state income tax is not deductible in calculating your marginal federal tax rate.

Kevin
Thank you, Kevin! Very helpful!

I have added Vanguard Short-Term Tax-Exempt Fund Admiral Shares (VWSUX) as it seem to be an acceptable alternative to the Money Market Funds.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Wed Jun 13, 2018 3:24 pm

Kevin M wrote:
Wed Jun 13, 2018 2:26 pm
The TEY calculations assume no itemized deductions, or at least that state income tax is not deductible in calculating your marginal federal tax rate.
Different states tax home-state muni interest differently, depending on how much is in the fund. It looks like you are assuming all of the national muni interest is taxable by the state. I think this is indeed the case in CA and NY (my state), and maybe one other. The TE yields of the muni may be (ever so slightly) better for some of the larger states (WI, IL)? And wait, I'm just noticing, there is only 3% California in the muni fund: https://www.vanguard.com/pdf/ASBST_012018.pdf

This is way out of proportion to the other muni funds in the list. I find that curious.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Wed Jun 13, 2018 6:46 pm

neurosphere wrote:
Wed Jun 13, 2018 3:24 pm
Kevin M wrote:
Wed Jun 13, 2018 2:26 pm
The TEY calculations assume no itemized deductions, or at least that state income tax is not deductible in calculating your marginal federal tax rate.
Different states tax home-state muni interest differently, depending on how much is in the fund. It looks like you are assuming all of the national muni interest is taxable by the state. I think this is indeed the case in CA and NY (my state), and maybe one other.
Yes, this is the case in CA, which is what's relevant to me. People will need to modify the TEY formula for the (national) muni MM if that is not applicable to them. Or someone could make a more generic version where the percentage that is taxable or non-taxable by the state could be entered in a cell and incorporated into the TEY formula.

Kevin
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Wed Jun 13, 2018 7:06 pm

Kevin M wrote:
Wed Jun 13, 2018 6:46 pm
neurosphere wrote:
Wed Jun 13, 2018 3:24 pm
Kevin M wrote:
Wed Jun 13, 2018 2:26 pm
The TEY calculations assume no itemized deductions, or at least that state income tax is not deductible in calculating your marginal federal tax rate.
Different states tax home-state muni interest differently, depending on how much is in the fund. It looks like you are assuming all of the national muni interest is taxable by the state. I think this is indeed the case in CA and NY (my state), and maybe one other.
Yes, this is the case in CA, which is what's relevant to me. People will need to modify the TEY formula for the (national) muni MM if that is not applicable to them. Or someone could make a more generic version where the percentage that is taxable or non-taxable by the state could be entered in a cell and incorporated into the TEY formula.

Kevin
Eh. :D If one is not in CA or NY, taking into account state-specific taxability probably only makes a trivial difference. Unless one has $1,000,000+ in a money market, LOL. Mostly I was just pointing out a tax-fact for those who may not realize it. :wink:

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Ricchan » Thu Jun 14, 2018 1:24 pm

Here's an updated graph of Prime vs Muni yields with numbers as of today.

Image

As others have already mentioned, Muni is on the upswing, but there's quite a bit to catch up on.
Also, it's kind of surprising (?) how far below Prime the Muni yields fell this time (that even the 37% tax equivalent yield became less desirable).

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by am » Thu Jun 14, 2018 3:31 pm

Ricchan wrote:
Thu Jun 14, 2018 1:24 pm
Here's an updated graph of Prime vs Muni yields with numbers as of today.

Image

As others have already mentioned, Muni is on the upswing, but there's quite a bit to catch up on.
Also, it's kind of surprising (?) how far below Prime the Muni yields fell this time (that even the 37% tax equivalent yield became less desirable).
Could it be that investors pile into muni mm when TEY is higher than prime mm (like me) and the demand drives the yield down? When investors (like me) realize that it is not the case and go back to prime mm, than the yield on muni mm go up and the cycle repeats?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Thu Jun 14, 2018 4:34 pm

am wrote:
Thu Jun 14, 2018 3:31 pm
Could it be that investors pile into muni mm when TEY is higher than prime mm (like me) and the demand drives the yield down? When investors (like me) realize that it is not the case and go back to prime mm, than the yield on muni mm go up and the cycle repeats?
But then why would there be quarterly variations? If it were a behavioral thing, I would think that it would be more irregular? It has to be a systematic issue/ BUT, why isn't this kind of thing then arbitraged away by folks with gazillions of dollars who know this cycle? I'm just guessing that this can't be an "individual investor" phenomenon, but has to be something on a much larger, corporate, institutional, or government scale.

There is data that the effective federal funds rate (as opposed to the target) has both monthly and quarterly increases in standard deviation (e.g. not necessarily in the same direction) which has to do with liquidity. That somehow at the end of the quarter some entities are required to "square up" certain obligations. A similar mechanism could be occurring with short-term muni debt. But really, I'm just making #*!@# up, because I really don't know anything about these kinds of things. :D

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Thu Jun 14, 2018 4:55 pm

neurosphere wrote:
Thu Jun 14, 2018 4:34 pm
am wrote:
Thu Jun 14, 2018 3:31 pm
Could it be that investors pile into muni mm when TEY is higher than prime mm (like me) and the demand drives the yield down? When investors (like me) realize that it is not the case and go back to prime mm, than the yield on muni mm go up and the cycle repeats?
But then why would there be quarterly variations? If it were a behavioral thing, I would think that it would be more irregular? It has to be a systematic issue/ BUT, why isn't this kind of thing then arbitraged away by folks with gazillions of dollars who know this cycle? I'm just guessing that this can't be an "individual investor" phenomenon, but has to be something on a much larger, corporate, institutional, or government scale.

There is data that the effective federal funds rate (as opposed to the target) has both monthly and quarterly increases in standard deviation (e.g. not necessarily in the same direction) which has to do with liquidity. That somehow at the end of the quarter some entities are required to "square up" certain obligations. A similar mechanism could be occurring with short-term muni debt. But really, I'm just making #*!@# up, because I really don't know anything about these kinds of things. :D
What's intriguing is that this seems to have started late last year after the new tax bill passed. No idea of the mechanism, although with so many munis packaged in closed end funds, it wouldn't surprise me if it's a supply or liquidity issue related to muni portfolio re-jiggering post tax reform..

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by FactualFran » Thu Jun 14, 2018 5:28 pm

gmaynardkrebs wrote:
Thu Jun 14, 2018 4:55 pm
What's intriguing is that this seems to have started late last year after the new tax bill passed. No idea of the mechanism, although with so many munis packaged in closed end funds, it wouldn't surprise me if it's a supply or liquidity issue related to muni portfolio re-jiggering post tax reform..
It may seem to have started late last year, but the yield history of Vanguard Municipal Money Market fund obtained by doing a price lookup at the Vanguard web site includes the following lows and high near the end of most of the calendar quarters.

12/14/1999 3.26%
01/04/2000 4.54%
06/13/2000 3.71%
07/03/2000 4.30%
09/12/2000 3.82%
10/02/2000 4.87%
12/12/2000 3.64%
12/29/2000 4.44%

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by am » Thu Jun 14, 2018 5:31 pm

gmaynardkrebs wrote:
Thu Jun 14, 2018 4:55 pm
neurosphere wrote:
Thu Jun 14, 2018 4:34 pm
am wrote:
Thu Jun 14, 2018 3:31 pm
Could it be that investors pile into muni mm when TEY is higher than prime mm (like me) and the demand drives the yield down? When investors (like me) realize that it is not the case and go back to prime mm, than the yield on muni mm go up and the cycle repeats?
But then why would there be quarterly variations? If it were a behavioral thing, I would think that it would be more irregular? It has to be a systematic issue/ BUT, why isn't this kind of thing then arbitraged away by folks with gazillions of dollars who know this cycle? I'm just guessing that this can't be an "individual investor" phenomenon, but has to be something on a much larger, corporate, institutional, or government scale.

There is data that the effective federal funds rate (as opposed to the target) has both monthly and quarterly increases in standard deviation (e.g. not necessarily in the same direction) which has to do with liquidity. That somehow at the end of the quarter some entities are required to "square up" certain obligations. A similar mechanism could be occurring with short-term muni debt. But really, I'm just making #*!@# up, because I really don't know anything about these kinds of things. :D
What's intriguing is that this seems to have started late last year after the new tax bill passed. No idea of the mechanism, although with so many munis packaged in closed end funds, it wouldn't surprise me if it's a supply or liquidity issue related to muni portfolio re-jiggering post tax reform..
We have a true mystery on our hands, one that only bogleheads like us enjoy. :D

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Thu Jun 14, 2018 5:37 pm

FactualFran wrote:
Thu Jun 14, 2018 5:28 pm
gmaynardkrebs wrote:
Thu Jun 14, 2018 4:55 pm
What's intriguing is that this seems to have started late last year after the new tax bill passed. No idea of the mechanism, although with so many munis packaged in closed end funds, it wouldn't surprise me if it's a supply or liquidity issue related to muni portfolio re-jiggering post tax reform..
It may seem to have started late last year, but the yield history of Vanguard Municipal Money Market fund obtained by doing a price lookup at the Vanguard web site includes the following lows and high near the end of most of the calendar quarters.

12/14/1999 3.26%
01/04/2000 4.54%
06/13/2000 3.71%
07/03/2000 4.30%
09/12/2000 3.82%
10/02/2000 4.87%
12/12/2000 3.64%
12/29/2000 4.44%
late 2017 through today swings are more dramatic Also, why did you choose this data set? Is it representative of the next 18 years?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Electron » Thu Jun 14, 2018 5:47 pm

The taxable Money Market funds at Vanguard are maintaining longer average maturities compared with the Municipal Money Market fund. That difference may be a factor in the after-tax yield comparisons.

Treasury - Average Maturity 56 days - SEC Yield 1.79%
Federal - Average Maturity 54 days - SEC Yield 1.76%
Prime - Average Maturity 46 days - SEC Yield 1.96%
Municipal - Average Maturity 29 days - SEC Yield 1.04%

The Treasury Money Market fund does look quite attractive for investors in high tax states depending on Federal tax rate. If one is unable to meet the fund minimum and daily liquidity is not needed, Treasury bills may be a reasonable alternative. The three month Treasury bill is currently yielding close to 2% while the six month bill is over 2%. Treasury bill interest is fully tax exempt for any state tax.

The Federal Money Market fund used with Vanguard Brokerage accounts may also be attractive in high tax states with roughly 70% of income from U.S. Government securities.
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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by FactualFran » Thu Jun 14, 2018 6:09 pm

gmaynardkrebs wrote:
Thu Jun 14, 2018 5:37 pm
late 2017 through today swings are more dramatic Also, why did you choose this data set? Is it representative of the next 18 years?
I choose 2000 mostly at random, avoiding years during which the yield of municipal money market funds were very low. It shows that increase in the yield of money market funds approaching the end of calendar quarters is not new. I have no idea whether it is representative of the next 18 years.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Thu Jun 14, 2018 6:36 pm

gmaynardkrebs wrote:
Thu Jun 14, 2018 5:37 pm
late 2017 through today swings are more dramatic Also, why did you choose this data set? Is it representative of the next 18 years?
Look at Kevin M's post from May 19th in this thread. This quarterly (and monthly?) variability has been going on for a while, and is likely not related any particular set of tax regulations.

[edit: this post: viewtopic.php?f=1&t=246263&start=50#p3936072]

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Thu Jun 14, 2018 10:11 pm

neurosphere wrote:
Thu Jun 14, 2018 6:36 pm
gmaynardkrebs wrote:
Thu Jun 14, 2018 5:37 pm
late 2017 through today swings are more dramatic Also, why did you choose this data set? Is it representative of the next 18 years?
Look at Kevin M's post from May 19th in this thread. This quarterly (and monthly?) variability has been going on for a while, and is likely not related any particular set of tax regulations.

[edit: this post: viewtopic.php?f=1&t=246263&start=50#p3936072]
Ok, let's say it's not the tax law. But why are the yields so variable? And, as someone pointed out above, why is this apparently predictable yield cycle not being arbitraged away?

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by DanFromNewYork » Fri Jun 15, 2018 12:27 pm

This is an interesting phenomenon. I looked for papers discussing this but could only find this paper from 2000 that mostly touches on the end of the year "turn" effect:
Seasonal Patterns in Money Market Mutual Funds

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by Kevin M » Fri Jun 15, 2018 12:51 pm

gmaynardkrebs wrote:
Thu Jun 14, 2018 10:11 pm
Ok, let's say it's not the tax law. But why are the yields so variable? And, as someone pointed out above, why is this apparently predictable yield cycle not being arbitraged away?
I don't think anyone participating in this thread has definitive answers to those questions.

The yield cycle definitely appears to be on the upswing, with CA muni MM at 1.00% on 6/14/2018, up from a low of 0.94% last seen on 6/8/2018, and Muni MM at 1.07%, up from a low of 1.03% last seen on 6/12/2018.

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Re: Vangaurd Municipal Money Market VMSXX 1.39%

Post by neurosphere » Fri Jun 15, 2018 1:38 pm

DanFromNewYork wrote:
Fri Jun 15, 2018 12:27 pm
This is an interesting phenomenon. I looked for papers discussing this but could only find this paper from 2000 that mostly touches on the end of the year "turn" effect:
Seasonal Patterns in Money Market Mutual Funds
Welcome to Bogleheads!! :D

Good find, and thanks for sharing! I had previous seen that paper but could somehow not find it again to share it.

What's interesting is that it describes this phenomenon of yearly and and quarterly variability, and gives a possible reason for possible year-end changes. But as for the other quarters the abstract simply says:
We also find that tax-exempt yields change systematically around the 15th of April, June and September, which are key individual income tax dates.
This implies that folks sell off massive amounts of municipal money market funds in order to pay estimated taxes, but not those who use taxable money market funds. This potentially makes sense in that the highest net worth and tax-bracket individuals are more likely to use municipal money markets in general for cash needs (e.g. the ones with enough money to move the market). If I had millions/billions in a MM funds, I'd be paying someone to look at a daily updated chart like Kevin M provided and move my money between funds each quarter. On the other hand, anyone currently at about a 50% total marginal rate is still better off in a muni MM. So perhaps this is one of those cases where there is a "sweet-spot" where high but not too high income folks can take advantage of this.

But if I were issuing short term debt (rather than buying it), couldn't I time when I bring that debt to market, and offer it when demand is high (and thus yields low)? And this minimize the fluctuations?

Do corporations hold muni funds? Do they also have estimated tax?

How intriguing. :confused

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Fri Jun 15, 2018 2:55 pm

In regards to the yield variations, the Municipal Bond Market is considered much less liquid than the Treasury Market and that should extend to the very short term securities as well.

Part of the problem may be the very high number of different individual issues which translates to lower trading volumes in each security.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by gmaynardkrebs » Fri Jun 15, 2018 4:46 pm

More basic question: are the securities in Vang muni mm mostly short term paper from issuance, or are they longer bonds at or near maturity? Vanguard says "The fund invests in securities with effective maturities of 397 days or less, and seeks to maintain a dollar-weighted average maturity of 60 days or less," so I think it could be either. I would hazard a guess that a portfolio made up of former long bonds would be less liquid, regardless of current duration.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Fri Jun 15, 2018 9:53 pm

gmaynardkrebs wrote:
Fri Jun 15, 2018 4:46 pm
More basic question: are the securities in Vang muni mm mostly short term paper from issuance, or are they longer bonds at or near maturity?
The complete portfolio listings are available in the Annual Reports. A large percentage of the holdings are VRDOs.

https://investor.vanguard.com/mutual-fu ... file/VMSXX

If you look at the report dated 10-31-17, you will see a maturity date of 11-07-17 for a high percentage of those securities. It's possible that 11-07-17 was a reset date rather than a maturity date.

https://emma.msrb.org/EmmaHelp/UnderstandingVRDOs

"A variable rate demand obligation (VRDO) is a municipal security for which the interest rate resets on a periodic basis and holders are able to liquidate their security through a “put” or “tender” feature, at par."
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by zeep » Sat Jun 16, 2018 10:19 am

Thanks to Kevin M and others for the useful charts.

I tend to think that we need to have a couple more quarters of data before drawing conclusions about which fund is on average preferable at a given tax rate. That is, I'm not interested in constantly checking and switching funds, but I think it is too early to make any generalizations about which fund performs better on a TEY basis.

Out of curiosity, why is it more common to gross up tax-advantaged funds to TEY for comparability to Prime rather than comparing after tax yields? I get that this is two sides of the same coin, but I find it more grounding to think it terms of after-tax yields. Perhaps there is a psychological boost from comparing the higher rates...

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat Jun 16, 2018 2:30 pm

zeep wrote:
Sat Jun 16, 2018 10:19 am
Out of curiosity, why is it more common to gross up tax-advantaged funds to TEY for comparability to Prime rather than comparing after tax yields? I get that this is two sides of the same coin, but I find it more grounding to think it terms of after-tax yields. Perhaps there is a psychological boost from comparing the higher rates...
Good question. For some reason comparing in terms of TEY seems to be more of a standard. For example, brokerage websites typically have a TEY calculator of some sort:

Here's a primitive TEY calculator at Vanguard: https://personal.vanguard.com/us/FundsTaxEquivForYield

And here's a more sophisticated one at Fidelity: https://gpi.fidelity.com/ftgw/interfaces/tey/

Maybe it's because most yields we see are taxable, like bank accounts.

At any rate, if you're more comfortable comparing after-tax yields, then that's obviously what you should do. Either way works fine for making decisions.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Leif » Sat Jun 16, 2018 6:27 pm

Kevin M wrote:
Sat Jun 16, 2018 2:30 pm
And here's a more sophisticated one at Fidelity: https://gpi.fidelity.com/ftgw/interfaces/tey/
Kevin, have you tried the Fidelity calculator compared to your spreadsheet? The Fidelity calculator used the same marginal rates, but came with a different rate when compared to CDs. I was specifically looking compared to the Vanguard Treasury fund.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat Jun 16, 2018 10:29 pm

Leif wrote:
Sat Jun 16, 2018 6:27 pm
Kevin M wrote:
Sat Jun 16, 2018 2:30 pm
And here's a more sophisticated one at Fidelity: https://gpi.fidelity.com/ftgw/interfaces/tey/
Kevin, have you tried the Fidelity calculator compared to your spreadsheet? The Fidelity calculator used the same marginal rates, but came with a different rate when compared to CDs. I was specifically looking compared to the Vanguard Treasury fund.
I just checked it out. The biggest factor is this, which you can see if you click the " See our Assumptions
Terms and Conditions of Use" link toward the bottom right:
State taxes are assumed to be deducted on your federal tax return in cases where the tax equivalent yield is calculated based on a combination of state and federal tax rates.
In this case, TEY for Treasuries is just Yield/(1-s), where s = marginal state income tax rate. Using this formula, I get the TEY shown for corporate bonds. My formula assumes no itemizing (since I won't be itemizing in 2018), so the formula is a bit different. For example, with a Treasury yield of 2%, at marginal rates of 22% and 8%, the itemizing formula gives 2.17% (which is what the Fidelity calculator shows for corporate bonds), while the no-itemize formula gives 2.23%. The tax benefit of the tax exemption is less when you're already getting a federal deduction for state income taxes.

Even if itemizing, once you hit the SALT cap of $10K, you no longer get a deduction on federal taxes for state income tax, so the non-itemizing formula would apply.

See this thread for derivation of the TEY formulas, and some resulting discussion: viewtopic.php?t=248539

A second order effect is that the calculate TEY for CDs slightly different than for corporate bonds:
Bonds, except CDs, are assumed to pay coupons semi-annually

- CD yields are assumed to be a true annual yield, reflecting compounding of interest
- Bond yields, except CDs, are assumed to be twice the semi-annual yield, as is the normal convention for quoting bond yields. CD yield is calculated as ( (1 + corporate bond yield / 2) 2 ) - 1)
I don't know why there would be a distinction, since many CDs pay interest semi-annually just like most bonds, and like bonds, the interest is not reinvested at the original yield (unlike direct CDs, for which it usually is). Some CDs pay interest monthly, and that will make a slight difference as well. I just assume a standard yield to maturity calculation for bonds and CDs (although there are different day count conventions that result in different YTMs). I wouldn't worry about these second-order effects.

A limitation of calculators like this is they don't take into account factors that can create marginal tax rates that are not the same as the tax brackets. For example, my federal marginal tax rate is 27%, due to marginal income pushing qualified dividends from being taxed at 0% to 15%, which added to the 12% tax on the marginal dollar of ordinary income results in a 27% marginal tax rate.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Leif » Sat Jun 16, 2018 10:56 pm

Kevin M wrote:
Sat Jun 16, 2018 10:29 pm
A limitation of calculators like this is they don't take into account factors that can create marginal tax rates that are not the same as the tax brackets. For example, my federal marginal tax rate is 27%, due to marginal income pushing qualified dividends from being taxed at 0% to 15%, which added to the 12% tax on the marginal dollar of ordinary income results in a 27% marginal tax rate.

Kevin
Thanks Kevin for your answer.

Your 27% federal marginal rate is confusing to me. So you pay 12% in your tax bracket and in addition 15% for LT capital gains/qualified dividends. Even if your marginal $ is from interest or wages and not LTCG/QD? I did not realize LTCG/QD generates a separate and additive tax to your tax bracket. If that is the case the LTCG/QD are really, really bad for taxes. I had thought they were "good" type of income compared to my 24% bracket.

If I'm in the federal tax bracket of 24%, and I have LTCG/QD taxed at 15% then is my federal marginal rate 24+15=39%?
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Sat Jun 16, 2018 11:07 pm

Leif wrote:
Sat Jun 16, 2018 10:56 pm
Thanks Kevin for your answer.

Your 27% federal marginal rate is confusing to me. So you pay 12% in your tax bracket and in addition 15% for LT capital gains. Even if your marginal $ is from interest or wages and not LTCG? I did not realize LTCG generates a separate and additive tax to your tax bracket.
Yes. Visualize it as QD/LTCG stacked on top of ordinary income. If the latter is below the top of the 12% bracket, but the former pushes above it, then every extra dollar of ordinary income (inserted into the bottom stack) pushes another dollar of QD/LTCG (the top stack) from the 0% rate to the 15% rate, as well as being taxed at 12%. This is approximately true, since there is something like a $200 difference between top of 12% bracket and top of 0% QD/LTCG "bracket".
If I'm in the federal tax bracket of 24%, and I have LT capital gains taxed at 15% then is my federal marginal rate 24+15=39%?
No. Since all of your QD/LTCG already is being taxed at 15%, your marginal ordinary income is not pushing any QD/LTCG from 0% to 15%. So even though I'm in a lower tax bracket than you, my marginal tax rate is higher than yours!

However, there are other phase outs of credits or deductions, etc., that may also make your marginal tax rate different than your tax bracket. Using tax software is a good way to determine this, but there is no 2018 tax software out yet as far as I know.

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3.8% Medicare Surtax

Post by zeep » Sun Jun 17, 2018 2:25 pm

Remember the 3.8% NIIT Medicare surtax for single filers with MAGI over $200,00 and MFJ filers with MAGI over $250,000. That impacts the analysis, and I don't think there is a way to account for it in Fidelity calculator.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Electron » Mon Jun 18, 2018 1:35 pm

zeep wrote:
Sat Jun 16, 2018 10:19 am
Out of curiosity, why is it more common to gross up tax-advantaged funds to TEY for comparability to Prime rather than comparing after tax yields? I get that this is two sides of the same coin, but I find it more grounding to think it terms of after-tax yields.
I prefer to look at after-tax yields. Vanguard Treasury Money Market is currently yielding 0.30% more on an after-tax basis than Vanguard Municipal Money Market for my case. The Treasury MMF is tax-exempt for my state tax while the Municipal MMF is not.

I'm back in the Treasury MMF after being out of the fund since 2009. At that time Vanguard had Admiral and Investor class shares which were merged and the fund was also closed to new investors. I recall exchanging my shares to Prime MMF which had more than 2X the yield but later in the year both funds showed an SEC yield of 0.01%. I think all Vanguard Money Market funds yielded 0.01% for a period of time with Vanguard covering some of the expenses.
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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by kapios » Mon Jun 18, 2018 2:27 pm

The above discussion uses SEC yield rather than the distribution yield in making a judgement as to whether the state MM is better or worse than Prime. Maybe over the "long" term the SEC yield and distribution yields may converge (in theory), but in the short term it is the distribution yield that one cares about.

Shouldn't that be used as the input to the TEY calculation? The problem is that the distribution yield does fluctuate from month to month, so the best you can do is estimate it based on recent trends.

Any thoughts?

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by NewtoInvesting403 » Mon Jun 18, 2018 2:49 pm

kapios wrote:
Mon Jun 18, 2018 2:27 pm
The above discussion uses SEC yield rather than the distribution yield in making a judgement as to whether the state MM is better or worse than Prime. Maybe over the "long" term the SEC yield and distribution yields may converge (in theory), but in the short term it is the distribution yield that one cares about.

Shouldn't that be used as the input to the TEY calculation? The problem is that the distribution yield does fluctuate from month to month, so the best you can do is estimate it based on recent trends.

Any thoughts?
Isn't the SEC yield a reflection of the past 7 days?

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by libralibra » Mon Jun 18, 2018 3:17 pm

Say the yield was a constant 1%, then for one day was at 2%, and then went back to 1%. The SEC yield on that day would jump from 1% to 1.14% and stay there for 6 more days, then drop back to 1%.

So even if you moved your funds right away, you would have actually missed getting 2% or even 1.14% and still have yielded only 1%.

Similarly, I wonder if you wait for the SEC yield to peak and surpass the Prime, you may have already missed the higher rates and will just collect the decreasing rates (which may not be enough TEY to beat Prime yield)?

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Mon Jun 18, 2018 7:00 pm

kapios wrote:
Mon Jun 18, 2018 2:27 pm
The above discussion uses SEC yield rather than the distribution yield in making a judgement as to whether the state MM is better or worse than Prime. Maybe over the "long" term the SEC yield and distribution yields may converge (in theory), but in the short term it is the distribution yield that one cares about.

Shouldn't that be used as the input to the TEY calculation? The problem is that the distribution yield does fluctuate from month to month, so the best you can do is estimate it based on recent trends.

Any thoughts?
As mentioned, SEC for money market funds is based on the average of the last 7 day's income. Distribution yield is based on the previous calendar month's income. So SEC yield probably is closer to the yield right now. Distribution yield is more stale.

Looking at Prime MM, for example, since yield has been rising steadily, distribution yield will be lower than SEC yield. It's 1.87% for Prime MM, but SEC yield now is 1.98%. Since Prime MM SEC yield has been rising about 1 basis point every two days, the yield today probably is slightly higher than 1.98%.

Since the muni MM yields were falling until recently, distribution yield is higher than SEC yield right now. For VMSXX distribution yield is 1.29%, and SEC yield today is 1.19% (up from 1.10% on Friday!).

CA Muni MM SEC yield today is 1.11%, up from 1.03% on Friday.

The muni MM yields seem to be rising very sharply now, so the yields today almost certainly are higher than the SEC yield--maybe by several basis points.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Kevin M » Mon Jun 18, 2018 7:07 pm

libralibra wrote:
Mon Jun 18, 2018 3:17 pm
Similarly, I wonder if you wait for the SEC yield to peak and surpass the Prime, you may have already missed the higher rates and will just collect the decreasing rates (which may not be enough TEY to beat Prime yield)?
It's true that your actual TEY will rise above Prime yield before TEY based on SEC yield does. But in the last two cycles, my TEY based on SEC yield was above Prime MM yield for about six weeks, so I might miss a little on the front end and back end if I switch based on SEC yield, but I'll capture most of it.

As I've mentioned before, if your fund balance is large enough to get the precision, you can calculate your yield as of yesterday by looking at the daily increase in your accrued interest, and switch closer to the actual crossover point. If your balance is not large enough to get enough precision in accrued interest, then it doesn't matter anyway. Even if your balance is large enough to get the necessary precision in accrued interest, it probably doesn't matter enough to bother doing this.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by kapios » Tue Jun 19, 2018 6:44 am

Kevin M wrote:
Mon Jun 18, 2018 7:00 pm
kapios wrote:
Mon Jun 18, 2018 2:27 pm
The above discussion uses SEC yield rather than the distribution yield in making a judgement as to whether the state MM is better or worse than Prime. Maybe over the "long" term the SEC yield and distribution yields may converge (in theory), but in the short term it is the distribution yield that one cares about.

Shouldn't that be used as the input to the TEY calculation? The problem is that the distribution yield does fluctuate from month to month, so the best you can do is estimate it based on recent trends.

Any thoughts?
As mentioned, SEC for money market funds is based on the average of the last 7 day's income. Distribution yield is based on the previous calendar month's income. So SEC yield probably is closer to the yield right now. Distribution yield is more stale.

Looking at Prime MM, for example, since yield has been rising steadily, distribution yield will be lower than SEC yield. It's 1.87% for Prime MM, but SEC yield now is 1.98%. Since Prime MM SEC yield has been rising about 1 basis point every two days, the yield today probably is slightly higher than 1.98%.

Since the muni MM yields were falling until recently, distribution yield is higher than SEC yield right now. For VMSXX distribution yield is 1.29%, and SEC yield today is 1.19% (up from 1.10% on Friday!).

CA Muni MM SEC yield today is 1.11%, up from 1.03% on Friday.

The muni MM yields seem to be rising very sharply now, so the yields today almost certainly are higher than the SEC yield--maybe by several basis points.

Kevin
Thank you for that clarification. The Money Market SEC/distribution yield relationship is different than that associated with bond funds, which I did not fully appreaciate.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by welderwannabe » Tue Jun 19, 2018 6:50 am

VMSXX now up to 1.2%.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by Leif » 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?

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Re: Vanguard Municipal Money Market VMSXX 1.39%

Post by grkmec » Tue Jun 19, 2018 11:04 am

I dumped my VMSXX for a ladder of t-bills that yield 2.04% with 0.44 duration.

I am at 37% bracket + 3.8% = 40.8% bracket
so after-tax t-bill = 1.21%

VMSXX is 1.19% yield and after 7% CT tax = 1.11% net of taxes

If VUSXX had a yield closer to 2%, I would have picked that. T-bills much safer than VMSXX so at same or better after-tax return, its a no-brainer switch for me.

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