Municipal bond question; VNJXX

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J G Bankerton
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Municipal bond question; VNJXX

Post by J G Bankerton » Wed Mar 25, 2020 1:29 pm

I'm looking for enough yield to have a "real" return. I keep my venture capital money in money markets. I'm looking at Vanguard's NJ municipal money market and notice it pays 3.22%. Why is the dividend so high and how safe is it? Vanguard gives a 1, the safest on a 1-5 scale.
https://investor.vanguard.com/mutual-fu ... file/VNJXX :confused

retiringwhen
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Re: Municipal bond question; VNJXX

Post by retiringwhen » Wed Mar 25, 2020 1:32 pm

J G Bankerton wrote:
Wed Mar 25, 2020 1:29 pm
I'm looking for enough yield to have a "real" return. I keep my venture capital money in money markets. I'm looking at Vanguard's NJ municipal money market and notice it pays 3.22%. Why is the dividend so high and how safe is it? Vanguard gives a 1, the safest on a 1-5 scale.
https://investor.vanguard.com/mutual-fu ... file/VNJXX :confused
two words: liquidity risk.

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J G Bankerton
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Re: Municipal bond question; VNJXX

Post by J G Bankerton » Wed Mar 25, 2020 2:17 pm

retiringwhen wrote:
Wed Mar 25, 2020 1:32 pm
two words: liquidity risk.
How long could that last. This isn't money I would need for check writing; that is in my settlement fund.

obvious103
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Re: Municipal bond question; VNJXX

Post by obvious103 » Wed Mar 25, 2020 2:34 pm

I am seeing discussion of quarter-end volatility for money markets at this post: viewtopic.php?t=246263

Also, if you go to the distributions tab on the VNJXX profile you get the last 12 distributions adding up to $0.01115/share for the year.

retiringwhen
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Re: Municipal bond question; VNJXX

Post by retiringwhen » Wed Mar 25, 2020 2:40 pm

J G Bankerton wrote:
Wed Mar 25, 2020 2:17 pm
retiringwhen wrote:
Wed Mar 25, 2020 1:32 pm
two words: liquidity risk.
How long could that last. This isn't money I would need for check writing; that is in my settlement fund.
A few weeks to a few months, we are in uncharted territory. As soon as the liquidity issues resolve, the rates will drop like a rock. so if you are just looking for short term yield with no need to access the money, go for it.

BTW, the last two days appear to be signalling that the worst is over regarding liquidity. If that is true, the rates may not even last long enough to bother doing the transactions.

Of course, moving money into the muni money market will actually help improve liquidity (they will have money to buy the bonds!) so you will help sew the seeds of the rates falling.

As noted below, there is always some level of rate jumps at quarter end, but the jump in the last 10 is about 10 TIMES bigger than usual.

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J G Bankerton
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Re: Municipal bond question; VNJXX

Post by J G Bankerton » Wed Mar 25, 2020 3:50 pm

retiringwhen wrote:
Wed Mar 25, 2020 2:40 pm
J G Bankerton wrote:
Wed Mar 25, 2020 2:17 pm
retiringwhen wrote:
Wed Mar 25, 2020 1:32 pm
two words: liquidity risk.
How long could that last. This isn't money I would need for check writing; that is in my settlement fund.
A few weeks to a few months, we are in uncharted territory. As soon as the liquidity issues resolve, the rates will drop like a rock. so if you are just looking for short term yield with no need to access the money, go for it.

BTW, the last two days appear to be signalling that the worst is over regarding liquidity. If that is true, the rates may not even last long enough to bother doing the transactions.

Of course, moving money into the muni money market will actually help improve liquidity (they will have money to buy the bonds!) so you will help sew the seeds of the rates falling.

As noted below, there is always some level of rate jumps at quarter end, but the jump in the last 10 is about 10 TIMES bigger than usual.
Thanks, I'm just looking to park my venture capital fund until the interesting times are over. I'll then go back to Vanguard's comershial paper, IOUs, Prime Money Market.

Does anyone see any money market breaking the buck? I don't but we are living in interesting times.

jrbdmb
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Re: Municipal bond question; VNJXX

Post by jrbdmb » Wed Mar 25, 2020 8:02 pm

New Jersey's credit rating prior to this crisis was already problematic - A3 (Moody's). Things could get a lot more interesting for NJ bondholders.

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J G Bankerton
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Re: Municipal bond question; VNJXX

Post by J G Bankerton » Wed Mar 25, 2020 10:33 pm

jrbdmb wrote:
Wed Mar 25, 2020 8:02 pm
New Jersey's credit rating prior to this crisis was already problematic - A3 (Moody's). Things could get a lot more interesting for NJ bondholders.
This is a money market fund not a bond fund. I'm thinking all money market funds are too big to fail. That said it may not be worth the risk for a few extra dollars but that 3.22% mostly tax free dividend caught my eye.

retiringwhen
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Re: Municipal bond question; VNJXX

Post by retiringwhen » Thu Mar 26, 2020 6:24 am

J G Bankerton wrote:
Wed Mar 25, 2020 10:33 pm
This is a money market fund not a bond fund. I'm thinking all money market funds are too big to fail. That said it may not be worth the risk for a few extra dollars but that 3.22% mostly tax free dividend caught my eye.
VNJXX only has $1.4B in assets in a pretty small, largely illiquid market. It has plenty of reasons to fail. If enough people needed out in a short period of time the sales could flood the market pretty badly. Besides the asset base of the fund is small enough that outflows don't have much cushion.

I just did a very quick run through fund flows for the month of March so far (as of the 24th, latest data on Vanguard)

Net outflows in March = ($77,500,884.22)
Report Fund Size = $1.4B (probably stale as that is the amount reported in the Annual report as well)
Outflows as a percentage of Fund size 5.54% in March.

Biggest daily outflow in March (3/19) = ($16,460,145.61) or 1.18% of assets

Average maturity of holdings = 55 days = 1/55 = 1.82% of securities maturing daily as rough guesstimate (they are surely lumpy), and that assumes that the fund is holding them to maturity.

This fund is running at the very edge of capacity right now, if you assume that there are very few buyers of short-term NJ debt right (not an unreasonable assessment) there is real risk of liquidity fees and/or delays occurring.

doesn't sound like TBTF...

BTW, VUSXX = $32B assets, net inflows of $6B in March. VMMXX = $107B in assets, with $1.6B in outflows in March.

Edit: Duh, Vanguard publishes a 5 day maturity % and VNJXX has been running at 58% of fund maturing in 5 days, so my calculations above are way too pessimistic, but days like the 19th must put real pressure on management.

MikeG62
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Re: Municipal bond question; VNJXX

Post by MikeG62 » Thu Mar 26, 2020 9:57 am

jrbdmb wrote:
Wed Mar 25, 2020 8:02 pm
New Jersey's credit rating prior to this crisis was already problematic - A3 (Moody's). Things could get a lot more interesting for NJ bondholders.
More interesting may not mean waves of defaults. After all, not all NJ Muni bonds are equal.

FWIW, I’ve been investing in NJ muni’s for over two decades and have heard about how problematic they are then entire time. Never once experienced a default and never once experienced a delay in a periodic coupon. Is this time different? Who knows. My base case assumption is things will work out at least for bonds at the higher end of the ratings scale.
Real Knowledge Comes Only From Experience

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J G Bankerton
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Re: Municipal bond question; VNJXX

Post by J G Bankerton » Thu Mar 26, 2020 12:00 pm

I just pulled the trigger and moved most of my venture capital money to VNJXX. I kept some in my settlement fund for check writing and its backup the Prime Money Market fund. 3+% mostly tax free was too tempting for someone in the 51% tax bracket.

I thank all of you for the very useful advice. :beer

*Social Security “Hump” and the new tax rates???

This just in.
Record Exodus From Muni-Bond Funds Fuels Worst One-Day Rout
I hope I'm not the herd animal that gets eaten by the lion for not following.

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