BlackcatCA wrote: ↑Sun May 20, 2018 10:21 am

Practically speaking, using the daily SEC yield to calculate the TEY for comparison with other investments might not be the best. As some have experiences (myself included), at peaks it gives a false impression that the muni MM is much much better than other investments. So what is a better way to have a more realistic sense of the true yield of a chosen muni mm fund? Would the average of distributed yield (historical) and SEC yeild ( future looking) be a better proxy at a specific point in time? Or are there easy way to calculate 'area under the curve' of the peaks, or other math maneuvers?

SEC yield for money market funds is annualized average of daily income distributions over previous seven days, so it tells you pretty much exactly what you earned, annualized, over last seven days. When we see it dropping, as it has been recently, you're earning a bit less today than you did over last seven days, so SEC yield slightly overstates what you're earning today.

I'm assuming it's seven calendar days, so anyone who can cite a reference stating otherwise, please let me know. So, yield for muni MM on 5/18 was 1.88%, representing annualized income distributions for 5/12-5/18. No yield is published for 5/12, which was a Saturday, but yield on 5/11 was 1.98% and on 5/14 it was 1.94%. So let's approximate yield on 5/12 as about 1.96%. So someone who thought they were earning 1.96% on 5/12 actually ended up earning 1.88% over the following week.

Of course when yields are increasing, it works the opposite way.

So the yield dropped about 8 basis points in a week, or roughly one basis point per day. I see basically the same drop for CA muni MM. Since we still appear to be on the downward path, which last time lasted about 1.5 months, and we're less than one month in now, I conclude that now probably is time for me to switch to Prime MM. My CA muni MM TEY was 1.91% as of 5/18, while Prime MM yield was 1.86%, so my CA muni MM TEY based on income distribution today probably already is lower then Prime MM yield.

In other words, if you want to optimize and earn a few more pennies, you probably want to switch a few days before the yields cross over, whether on the downswing or upswing, assuming that the quarterly cycle continues, and that the muni MM funds yields don't increase enough to beat Prime MM on an TEY basis even at the troughs of the cycles.

Note from the chart I posted earlier that the peaks of the Muni MM TEYs are much higher above Prime MM yield than the troughs are below, and the area of the the triangles above Prime MM yield are much larger than the area below for the last two cycles. So, if I didn't want to bother with a few mouse clicks to earn a few more pennies, I'd probably be better of just sticking with the muni MM funds as long as we see a similar pattern continuing.

Kevin