Risk in the Muni market

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Van
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Risk in the Muni market

Post by Van »

SEC yield for Vanguard Municipal Money Market is 0.23%; SEC yield for Vanguard Prime Money Market is 0.12%.

Does that tell you all you need to know about the municipal market being very risky in the COVID era?
orangeinvestor
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Re: Risk in the Muni market

Post by orangeinvestor »

It does not
Topic Author
Van
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Re: Risk in the Muni market

Post by Van »

If it is not a substantially higher risk premium, then what is it that explains the tax-free yield of the Muni MM being essentially twice that of the taxable Prime MM?
DEBTINATOR
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Re: Risk in the Muni market

Post by DEBTINATOR »

Van wrote: Fri Jul 24, 2020 4:03 pm If it is not a substantially higher risk premium, then what is it that explains the tax-free yield of the Muni MM being essentially twice that of the taxable Prime MM?
What if the tax free muni was yielding 0.02 and the Prime MM was yielding 0.01, would it be twice the risk or a rounding error?

What if it was yielding 10% and Prime was yielding 5%?

Scale matters. I am not worried about a yield of 0.12.

Both are crap, open a CD if this is keeping you up at night.
Last edited by DEBTINATOR on Fri Jul 24, 2020 4:08 pm, edited 1 time in total.
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BolderBoy
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Re: Risk in the Muni market

Post by BolderBoy »

Van wrote: Fri Jul 24, 2020 4:03 pmIf it is not a substantially higher risk premium, then what is it that explains the tax-free yield of the Muni MM being essentially twice that of the taxable Prime MM?
Could it simply mean that municipalities are under pressure to make up for decreased tax revenues in the short term?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
drk
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Re: Risk in the Muni market

Post by drk »

There's no real difference in risk between the two because they are both covered by the Fed's Money Market Mutual Fund Liquidity Facility.
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midareff
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Re: Risk in the Muni market

Post by midareff »

Van wrote: Fri Jul 24, 2020 2:28 pm SEC yield for Vanguard Municipal Money Market is 0.23%; SEC yield for Vanguard Prime Money Market is 0.12%.

Does that tell you all you need to know about the municipal market being very risky in the COVID era?
It tells me nothing other than the calculated SEC yield on those funds. It doesn't even tell me what the distribution yield is, what the ticker is, or anything else. I'd use an Ally Savings account paying 1.0% first by a mile.

When you think yield on a fund why don't you think in terms of your tax rate and current inflation rates? How do you like those rates after tax and inflation?
000
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Re: Risk in the Muni market

Post by 000 »

We don't know what all the risks are until they happen.
Topic Author
Van
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Re: Risk in the Muni market

Post by Van »

It just seems to me that most municipalities have to be looking at lower revenue given the pandemic. I know that is not very analytical, but several folks have expressed similar concern on this forum. I worry about a much higher default rate in municipal bonds going forward, especially since no end is in sight for COVID.

Historically, default rates in municipals have been very low, but, maybe this time is different. :happy
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