Effectiveness of swapping between muni & treasury money markets

[hkcj]

I noticed in another thread (that I now cannot find) that some people swap back and forth between the muni (e.g. VFYXX) & treasury funds (VUSXX) depending on which has a higher 7-day yield. Given that there's a lag due to the 7-day average and that by the time you switch there's some lost income (i.e. by the time you know the tax-equivalent yields have swapped places, you were actually under-earning for the past 7 days), has anyone actually computed whether this strategy earns you any extra money? How much, really?

[Steadfast]

I have not computed it, but as a muni investor I do watch these things go back and forth a bit. For me, what few dollars I might be able to squeeze out by constantly calculating tax-equivalent yields and performing the necessary transactions, is definitely not worth my time.

[erp]

I back-tested this using FFTXX and GOTXX which are MMFs available at Merrill, and which publish both 1-day and 7-day yields to get an idea of the gain from switching and also how much error everyone else was getting by relying on Vanguard funds which only publish 7-day yields.

I thought it was significant in the relative sense - at my tax bracket you lose 30% of the gain by swapping 2-4 days late everytime. But in the absolute sense it was small - $72 vs $50 gain on $100k being swapped over a period of 7/1/22 to 2/16/23.

Another person did the same analysis and decided it wasn't even a factor (ie the late swapping). I think he either used a higher tax rate or made a mistake by using 7-day yields in the accrual calulation though.

[retiringwhen]

I back-tested this using FFTXX and GOTXX which are MMFs available at Merrill, and which publish both 1-day and 7-day yields to get an idea of the gain from switching and also how much error everyone else was getting by relying on Vanguard funds which only publish 7-day yields.

I thought it was significant in the relative sense - at my tax bracket you lose 30% of the gain by swapping 2-4 days late everytime. But in the absolute sense it was small - $72 vs $50 gain on $100k being swapped over a period of 7/1/22 to 2/16/23.

Another person did the same analysis and decided it wasn't even a factor (ie the late swapping). I think he either used a higher tax rate or made a mistake by using 7-day yields in the accrual calulation though.

I used 1-day yields comparing FDLXX, and FTEXX at 40.8% rates and 10.75% state. There was a difference but it was inconsequential. $34/year extra return on a $100,000 investment with a total after tax return of approximately $1,200. BTW, swapping itself really isn't worth in the large. It may earn at best $100/year on the total return at the cost of approximately 10 swaps a year. Lots of labor for very small return.

[Walkure]

I back-tested this using FFTXX and GOTXX which are MMFs available at Merrill, and which publish both 1-day and 7-day yields to get an idea of the gain from switching and also how much error everyone else was getting by relying on Vanguard funds which only publish 7-day yields.

I thought it was significant in the relative sense - at my tax bracket you lose 30% of the gain by swapping 2-4 days late everytime. But in the absolute sense it was small - $72 vs $50 gain on $100k being swapped over a period of 7/1/22 to 2/16/23.

Another person did the same analysis and decided it wasn't even a factor (ie the late swapping). I think he either used a higher tax rate or made a mistake by using 7-day yields in the accrual calulation though.

I used 1-day yields comparing FDLXX, and FTEXX at 40.8% rates and 10.75% state. There was a difference but it was inconsequential. $34/year extra return on a $100,000 investment with a total after tax return of approximately $1,200. BTW, swapping itself really isn't worth in the large. It may earn at best $100/year on the total return at the cost of approximately 10 swaps a year. Lots of labor for very small return.

Two things that jump out at me. 1) recent backtests cover a period of very low interest rates in general. It may make a bigger difference going forward if short term rates are higher for an extended period of time. 2) At 40%+ marginal tax, I imagine it is very rare for treasuries to overcome the TEY of munis, and the short windows where they do will create whiplash as the advantage is quickly lost, hence needing 10 swaps a year to obtain minimal gain. Someone who has a total tax rate nearer a more typical 30% might see a more persistent trend before the yields cross, with more to gain and fewer transactions.

[retiringwhen]

I back-tested this using FFTXX and GOTXX which are MMFs available at Merrill, and which publish both 1-day and 7-day yields to get an idea of the gain from switching and also how much error everyone else was getting by relying on Vanguard funds which only publish 7-day yields.

I thought it was significant in the relative sense - at my tax bracket you lose 30% of the gain by swapping 2-4 days late everytime. But in the absolute sense it was small - $72 vs $50 gain on $100k being swapped over a period of 7/1/22 to 2/16/23.

Another person did the same analysis and decided it wasn't even a factor (ie the late swapping). I think he either used a higher tax rate or made a mistake by using 7-day yields in the accrual calulation though.

I used 1-day yields comparing FDLXX, and FTEXX at 40.8% rates and 10.75% state. There was a difference but it was inconsequential. $34/year extra return on a $100,000 investment with a total after tax return of approximately $1,200. BTW, swapping itself really isn't worth in the large. It may earn at best $100/year on the total return at the cost of approximately 10 swaps a year. Lots of labor for very small return.

Two things that jump out at me. 1) recent backtests cover a period of very low interest rates in general. It may make a bigger difference going forward if short term rates are higher for an extended period of time. 2) At 40%+ marginal tax, I imagine it is very rare for treasuries to overcome the TEY of munis, and the short windows where they do will create whiplash as the advantage is quickly lost, hence needing 10 swaps a year to obtain minimal gain. Someone who has a total tax rate nearer a more typical 30% might see a more persistent trend before the yields cross, with more to gain and fewer transactions.

I would strongly suspect the effect is in reverse or immaterial. The lower the tax rate, the less value for 1-day swapping. With 7 day yields, the value of swapping goes down to about half of the value for people at the highest tax rate. Really, all this swapping is not really worth. I suggest you play with my tool and find a place/time where it might be meaningfully valuable. I am using 7 yields in the tool, but I have sheet of data from earlier this month to test Fidelity funds.

[anon_investor]

The swapping isn't really going to yield a big amount. I have done it a few times at Fidelity since rates started going up but for me it doesn't take much time to check 1 day yields/swap.

[retiringwhen]

Two things that jump out at me. 1) recent backtests cover a period of very low interest rates in general. It may make a bigger difference going forward if short term rates are higher for an extended period of time. 2) At 40%+ marginal tax, I imagine it is very rare for treasuries to overcome the TEY of munis, and the short windows where they do will create whiplash as the advantage is quickly lost, hence needing 10 swaps a year to obtain minimal gain. Someone who has a total tax rate nearer a more typical 30% might see a more persistent trend before the yields cross, with more to gain and fewer transactions.

I would strongly suspect the effect is in reverse or immaterial. The lower the tax rate, the less value for 1-day swapping. With 7 day yields, the value of swapping goes down to about half of the value for people at the highest tax rate. Really, all this swapping is not really worth. I suggest you play with my tool and find a place/time where it might be meaningfully valuable. I am using 7 yields in the tool, but I have sheet of data from earlier this month to test Fidelity funds.

As an aside, I am running the history over the dates 2/18/22 to 2/16/23 There were significant movement and differences in the rates for 11 of the 12 months. Regardless, as with any sine wave vs. straight line, the returns will be very dependent upon start/end dates. I am using 12 months to reduce the likelihood of such a time dependent issue. I am working on the assumption that the seasonal swings in Muni's is pretty regular on a year to year basis and that seems to be a pretty reasonable assumption.

I just re-ran my Fidelity study with 24% Fed and 6% State. The improvement for 1-day yields was $35 on $1,400 total after-tax return on a $100K investment. On a percentage basis the improvement was less than at the higher rates 2.8% vs. 2.5% improvement. On a total return basis it only improved returns by 3 basis points.

At 40%/10.75 rates, VUSXX beat VMSXX about 33% of the time in the past year. Swapping is by far the most valuable at the highest rates as the sine wave on Muni's gives much bigger dips to buy Treasuries.

[hkcj]

This is an amazing set of information and resources - thanks everyone. The MM Optimizer especially seems like a great tool, and I had no idea other funds published a 1-day yield I could use.

I now have a whole different set of questions, specifically:

• Which was the higher easy (no-switching) return at 40.8%? (Treasury or MM?)
• Do the swapover points seem to align across Fidelity and Vanguard? E.g. can I rely on Fidelity 1-day yields for Vanguard switches?

[retiringwhen]

• Which was the higher easy (no-switching) return at 40.8%? (Treasury or MM?)
• Do the swapover points seem to align across Fidelity and Vanguard? E.g. can I rely on Fidelity 1-day yields for Vanguard switches?

- Muni's are almost always best at the 40.8% rate
- Most general purpose Muni funds all track pretty closely to the SFIMA index, so the difference are pretty minimal.

[hkcj]

Muni's are almost always best at the 40.8% rate

Thanks - I was curious because the rate seemed to dip pretty low on VNYXX... but I suppose I could have figured that out .

[retiringwhen]

Muni's are almost always best at the 40.8% rate

Thanks - I was curious because the rate seemed to dip pretty low on VNYXX... but I suppose I could have figured that out .

Try this tool, put in your rates and look at the history. you'll see that the rates vary a lot, but if you aren't into swapping, then the Muni's almost always win at the rate and for New Yorker's at least last year the in-state Muni was a winner (that is not always true in other states like CA).

MM Optimizer v4

[scoothome]

retiringwhen,

I just started looking at MM Optimizer v4. Nice tool! I think you have a couple typos on the My Best Now and Optimize Study sheets where you have "VUSXX - VSMXX". The last ticker should be VMSXX.

[retiringwhen]

retiringwhen,

I just started looking at MM Optimizer v4. Nice tool! I think you have a couple typos on the My Best Now and Optimize Study sheets where you have "VUSXX - VSMXX". The last ticker should be VMSXX.

Ahh , yes I added that column yesterday. I will fix

[sugobw]

Hi all, this MM Optimizer is confusing for me, and that's probably just because I am a bit dense...

If it's 40% (37% but add the 3% on top for NIIT, not sure if that is correct either?) + 10.75% state, it seems like VUSXX is "~60$" worse than VMSXX? Am I reading this correctly? And that's a marginal difference and that's with maximizing swaps?

So is it right to say that VMSXX is slightly better but barely. If I'm understanding this correctly, for me, personally, I don't want to swap and do all that extra work for very marginal gains, so sticking with VUSXX still ok?

Thanks all

[retiringwhen]

Hi all, this MM Optimizer is confusing for me, and that's probably just because I am a bit dense...

If it's 40% (37% but add the 3% on top for NIIT, not sure if that is correct either?) + 10.75% state, it seems like VUSXX is "~60$" worse than VMSXX? Am I reading this correctly? And that's a marginal difference and that's with maximizing swaps?

So is it right to say that VMSXX is slightly better but barely. If I'm understanding this correctly, for me, personally, I don't want to swap and do all that extra work for very marginal gains, so sticking with VUSXX still ok?

Thanks all

Not sure exactly what you are reading, but for NJ tax rate of 10.75 and 40.8% tax bracket (Tranch A on the Optimizer Tab), if you just held VUSXX vs. just held VMSXX, you would be $81 ahead after taxes over the past year with VMSXX (Cell AA10).

At that tax rate, if you swapped approximately 11 times over the last year between VUSXX and VMSXX, you with end up another another $115 (cell T10) over just holding VMSXX.

Choosing the Muni at that rate is a no brainer. Spending the time swapping is dependent upon the value of your time, each swap would have netted you $10 per $100K invested over the past year (cell V9).

https://docs.google.com/spreadsheets/d/ ... sp=sharing

[sugobw]

When you say choosing the Muni at this rate, what exactly does that mean? Just keep VMSXX and be done with it?

I'm not ever going to do Swaps. So I get your point, if I just keep VMSXX I could've been ~81 ahead (for last year). I understand this year could be slightly different, of course. It's a marginal difference, but still a difference by doing nothing (no swaps), which is what I would plan to do.

Thanks for your help

[retiringwhen]

When you say choosing the Muni at this rate, what exactly does that mean? Just keep VMSXX and be done with it?

yes.

I'm not ever going to do Swaps.

Good time management skills there!

[sugobw]

Haha, yes, I guess my philosphy is at this tax bracket, doing anything extra for 100$, or even upto a few hundred, it's really just not worth the time. Wonder if others in this bracket do feel the same.

Also, last question, I understand that VUSXX is "safe" as they come given majority is in Treasury, but the Muni (VMSXX) is just 100% tax exempt securities, so that is just as "safe"? The obvious answer here is yes of course, but essentially securities are just as good as treasury basically?

It's very interesting stuff though, because we're seeing VUSXX at ~4.5% versus VMSXX at ~2.2% (with a higher expense ratio!), which is a pretty big diff in yield, but still interesting how VMSXX comes out on top... I'm going to read more about this to further educate just out of the interest, but thanks for giving me the straight answer. Makes sense though why the higher brackets should use this because of the federal exempt. This community is quite helpful and nice.

[retiringwhen]

Haha, yes, I guess my philosphy is at this tax bracket, doing anything extra for 100$, or even upto a few hundred, it's really just not worth the time. Wonder if others in this bracket do feel the same.

Also, last question, I understand that VUSXX is "safe" as they come given majority is in Treasury, but the Muni (VMSXX) is just 100% tax exempt securities, so that is just as "safe"?

It's very interesting stuff though, because we're seeing VUSXX at ~4.5% versus VMSXX at ~2.2%, which is a pretty big diff in yield, but still interesting how VMSXX comes out on top... I'm going to read more about this to further educate just out of the interest, but thanks for giving me the straight answer. This community is quite helpful and nice.

It is a matter of debate just how risky Muni's are, but considering their very small premium vs. Treasuries and the fact that most people consider Treasuries the "risk free"* alternative, it could argued that Muni's are not worth the potential risk. I am in a much lower bracket, but even back when Muni's paid better for my rates, I kept them to a very small part of my portfolio (less than 20% of fixed income.)

The cyclical nature of the Muni market is actually kind of fascinating, but also surprisingly hard to exploit for any material gain. That was the whole point of my creating the Optimize sheet. I was testing potential situations where swapping may actually be valuable. Turns out, the value is pretty darn small in the absolute sense. If I had $1M in money market funds, maybe swapping would be worth it. People have suggested several optimizations, but each one adds effort and small marginal gain at best.

*These days "risk" is breaking out in hives everywhere. I wouldn't consider Treasuries to be in-fact risk-free.

[sugobw]

Yes, this was why I was asking, because if Munis are arguably 'more' risky than Treasuries, for such a nominal difference of <100$, I rather just keep it in what's "Safer," hence VUSXX.

[8000m]

The amplitude of the previous yield swing cycle & the current one actively hunting a March low have been fascinating to observe. The late-Jan/early-Feb muni yield lows dropping below their early-Dec yield lows was probably the most interesting bit to my mind's eye.
Looking forward to seeing how this March roundtrip plays out!

KevinM's google sheet & Retiringwhen's optimizer sheets (even the early versions) are amazing resources for those who find this topic interesting. Thank you both for putting that time in & letting others benefit, much appreciated. Each doc has been bookmarked for me since inception.
@Retiringwhen, your continued iteration on optimizer & the resulting workbook is particularly impressive.

[Hogan773]

Where do you think we are in the VMSXX swings right now? Should I bother switching to VUSXX for a bit? I think even at top rates we are well below VUSXX tax adjusted yield

[sugobw]

I just kept it in VUSXX and forgetting about it. Even though according to the MM Optimizer sheet, VMSXX is the best (for my bracket/state anyways), but it's really a marginal difference by the end of it all, and munis are arguably "less safe" than treasuries. Not thinking about it anymore - pay a few extra bucks on tax, but it is what it is. Good enough for me.

[Hacksawdave]

I own all three of the Vanguard CA tax-exempt offerings. I have never swapped between a taxable and tax-exempt MM fund, and never will. I have owned the CA MM and intermediates since 1997 and added the CA long-term in 2018 before I was retired.

Why does one use them? The most talked about benefit is taxable versus tax-exempt yields for high income. I use them for other downstream benefits besides reducing ordinary income taxes:

• Ability to use tax-free dividend money to exchange into a different fund through auto-exchange.
• Better exploit the zero capital gains rate with lower AGI.
• Larger CA itemized deduction allowance through lower AGI exclusion amount.
• Better cashflow in retirement with less to no estimated tax payments.
• Ability to take more tax deferred 401k distribution before RMDs at a lower tax rate.

I use taxable MM funds in tax-deferred and Roth accounts for staging backdoors, bucket transfers, and automatic exchanges.

[Hogan773]

@RETIRINGWHEN

Wow what a cool spreadsheet! Thanks

So I took a look and in Illinois and assuming your "Tranche 2" scenario of just flipping between VMSXX and VUSXX it takes 11 swaps (presumably well-timed) and on $100K that yields extra $132. Or if we are talking about $500K then $660, or a million dollars then $1320, and so forth.

If we had to pick one or the other though is it the case that VMSXX itself will do better or will VUSXX. I need to go open up your sheet again to see

[retiringwhen]

@RETIRINGWHEN

Wow what a cool spreadsheet! Thanks

So I took a look and in Illinois and assuming your "Tranche 2" scenario of just flipping between VMSXX and VUSXX it takes 11 swaps (presumably well-timed) and on $100K that yields extra $132. Or if we are talking about $500K then $660, or a million dollars then $1320, and so forth.

If we had to pick one or the other though is it the case that VMSXX itself will do better or will VUSXX. I need to go open up your sheet again to see

Yes. you get the idea. Make sure you have both state and Federal rates correct. But if you are a high federal rate taxpayer in IL, then yes, the VMSXX will probably be the best deal. IL has relatively low flat rate, so the muni funds will work best for most high income investors. If you really have $1M of cash to put in a money market, then timing swaps may actually be worth your while.

Generally, anyone with a MFJ taxable income over $400K in IL will be better off with the muni fund, if you don't want to swap. But if you swap, you would add some value.

[muffins14]

Surprisingly for me, FDLXX at 4.27% is 2.528% after all taxes, but the NY muni FSNXX is only 1.98% right now (7 day SEC yields)

I’m at 37% fed plus 3.8%, and 10.7% state plus local

[Hogan773]

@RETIRINGWHEN

Wow what a cool spreadsheet! Thanks

So I took a look and in Illinois and assuming your "Tranche 2" scenario of just flipping between VMSXX and VUSXX it takes 11 swaps (presumably well-timed) and on $100K that yields extra $132. Or if we are talking about $500K then $660, or a million dollars then $1320, and so forth.

If we had to pick one or the other though is it the case that VMSXX itself will do better or will VUSXX. I need to go open up your sheet again to see

Yes. you get the idea. Make sure you have both state and Federal rates correct. But if you are a high federal rate taxpayer in IL, then yes, the VMSXX will probably be the best deal. IL has relatively low flat rate, so the muni funds will work best for most high income investors. If you really have $1M of cash to put in a money market, then timing swaps may actually be worth your while.

Generally, anyone with a MFJ taxable income over $400K in IL will be better off with the muni fund, if you don't want to swap. But if you swap, you would add some value.

So if I wanted to try to swap, what is the most effective way to watch and anticipate the swap points? Should I follow the Sifma index and use that as a predictor because VMSXX SEC yield as reported on Vanguard ultimately follows it with a lag? So when the SIFMA index is heading upward and equals the tax adjusted yield on VUSXX for example then swap out of VUSXX and into VMSXX and vice versa?

[retiringwhen]

So if I wanted to try to swap, what is the most effective way to watch and anticipate the swap points? Should I follow the Sifma index and use that as a predictor because VMSXX SEC yield as reported on Vanguard ultimately follows it with a lag? So when the SIFMA index is heading upward and equals the tax adjusted yield on VUSXX for example then swap out of VUSXX and into VMSXX and vice versa?

Other folks have been trying to figure that out, but I think watching the weekly on Wednesday update of the SIFMA index is probably the best approach IF you are willing to do the homework to setup the necessary calculations.

The problem is how do you calculate after tax rates for the SIFMA rate mapped to your actual fund (remember expense ratios will lower your fund yield vs. the index).

You will also need to do the same with the swapped fund (e.g., VUSXX). But since it is a 7-day average, it is "behind". so you need to decide how to handle that.

All this is complicated and for very little difference. I did a back-test using one day returns for Fidelity funds and the SIFMA rates and it made almost no difference.

I personally would just watch the daily reported after-tax rates on my sheet and swap when it passes one direction or the other. Really, I wouldn't even both unless you have a couple hundred thousand $ sitting around in cash.

[Hogan773]

So if I wanted to try to swap, what is the most effective way to watch and anticipate the swap points? Should I follow the Sifma index and use that as a predictor because VMSXX SEC yield as reported on Vanguard ultimately follows it with a lag? So when the SIFMA index is heading upward and equals the tax adjusted yield on VUSXX for example then swap out of VUSXX and into VMSXX and vice versa?

Other folks have been trying to figure that out, but I think watching the weekly on Wednesday update of the SIFMA index is probably the best approach IF you are willing to do the homework to setup the necessary calculations.

The problem is how do you calculate after tax rates for the SIFMA rate mapped to your actual fund (remember expense ratios will lower your fund yield vs. the index).

You will also need to do the same with the swapped fund (e.g., VUSXX). But since it is a 7-day average, it is "behind". so you need to decide how to handle that.

All this is complicated and for very little difference. I did a back-test using one day returns for Fidelity funds and the SIFMA rates and it made almost no difference.

I personally would just watch the daily reported after-tax rates on my sheet and swap when it passes one direction or the other. Really, I wouldn't even both unless you have a couple hundred thousand $ sitting around in cash.

Okay thanks makes sense

Still amazed by the magnitude and regularity of the swings in that yield. Seems odd

[scoothome]

@retiringwhen

You've created such a cool tool in MM Optimizer. I suggest you start a master thread for it, similar to what Ben Mathew did for TPAW viewtopic.php?t=331368, longinvest did for VPW viewtopic.php?t=120430, BigFoot48 did for RPM viewtopic.php?t=97352, etc.

That way you can announce version updates, users can report bugs and request features, etc. Or maybe you have already started such a thread and I missed it?

[retiringwhen]

@retiringwhen

You've created such a cool tool in MM Optimizer. I suggest you start a master thread for it, similar to what Ben Mathew did for TPAW viewtopic.php?t=331368, longinvest did for VPW viewtopic.php?t=120430, BigFoot48 did for RPM viewtopic.php?t=97352, etc.

That way you can announce version updates, users can report bugs and request features, etc. Or maybe you have already started such a thread and I missed it?

I have a version 6 brewing with some thoughts on T-Bill ladders and auto-rolls. Once that settles down, I will start a dedicated thread when I announce that version. Thanks!

[Hogan773]

So if I wanted to try to swap, what is the most effective way to watch and anticipate the swap points? Should I follow the Sifma index and use that as a predictor because VMSXX SEC yield as reported on Vanguard ultimately follows it with a lag? So when the SIFMA index is heading upward and equals the tax adjusted yield on VUSXX for example then swap out of VUSXX and into VMSXX and vice versa?

Other folks have been trying to figure that out, but I think watching the weekly on Wednesday update of the SIFMA index is probably the best approach IF you are willing to do the homework to setup the necessary calculations.

The problem is how do you calculate after tax rates for the SIFMA rate mapped to your actual fund (remember expense ratios will lower your fund yield vs. the index).

You will also need to do the same with the swapped fund (e.g., VUSXX). But since it is a 7-day average, it is "behind". so you need to decide how to handle that.

All this is complicated and for very little difference. I did a back-test using one day returns for Fidelity funds and the SIFMA rates and it made almost no difference.

I personally would just watch the daily reported after-tax rates on my sheet and swap when it passes one direction or the other. Really, I wouldn't even both unless you have a couple hundred thousand $ sitting around in cash.

I may give up on this watching/swapping thing haha. I hadn't looked in a couple days and now the VMSXX 7 day yield is shooting up again, so right now it is better than VUSXX tax adjusted. I guess given the reporting lag of the 7-day yield, that means I probably am late again in switching over. So while I haven't thought through this perfectly, my gut is that any benefit here really requires one to pretty much perfectly catch the right crossover points. If one doesn't, but gets "close" then the benefit will be lower and may be just the same as doing nothing, so lots of work for nothing. WORST case if one is too sloppy and really misses the crossover points with a lag, then one may actually be doing worse than just leaving it in VMSXX.

Is that a fair assessment?

If so then I think I will focus on my work and other hobbies and not try to use my divining rod to catch all these crossover points. If there was a really foolproof way to get the data (like it was reported every day and so could really get those crossover points perfect) then I would stay in the game but right now it seems haphazard to me.

[retiringwhen]

I may give up on this watching/swapping thing haha. I hadn't looked in a couple days and now the VMSXX 7 day yield is shooting up again, so right now it is better than VUSXX tax adjusted. I guess given the reporting lag of the 7-day yield, that means I probably am late again in switching over. So while I haven't thought through this perfectly, my gut is that any benefit here really requires one to pretty much perfectly catch the right crossover points. If one doesn't, but gets "close" then the benefit will be lower and may be just the same as doing nothing, so lots of work for nothing. WORST case if one is too sloppy and really misses the crossover points with a lag, then one may actually be doing worse than just leaving it in VMSXX.

Is that a fair assessment?

Yes, the last few days were a good time to switch over. You can probably catch 3+ weeks of the muni yield now if you are in at the highest rates. But you did leave a tiny bit on the table. The big thing is really getting back in VUSXX when the Muni rates are dropping like a rock.

What I find interesting is that during 2022, the cycles were running about 60 days, this one is coming on a shorter period, more like 40 days. It is also much steeper up, and likely back down again.

Of course, you can spend time swapping the funds or time talking about it on Bogleheads or time on your hobbies

[Hogan773]

yes the steepness is crazy, which makes it feel like I need to be paying attention!

I am doing the switch again to VMSXX today. I guess from there I will decide if I try to keep watching it or not. Do you think the "sine waves" are predictable enough that I can sort of forecast ahead that I should expect to keep an eye out for the next transition crossover in [X] days or weeks from now?

[retiringwhen]

yes the steepness is crazy, which makes it feel like I need to be paying attention!

I am doing the switch again to VMSXX today. I guess from there I will decide if I try to keep watching it or not. Do you think the "sine waves" are predictable enough that I can sort of forecast ahead that I should expect to keep an eye out for the next transition crossover in [X] days or weeks from now?

They are predictable overall, but the frequency is increasing. I don't know if this one will last 28 days like last time. I have a feeling it may be even shorter.

[Lyrrad]

I may give up on this watching/swapping thing haha. I hadn't looked in a couple days and now the VMSXX 7 day yield is shooting up again, so right now it is better than VUSXX tax adjusted. I guess given the reporting lag of the 7-day yield, that means I probably am late again in switching over. So while I haven't thought through this perfectly, my gut is that any benefit here really requires one to pretty much perfectly catch the right crossover points. If one doesn't, but gets "close" then the benefit will be lower and may be just the same as doing nothing, so lots of work for nothing. WORST case if one is too sloppy and really misses the crossover points with a lag, then one may actually be doing worse than just leaving it in VMSXX.

Is that a fair assessment?

If so then I think I will focus on my work and other hobbies and not try to use my divining rod to catch all these crossover points. If there was a really foolproof way to get the data (like it was reported every day and so could really get those crossover points perfect) then I would stay in the game but right now it seems haphazard to me.

I think you are fine and didn’t miss much. I think the 1day yield on VMSXX went up to around 4.15% yesterday, based on correlations to Fidelity’s 1 and 7 day yields on similar funds, I think about 80% of the weekly change due to the SIFMA swap index is reflected on Thursday, with most of the remainder on the prior day. Fidelity’s tax exempt FZEXX 1 day yield jumped from 3.00 to 4.00% from Wednesday to Thursday and had a similar jump in 7 day yield as VMSXX.

My plan is to look at the change in the SIFMA swap index between Wednesday evening and Thursday market close and decide whether or not to swap. The index is released once a week and I think about 80% of the holdings of these Muni MMs are tied to the index.

[Hogan773]

So the SIFMA index is showing 4.35% yesterday and today. Is that right? I kept looking it up on Bloomberg or the SIFMA website and I thought it was wrong because of how high it was vs the VMSXX SEC yield that I had been seeing a few days back (in the 2s)

[Lyrrad]

So the SIFMA index is showing 4.35% yesterday and today. Is that right? I kept looking it up on Bloomberg or the SIFMA website and I thought it was wrong because of how high it was vs the VMSXX SEC yield that I had been seeing a few days back (in the 2s)

Right. It updates once a week, usually on Wednesday. It went up from 2.64 to 4.35 this week.

The large majority of holdings in Muni MM funds seem to be tied to this index. Most rates seem to reset on Thursdays, with a bit of movement on Wednesday. I swapped yesterday, on Thursday.

I can confirm that I earned more than 4% on the 1 day yield yesterday in VMSXX by viewing accrued dividends by date.

[Hogan773]

4% without tax adjustment? That's awesome. Glad I switched back in. Is there a way to see the daily yield rate on VMSXX then? That is what I would want to use as my switching comparison

[Lyrrad]

4% without tax adjustment? That's awesome. Glad I switched back in. Is there a way to see the daily yield rate on VMSXX then? That is what I would want to use as my switching comparison

Not directly. You can approximate it by looking at the accumulated interest in Balances By Date if you hold some.

The daily yields appear to track the equivalent Fidelity fund pretty closely, so you can look at the daily yields on FZEXX and add about 0.10 to 0.15%.

[Hogan773]

4% without tax adjustment? That's awesome. Glad I switched back in. Is there a way to see the daily yield rate on VMSXX then? That is what I would want to use as my switching comparison

Not directly. You can approximate it by looking at the accumulated interest in Balances By Date if you hold some.

The daily yields appear to track the equivalent Fidelity fund pretty closely, so you can look at the daily yields on FZEXX and add about 0.10 to 0.15%.

Ahhh I like that FZEXX reporting then.....I can just track that as a proxy for crossovers perhaps

[mouth]

Not directly. You can approximate it by looking at the accumulated interest in Balances By Date if you hold some.

For anyone curious, if you want to calculate the 1-day SEC yield of VMSXX based on the Daily Balance feature of the Vanguard site to an accuracy of 10 basis points (4.0 vs 4.1) you're going to need $3650 in the fund given that the daily balance is rounded to a penny. Any less than $3650 and you might miss a day-to-day 10-basis point change in yield by not seeing a penny change in the daily balance movement.

At $1825 you'd need a ~15 basis point change before you'd see it as a penny difference in the daily yield assuming they are rounding up. That might be enough honestly to see the change in time to swap if you project the next days change. Practically speaking, once VMSXX is on the up/down swing it's making fairly large moves in daily yield that maybe even $912.50 might be enough to be your trigger but that's pushing it. You'd have to start projecting the next day's yield based on the trend. I think $730 is just too little to be reliable, though I suppose it's probably still better than relying on a 7-sec yield to be your trigger. Barely.

Or said another way, at $3650 if you're seeing your Daily Balance change by 40 cents every day you know you're getting 4% yield. If it suddenly changes to 41 cents you know you're getting 4.1% yield. But if you have $912.50 in there, the actual yield could change to 4.1% but you would still only see 40 cents of Daily Balance change. You wouldn't see it become a 41 cent change until the actual yield was as high as 4.25% assuming Vanguard is generously rounding up and/or a little sooner if they are accumulating factional pennies in the background.

FWIW, If you want 5 basis point accuracy you'd need $7300 and if you simply must have 1 basis point accuracy then you need $36500 :O

Code: Select all

Observed change in Daily Balance amount vs change in yield rate for different account balances

Yield Change	$3,650.00	$1,825.00	$912.50		$730.00
0.05%		$0.005		$0.003		$0.001		$0.001
0.10%		$0.010		$0.005		$0.003		$0.002
0.15%		$0.015		$0.008		$0.004		$0.003
0.20%		$0.020		$0.010		$0.005		$0.004
0.25%		$0.025		$0.013		$0.006		$0.005
0.30%		$0.030		$0.015		$0.008		$0.006
0.35%		$0.035		$0.018		$0.009		$0.007
0.40%		$0.040		$0.020		$0.010		$0.008
0.45%		$0.045		$0.023		$0.011		$0.009
0.50%		$0.050		$0.025		$0.013		$0.010

[Hogan773]

@mouth: interesting

I need to investigate the daily balance feature. Sounds like with a decent amount in the fund it should be highly accurate. So they accrue interest daily in this fund and there is a way to see what that daily accrual is. Do they do the same for VUSXX too? (Although prob less important there as VMSXX is the bouncing ball and VUSXX is much more stable in yield)

[Hogan773]

Seems like VMSXX is already on the downswing

I wish the cycle wasnt so fast and sharp

I need to check the sources noted above for when to hop back out and over to VUSXX

[Hacksawdave]

Seems like VMSXX is already on the downswing

I wish the cycle wasnt so fast and sharp

I need to check the sources noted above for when to hop back out and over to VUSXX

Municipal MM funds contain VRDOs (Variable Rate Demand Obligations) that create wider fluctuations when interest rate changes occur. The SIFMA index published weekly on Wednesday can give a hint at the yield direction.

One thing I have noticed with a sampling of data is that fund inflows/outflows seem to have an impact on the yield as well. Lat week Vanguard’s CA tax-exempt MMF VCTXX saw a net inflow of $116M as people flip-flopped back in. This week the fund has a net inflow of $53M in just two days, and the swap index has dropped to 3.04. VMSXX moves are like VCTXX.

[Hogan773]

So I see FZEXX one day yield went from 3.25ish to 2.74 in one day

So I guess now is the time (Monday) to flip to VUSXX yes? I will also get on VG website and try to figure out how to do the daily accrued calc and compare to FZEXX but given the earlier advice that FZEXX is similar, it is an easy check for me because I just have the FZEXX page as a tab on my smartphone and calc refresh it every day

If VUSXX is in the 4.5% area then I am multiplying by .62 to get a look at the tax equiv that VMSXX needs to have to beat it and so it seems we just crossed below it again

[Hogan773]

Not directly. You can approximate it by looking at the accumulated interest in Balances By Date if you hold some.

For anyone curious, if you want to calculate the 1-day SEC yield of VMSXX based on the Daily Balance feature of the Vanguard site to an accuracy of 10 basis points (4.0 vs 4.1) you're going to need $3650 in the fund given that the daily balance is rounded to a penny. Any less than $3650 and you might miss a day-to-day 10-basis point change in yield by not seeing a penny change in the daily balance movement.

At $1825 you'd need a ~15 basis point change before you'd see it as a penny difference in the daily yield assuming they are rounding up. That might be enough honestly to see the change in time to swap if you project the next days change. Practically speaking, once VMSXX is on the up/down swing it's making fairly large moves in daily yield that maybe even $912.50 might be enough to be your trigger but that's pushing it. You'd have to start projecting the next day's yield based on the trend. I think $730 is just too little to be reliable, though I suppose it's probably still better than relying on a 7-sec yield to be your trigger. Barely.

Or said another way, at $3650 if you're seeing your Daily Balance change by 40 cents every day you know you're getting 4% yield. If it suddenly changes to 41 cents you know you're getting 4.1% yield. But if you have $912.50 in there, the actual yield could change to 4.1% but you would still only see 40 cents of Daily Balance change. You wouldn't see it become a 41 cent change until the actual yield was as high as 4.25% assuming Vanguard is generously rounding up and/or a little sooner if they are accumulating factional pennies in the background.

FWIW, If you want 5 basis point accuracy you'd need $7300 and if you simply must have 1 basis point accuracy then you need $36500 :O

Code: Select all

Observed change in Daily Balance amount vs change in yield rate for different account balances

Yield Change	$3,650.00	$1,825.00	$912.50		$730.00
0.05%		$0.005		$0.003		$0.001		$0.001
0.10%		$0.010		$0.005		$0.003		$0.002
0.15%		$0.015		$0.008		$0.004		$0.003
0.20%		$0.020		$0.010		$0.005		$0.004
0.25%		$0.025		$0.013		$0.006		$0.005
0.30%		$0.030		$0.015		$0.008		$0.006
0.35%		$0.035		$0.018		$0.009		$0.007
0.40%		$0.040		$0.020		$0.010		$0.008
0.45%		$0.045		$0.023		$0.011		$0.009
0.50%		$0.050		$0.025		$0.013		$0.010

I have scoured the Vanguard website trying to find out where I can see the "Daily Balance" info to get the specific yield on the VMSXX....I cannot for the life of me find the info. Where is it or how do I access it? The "new" Vanguard website isn't my favorite vs the classis layout.

Thanks for the steer in the right direction

[Lyrrad]

I have scoured the Vanguard website trying to find out where I can see the "Daily Balance" info to get the specific yield on the VMSXX....I cannot for the life of me find the info. Where is it or how do I access it? The "new" Vanguard website isn't my favorite vs the classis layout.

https://personal.vanguard.com/us/XHTML/ ... ncesbydate

I also use https://personal.vanguard.com/us/faces/TPView to mostly have the classic layout. These will probably stop working some day.