Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

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CalculatedRisk
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Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

Post by CalculatedRisk »

Can you please help me understand the relationship (if any) between the fed’s short-term rate and the yield (eg, 7-day SEC yield) of VUSXX?

Are the two directly correlated? Is there a delay between changes in the fed’s interest-rate and changes to VUSXX yield?

I’m trying to guesstimate whether the rate for VUSXX will go up or down in the next several months and to what extent. Of course, I recognize that we can’t know with any certainty.
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grabiner
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Re: Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

Post by grabiner »

The Fed doesn't directly set short-term Treasury rates, but it sets a target, and its transactions try to keep rates close to that target. Therefore, the rate will only rise significantly when the Fed raises the target.

Currently, the 1-year Treasury yield is 0.30%, which implies that investors don't expect Treasury yields to be much above zero for the next year.
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CalculatedRisk
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Re: Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

Post by CalculatedRisk »

grabiner wrote: Tue Mar 17, 2020 8:25 pm The Fed doesn't directly set short-term Treasury rates, but it sets a target, and its transactions try to keep rates close to that target. Therefore, the rate will only rise significantly when the Fed raises the target.

Currently, the 1-year Treasury yield is 0.30%, which implies that investors don't expect Treasury yields to be much above zero for the next year.
This is great info—thank you!
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indexfundfan
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Re: Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

Post by indexfundfan »

My guess is that VUSXX will pay a token 0.01% within a couple of weeks. It might even be closed to new investors, just as it happened during the financial crisis years.
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mammonman
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Re: Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

Post by mammonman »

So what would you move money to? I have a chunk sitting in this fund after a business sale that I am holding on to for 2020 taxes next year.
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grabiner
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Re: Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

Post by grabiner »

mammonman wrote: Thu Apr 16, 2020 9:55 am So what would you move money to? I have a chunk sitting in this fund after a business sale that I am holding on to for 2020 taxes next year.
Probably a bank CD. You don't need the money to be liquid until next April, so you don't need to pay the expenses of a money-market fund which has daily liquidity.
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Re: Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

Post by Lastrun »

I would look at a 7 or 11 month no penalty CD at this point. OK rates, full liquidity, FDIC insurance.
Corgitodd
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Re: Movement of Treasury Money Market fund (VUSXX) in view of fed rate cut

Post by Corgitodd »

I just read that Vanguard closed its Treasury Money Market fund today.
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