Vanguard Municipal Money Market VMSXX 1.39%

[DanFromNewYork]

Big spike in Muni Yields for tax day.

TEY are for my particular marginal tax rates.

[goodenyou]

Big spike in Muni Yields for tax day.

TEY are for my particular marginal tax rates.

Congratulations in your high tax bracket in a high tax state. Munis make sense for highly taxed individuals.

[Kevin M]

Big spike in Muni Yields for tax day.

Well, not really for tax day, but for the period surrounding tax day, and really starting to ramp up more steeply a few days after tax day.

From 4/10 to 4/15, Muni MM SEC yield increased 4 basis points. It increased another 3 basis points by 4/17, and that's when the ramp really kicked in. Yield increased 5 basis points from 4/17 to 4/18, and another 20 basis points by 4/22 (so 5 bps/day), and another 5 bps on 4/23.

The ramp last year was not nearly as steep, increasing 14 bps from 4/10 to 4/24, and 4/24 was the peak of that cycle--started falling again on 4/27.

Last year was very different, with the ramp up staring in mid-Feb, while the upswing this year did not start until April 11.

Kevin

[deskjockey]

The TEY of VMSXX just exceed that of VUSXX for me today. I wonder if I should switch the funds I have in VMSXX to ride the crest or not. Last year the crest for me lasted under a month, so it wasn't exactly worth it. Any thoughts?

[neurosphere]

The TEY of VMSXX just exceed that of VUSXX for me today. I wonder if I should switch the funds I have in VMSXX to ride the crest or not. Last year the crest for me lasted under a month, so it wasn't exactly worth it. Any thoughts?

Yes, but my thoughts depend on the amount of money you intend to transfer.

For me, the tax-free yields are just probably just at or slightly under the taxable yields. I could maybe make a $5-$25/year in extra after-tax income if I switch. But eh, I'm lazy. I'd rather take those few minutes and write one more post on BH.

[LSLover]

The TEY of VMSXX just exceed that of VUSXX for me today. I wonder if I should switch the funds I have in VMSXX to ride the crest or not. Last year the crest for me lasted under a month, so it wasn't exactly worth it. Any thoughts?

I switched last year for a couple of weeks to ride the crest but it complicated my tax return. So, unless the advantage is significant, I will not bother.

[deskjockey]

Yes, but my thoughts depend on the amount of money you intend to transfer.

For me, the tax-free yields are just probably just at or slightly under the taxable yields. I could maybe make a $5-$25/year in extra after-tax income if I switch. But eh, I'm lazy. I'd rather take those few minutes and write one more post on BH.

It's only about $100K, so the extra income would probably be round $5-$20 if the crest only lasts a few weeks and the TEY of VMSXX doesn't go very much above VUSXX. Definitely not worth it in that scenario.

[Ricchan]

I ignored the small upswing in late February when VMSXX went up around 1.67% since that was just ~10 bp above the break even point vs VMMXX (Prime MM) for my tax bracket. The swing this time, however, is more drastic (up to 1.90% now), plus VMMXX has gone down a bit more since then (2.46% at end of Feb to 2.44% now), so I went ahead and moved all my "cash" from Prime MM to Muni MM a few days ago.

The tricky thing about these moves is that the reported SEC yield is an average of the past 7 days, so if you make the switch when the difference in yield becomes advantageous, you've already missed out on a couple days of better returns. And you also face the same delay going the other direction.

[am]

Why is the yield curve flat to inverting for muni funds? Short term and limited term muni funds yielding less than money market and int. Muni not far ahead of the money market? What’s going on?

[sperry8]

Inspired by neurosphere's chart, I made an updated chart...

Great, thanks! I was in the process of updating the chart and then got distracted and moved on to something else. Thanks for adding the quarter-lines. It emphasises that indeed there is a quarterly spike in muti rates. I also "see" this effect in the Prime MM, just a smaller magnitude, as I previously mentioned.

I made my own chart. This is only for one year, and shows TEYs for my marginal tax rates of 27% and 8%.



First obvious observations is that we're approaching the point at which I will exchange from CA muni MM to Prime MM.

Another observation is that the previous peaks in the spikes occurred very close to the beginning of a calendar quarter, but the most recent one didn't occur until almost a month after the beginning of the quarter (4/26/2018).

Kevin

This is interesting, seems like again, almost to the day a year later we are at another Muni MM spike. I was about to move my money but happened upon this thread. Seems like it'll be temporary and not stay up this high. Is that correct?

[Kevin M]

This is interesting, seems like again, almost to the day a year later we are at another Muni MM spike. I was about to move my money but happened upon this thread. Seems like it'll be temporary and not stay up this high. Is that correct?

The cycles aren't identical from year to year, but it does appear that the increase in muni MM SEC yield is tapering off. After increasing 5 basis points per day from 4/18 - 4/24, it increased 3 bps on 4/25 and 2 bps on 4/26.

We see a similar tapering in the CA muni MM fund upswing.

As of now, CA muni MM TEY for me of 2.74% is 10 basis points higher than Treasury MM TEY of 2.64%. Of course these are based on 7-day (lagging) average yields, so for all we know we could actually have reached the peak of what you actually earn daily.

It only takes a about a minute to exchange everything from one MM fund to another, so I might switch to CA muni MM. If you have enough in the fund to see the required resolution in daily interest, you can calculate the actual daily interest by looking at the change in accrued interest from one day to the next, then annualizing the rate. This way you can fine tune your timing in switching back out of the fund, especially since the Treasury MM yield (and even Prime MM yield) is unlikely to change much as long as the federal funds rate doesn't change.

To keep this in perspective, 10 basis points on $100K is $100 per year, which is a whopping $0.27 per day.

Kevin

[Electron]

I plan to stay with the Treasury Money Market fund for the present. One reason is that it should be the safest of the available choices. The VRDO securities in the tax exempt funds are considered very safe but they do appear to be derivative securities. Here is an article from 2008 that might be of interest.

https://www.forbes.com/2008/02/28/munic ... bad4573ec6

[jainn]

I see the muni market fund VMSXX SEC yield is 2.01% today and the intermediate VWIUX is 2.11%. All our bonds in our taxable account are in the intermediate. If the majority of total return from the bonds is interest payments, the VWIUX distribution payments are 2.82%, I guess I shouldn’t compare only the SEC yields? The duration risk when only comparing SEC yields seems unfavorable to be in intermediate...but I don’t plan on selling the bond fund shares or spending the monthly muni dividends for several years...so that means I should stay in the intermediate fund if I recall prior discussions and articles I’ve read.

Jainn

[Kevin M]

It only takes a about a minute to exchange everything from one MM fund to another, so I might switch to CA muni MM. If you have enough in the fund to see the required resolution in daily interest, you can calculate the actual daily interest by looking at the change in accrued interest from one day to the next, then annualizing the rate. This way you can fine tune your timing in switching back out of the fund, especially since the Treasury MM yield (and even Prime MM yield) is unlikely to change much as long as the federal funds rate doesn't change.

I went ahead and exchanged most of my Treasury MM to CA Muni MM yesterday. It took more than a minute, because the holding is split between cash and margin positions (after 30 days, it moves from cash to margin), and it was a little confusing as to how to exchange most but not all of both of them. For some reason, you can't exchange from both at the same time, like you usually can, and you can't exchange all shares out of one without exchanging all out of both.

I was hoping that this would move everything into a cash position in the CA fund, but unfortunately the cash and margin split carried over. The problem with this is that the Vanguard daily balances view only shows accrued interest for the cash position, and since that's a smaller position for me, I won't get as much resolution in calculating the daily yield based on the daily change in accrued interest. Oh well, I'll see how it looks over the next few days anyway.

CA muni MM fund yield jumped another 8 bps over the weekend, from 1.78% to 1.86%, which bumps my SEC TEY from 2.74% to 2.86%. This now is 22 bps more than my Treasury TEY of 2.64%.

The national muni MM fund jumped 9 bps, from 1.92% to 2.01%, for a TEY for me of 2.84%--only slightly less than CA muni MM TEY.

Kevin

[Kevin M]

I see the muni market fund VMSXX SEC yield is 2.01% today and the intermediate VWIUX is 2.11%. All our bonds in our taxable account are in the intermediate. If the majority of total return from the bonds is interest payments, the VWIUX distribution payments are 2.82%, I guess I shouldn’t compare only the SEC yields? The duration risk when only comparing SEC yields seems unfavorable to be in intermediate...but I don’t plan on selling the bond fund shares or spending the monthly muni dividends for several years...so that means I should stay in the intermediate fund if I recall prior discussions and articles I’ve read.

The standard Boglehead philosophy is to stay the course, and not change your asset allocation based on changes in market dynamics. Based on this philosophy, you probably should just stick with the fund you're in for your taxable bonds.

I wouldn't say that the majority of total return from bonds is interest payments--at least not without some qualification. The longer the time period, the more true this tends to become, but over a period of even several years, the capital return component can be significant (positive or negative). Vanguard shows a 1-year return of 5.15% for VWIUX as of 3/31. The most recent distribution yield is 2.82%, as you note, and it has been a little less than 3% for the last year. So, about 2/5 of the return over the last year, or 40%, is from capital return.

I have significant capital gains in my CA muni bond funds, which I've held for some years. Looking at the 10-year performance for my CA int-term and long-term muni funds, 29% is from capital return and 71% is from income return. So the capital return component can indeed be significant, even over a period as long as 10 years.

The SEC yield generally is more relevant than distribution yield for estimating expected return. If distribution yield is higher, it means that the fund's bonds are priced on average at a premium to par (more than 100% of face value), and that the bond values will decline toward par as they approach maturity, which we'd expect to decrease the total return. However, the fund doesn't hold its bonds to maturity, so we won't feel the full impact of this, and the capital return component will depend more on how the yield curve changes between when the bond is bought and when it is sold, which of course is impossible to predict.

If you are looking for a term risk premium by holding a longer-duration bond fund, you certainly aren't getting much of one today. The flip side of this is that if rates stay low for a long time, or go even lower, then you will be better off sticking with your intermediate-term fund than going shorter term due to the negative term premium--this is the reinvestment risk component of term risk.

What I'm doing is holding my bond funds, but putting new cash into short-term Treasuries (lately, 6-month). I put a lot into CDs since 2010, generally earning more than 100 basis points over Treasuries of the same maturity, and as those mature, the cash is going into short-term fixed income, unless a great CD deal pops up.

Kevin

[Kevin M]

Looks to me like the muni MM yields have peaked, and are headed down again. My first clue was that the interest rate I calculated based on my CA muni MM accrued dividends on 5/1 was 1.86%, while the SEC yield on 5/1 was 1.90%. Now we see on 5/2 that the SEC yield has dropped to 1.88%, and the rate based on my dividends accrual as of 5/2 is 1.77%. So if the calculations based on my dividend accruals are correct, it looks like to drop in yields might be steeper than the increase.

Even at 1.77%, CA Muni MM still has much higher TEY than Treasury MM, but if we start to see the SEC yields falling rapidly over the next few days, I'll use my own calculated rate to determine when to switch back to Treasury MM.

Kevin

[dkennedymi]

I probably won’t be as diligent as this person, but I’ll keep an eye on it. Thanks!

[Kevin M]

CA muni MM SEC yield dropped another 2 bps to 1.86%. The daily rate I calculate also dropped 2 basis points to 1.75%.

Muni MM SEC yield dropped 1 bp to 2.02% (from a peak of 2.05% on 5/1).

Kevin

[Electron]

The SIFMA Municipal Swap Index Yield which is updated every Wednesday appears to have peaked on 4/24.

https://www.bloomberg.com/quote/MUNIPSA:IND

To see the chart you may need to click on 1Y or 5Y and then View Full Chart.

[deskjockey]

Well, the party is over for me--today the ATY on VMSXX is likely to drop below that of VUSXX (calculated using accrued dividends). It was just a hair higher yesterday (and ten basis points lower than the SEC yield), so I've gone ahead and moved everything back to VUSXX.

[Electron]

The SIFMA Municipal Swap Index Yield dropped to 1.59% yesterday from 2.12% the previous Wednesday. That is a surprisingly large 25% drop.

https://www.bloomberg.com/quote/MUNIPSA:IND

We may know soon if the tax exempt money market funds follow to the same degree. Take a look at the charts provided on the site.

[Kevin M]

Well, the party is over for me--today the ATY on VMSXX is likely to drop below that of VUSXX (calculated using accrued dividends). It was just a hair higher yesterday (and ten basis points lower than the SEC yield), so I've gone ahead and moved everything back to VUSXX.

On the same note, I posted this yesterday in a more recent thread that was started on this topic:

Daily yield of CA Muni MM for 5/7 was 1.71% (down 2 bps), and SEC yield was 1.76% (down 3 bps). As expected, the 7-day average of my daily yields equals the SEC yield of 1.76%, which increases my confidence that I'm calculating the daily yield correctly.

At yesterday's daily yield of 1.71%, TEY of CA Muni MM for me was equal to TEY of Treasury MM at 2.63%. That means that the CA Muni MM TEY today probably is lower than Treasury MM, but I think I'll hold CA Muni MM one more day just to track the daily yield for another day.

I also note that that national Muni MM SEC yield is declining a bit more slowly than the CA Muni MM yield, so to earn a few more pennies, I could switch into that for a few days, but I'm not going to bother doing that.

As expected, daily yield (calculated from accrued dividends) and SEC yield of CA muni MM both dropped again yesterday, so even though my TEY based on SEC yield was slightly higher than that of Treasury MM on 5/8, TEY based on my daily yield was lower.

As posted yesterday, I held CA muni MM for one extra day just to have one more data point on daily yields, and again, my lagging 7-day average of calculated daily yield equals the published SEC yield of 1.73% as of 5/8. Daily yield as of 5/8 was 1.64%. So today I will exchange back to Treasury MM.

My TEY based on national muni MM (VMSXX) SEC yield is 6 bps higher than for CA muni MM and 9 bps higher than Treasury MM TEY, but it's probably about tied with Treasury MM based on daily yield, and I wouldn't mess around switching into it for a day or two anyway.

Kevin

[DanFromNewYork]

I noticed something interesting today. The SEC yields for all of the Vanguard muni money market funds was unchanged from May 8 to May 9. However, this does not match what the behavior should have been based on a 7-day lagged average of the daily accrual computed yield based on my holdings in the NY muni fund, which predicted that the 7-day average should have decreased by 6 bps. I checked every day of the past two weeks and my estimated 7-day average yields match the SEC yields (with less than 1 bp difference due to rounding). But for May 9, I am off by 6 bps. Has anyone seen something like this before?

In checking all this today, I also noticed that the distribution I am paid out at the end of the month does not match what was shown as accrued dividends as of the end of the month. The distribution at the end of April was smaller than the accrued dividends and the distribution at the end of March was larger than the accrued dividends. I would guess the mismatch was due to capital gains and losses of the underlying paper. If so, it might not be as straight forward for me to compare the money market yields to bank account rates as I thought it was. Does anyone have any thoughts?

[Kevin M]

I noticed something interesting today. The SEC yields for all of the Vanguard muni money market funds was unchanged from May 8 to May 9. However, this does not match what the behavior should have been based on a 7-day lagged average of the daily accrual computed yield based on my holdings in the NY muni fund, which predicted that the 7-day average should have decreased by 6 bps. I checked every day of the past two weeks and my estimated 7-day average yields match the SEC yields (with less than 1 bp difference due to rounding). But for May 9, I am off by 6 bps. Has anyone seen something like this before?

Interesting. Since I exchanged out of CA Muni MM to Treasury Muni MM yesterday, I don't have accrued dividends for 5/9 to check myself.

In checking all this today, I also noticed that the distribution I am paid out at the end of the month does not match what was shown as accrued dividends as of the end of the month. The distribution at the end of April was smaller than the accrued dividends and the distribution at the end of March was larger than the accrued dividends. I would guess the mismatch was due to capital gains and losses of the underlying paper. If so, it might not be as straight forward for me to compare the money market yields to bank account rates as I thought it was. Does anyone have any thoughts?

Is this in a brokerage account or mutual fund account?

In a brokerage account new purchases go into a cash version of the fund, and after 30 days move to a margin version of the fund. If I have both, I only see accrued dividends for the cash version. In this case, since I can't see the accrued dividends for the entire holding, I can't reconcile the accrued dividends to the distribution.

Another thing I'm pretty sure I saw, in a brokerage account, is that the dividend for one day accrued in the cash account then moved to the settlement fund. I think this ended up being part of the dividend distribution.

Kevin

[DanFromNewYork]

Is this in a brokerage account or mutual fund account?

This is in a mutual fund account.

[Electron]

The SEC yields for all of the Vanguard muni money market funds was unchanged from May 8 to May 9.

That was very surprising and I had wondered if the unchanged data was correct. It's possible there is an explanation in the average maturity of the portfolios and also the daily liquid assets. Here is some interesting data on the Tax Exempt Money Market fund.

https://investor.vanguard.com/mutual-fu ... olio/vmsxx

Scroll down to the section labeled liquid assets, daily market values, and cash flows. The tax exempt money market funds are quite different from the taxable funds when you compare daily and weekly liquid assets. The daily liquidity is typically 0% while the weekly liquidity is generally quite high.

The daily cash flows are also quite interesting. Click on "Show More" to see additional data. You can see significant cash outflows on either side of April 15 with cash now coming back into the fund.

[briaspa]

Is this in a brokerage account or mutual fund account?

This is in a mutual fund account.

1st post so my apologies if I don't get the reply quoting right, but in reply to danfromnewyork's 2 observations....

1. Something strange happened to the vusxx treasury fund around the same time. On 5/7 and 5/8 the daily dividend rate (based on the daily balance incremental change divided by the previous days balance) dropped from an annualized rate of just under 2.35% to just over 2.30%. On 5/9 and 5/10 it returned to around 2.35% where it has been for the last month or so.

The vusxx daily rates have been very stable every day since early in the year drifting slowly up and down in line with tbill rates - 0.09% the fund fee. I haven't discovered any external tbill events showing such a sharp drop in prices for those 2 days. This isn't a rounding error based on a small balance either and I've checked daily rates/balances for every day since Feb and the rates have always been between 2.33 and 2.36%

Maybe vanguard had some processing glitch around those days that affected more than just the muni fund in question.

2. While checking these daily balance numbers for vusxx rates I also noted that the paid dividend doesn't match the accrued dividend for the last day of the month (as shown on the balance by date page). In fact for me the accumulated dividends are zeroed out for the last 1-3 days of the month and begin to show accumulation on the first day of the next month.

While I haven't yet managed to calculate the exact same figure as the paid dividend based on the published monthly distribution $/share figures it looks like the paid dividend might be based on balances up to 2 days before the date of record (when they start to show as 0 accumulated dividends) plus the carryover of the previous months final '0' accumulation days.

If I figure out the exact formula that works consistently across different funds I will probably update the thread or perhaps this belongs in its own thread.

Note this is based on a regular non tax advantaged holding in a brokerage account not a mutual fund account.

Also as this is my first post I just wanted to thank Kevin for his wisdom and excellent contributions over the years and also recognize the contributions of a few other longtime members (doc and neuro spring to mind but are by no means the only ones). Thank you to you all.

[yoyo6713]

now down to 1.8% (from 1.9x%)

[Kevin M]

now down to 1.8% (from 1.9x%)

That was a big 1-day drop! From 1.92 to 1.80, so 12 basis points in one day. CA muni MM dropped 11 basis points from 1.73 to 1.62.

My guess is that this really is a 2-day drop, and the muni MM SEC yields not changing from 5/8 to 5/9 is a Vanguard error. This would be consistent with DanFromNewYork's data indicating that the SEC yields should have dropped on 5/9 (based on the change in accrued dividends).

Kevin

[Kevin M]

Is this in a brokerage account or mutual fund account?

This is in a mutual fund account.

1st post so my apologies if I don't get the reply quoting right, but in reply to danfromnewyork's 2 observations....

Glad you've started posting! Keep it up. You got the reply quoting perfectly.

1. Something strange happened to the vusxx treasury fund around the same time. On 5/7 and 5/8 the daily dividend rate (based on the daily balance incremental change divided by the previous days balance) dropped from an annualized rate of just under 2.35% to just over 2.30%. On 5/9 and 5/10 it returned to around 2.35% where it has been for the last month or so.

Another interesting observation. Thanks for sharing.

2. While checking these daily balance numbers for vusxx rates I also noted that the paid dividend doesn't match the accrued dividend for the last day of the month (as shown on the balance by date page). In fact for me the accumulated dividends are zeroed out for the last 1-3 days of the month and begin to show accumulation on the first day of the next month.

I just checked one of my bond funds in a mutual fund account. The accrued dividends showed $0 on 4/30, the date the dividend was paid. The dividend amount was 10.68 more than the accrued dividends on 4/29, and the accrued dividend on 5/1 was 10.65, so my guess is that the 10.68 was the additional dividend accrual for 4/30.

While I haven't yet managed to calculate the exact same figure as the paid dividend based on the published monthly distribution $/share figures it looks like the paid dividend might be based on balances up to 2 days before the date of record (when they start to show as 0 accumulated dividends) plus the carryover of the previous months final '0' accumulation days.

If I figure out the exact formula that works consistently across different funds I will probably update the thread or perhaps this belongs in its own thread.

That would be great. If you do it in its own thread, please post a pointer in this thread.

Note this is based on a regular non tax advantaged holding in a brokerage account not a mutual fund account.

Good to know, as it seems that things work a bit differently in brokerage and (old platform) mutual fund (only) accounts.

Also as this is my first post I just wanted to thank Kevin for his wisdom and excellent contributions over the years and also recognize the contributions of a few other longtime members (doc and neuro spring to mind but are by no means the only ones). Thank you to you all.

Very kind of you to say so!


Kevin

[Electron]

In checking all this today, I also noticed that the distribution I am paid out at the end of the month does not match what was shown as accrued dividends as of the end of the month. The distribution at the end of April was smaller than the accrued dividends and the distribution at the end of March was larger than the accrued dividends. I would guess the mismatch was due to capital gains and losses of the underlying paper.

That may be the explanation. Here is a document with some information.

https://www.centerforcapitalmarkets.com ... d-Cost.pdf

"Further, with a weighted average portfolio of 60 days or less, a high percentage of investments will be held to maturity and not sold to generate short-term gains or losses."

There is a lot of additional information some of which may be relevant.

In regards to the Vanguard SEC yields on May 9, the figures in the Price History Search have now been revised. Your estimate looks pretty close.

[Vanguard Fan 1367]

I believe it is now down to 1.63%

[Kevin M]

I believe it is now down to 1.63%

Dropped another 6 basis points to 1.57% today. Has been dropping about 6 basis points per day since 5/8.

Kevin

[am]

I believe it is now down to 1.63%

Dropped another 6 basis points to 1.57% today. Has been dropping about 6 basis points per day since 5/8.

Kevin

TEY for 35% fed, 5% state is now below prime mm. Thinking of switching, maybe short term muni fund?

[deskjockey]

TEY for 35% fed, 5% state is now below prime mm. Thinking of switching, maybe short term muni fund?

If you want to switch without changing your risk profile, go with Prime MM or with Treasury MM. Higher yield and even safer.

[Startled Cat]

With VCTXX at a SEC of 1.41% I'm now indifferent to VCTXX vs. VUSXX. I'm switching back to VUSXX today.

I suppose I should feel grateful for a few weeks of slightly higher TEY, but I find myself mostly being annoyed that this area of the market is so inefficient, and I have to watch yields instead of just letting the market take care of getting me the best deal possible.

[Kevin M]

Dropped another 6 basis points to 1.57% today. Has been dropping about 6 basis points per day since 5/8.

TEY for 35% fed, 5% state is now below prime mm. Thinking of switching, maybe short term muni fund?

First, at those tax rates, based on SEC yield of 1.57%, your TEY for VMSXX is 2.49%, so still slightly higher than VMMXX at 2.43%. However, the daily yield probably is lower than the SEC yield, so you probably are at about the crossover point.

But TEY of Treasury MM (VUSXX) at SEC 2.34% is 2.54% at your tax rates, so this would be the clear choice for you in terms of money market funds.

Switching from an MM fund to a bond fund of any sort clearly is chasing yield; i.e., increasing risk for higher yield. I'm not saying you shouldn't do that, but just be aware that the risk would go up along with the yield.

TEY of Limited term tax exempt admiral (VMLUX) is 2.98% at your tax rates. With a duration of 2.4 years, you earn 44 basis points of extra yield, which is only 18 bps per extra year of duration, relative to Treasury MM at 2.54% TEY and 0-year duration. That's a bit on the low side of extra yield for the extra term risk, but it does reduce your reinvestment risk as well.

Kevin

[am]

Dropped another 6 basis points to 1.57% today. Has been dropping about 6 basis points per day since 5/8.

TEY for 35% fed, 5% state is now below prime mm. Thinking of switching, maybe short term muni fund?

First, at those tax rates, based on SEC yield of 1.57%, your TEY for VMSXX is 2.49%, so still slightly higher than VMMXX at 2.43%. However, the daily yield probably is lower than the SEC yield, so you probably are at about the crossover point.

But TEY of Treasury MM (VUSXX) at SEC 2.34% is 2.54% at your tax rates, so this would be the clear choice for you in terms of money market funds.

Switching from an MM fund to a bond fund of any sort clearly is chasing yield; i.e., increasing risk for higher yield. I'm not saying you shouldn't do that, but just be aware that the risk would go up along with the yield.

TEY of Limited term tax exempt admiral (VMLUX) is 2.98% at your tax rates. With a duration of 2.4 years, you earn 44 basis points of extra yield, which is only 18 bps per extra year of duration, relative to Treasury MM at 2.54% TEY and 0-year duration. That's a bit on the low side of extra yield for the extra term risk, but it does reduce your reinvestment risk as well.

Kevin

How are you getting 2.49 TEY for muni mm at 35 fed and 5 state? I am using this calculator: https://www.calcxml.com/do/inc11?skn=#results and getting 2.415 fed tax exempt. I assume I am paying state taxes since this a national muni mm.

The short term muni fund seems to be slightly higher risk fluctuating in price <1%. I think I can tolerate that. But agree that it’s yield chasing. But is it all bad ?

[Kevin M]

Dropped another 6 basis points to 1.57% today. Has been dropping about 6 basis points per day since 5/8.

TEY for 35% fed, 5% state is now below prime mm. Thinking of switching, maybe short term muni fund?

First, at those tax rates, based on SEC yield of 1.57%, your TEY for VMSXX is 2.49%, so still slightly higher than VMMXX at 2.43%. However, the daily yield probably is lower than the SEC yield, so you probably are at about the crossover point.

<snip>

Switching from an MM fund to a bond fund of any sort clearly is chasing yield; i.e., increasing risk for higher yield. I'm not saying you shouldn't do that, but just be aware that the risk would go up along with the yield.

TEY of Limited term tax exempt admiral (VMLUX) is 2.98% at your tax rates. With a duration of 2.4 years, you earn 44 basis points of extra yield, which is only 18 bps per extra year of duration, relative to Treasury MM at 2.54% TEY and 0-year duration. That's a bit on the low side of extra yield for the extra term risk, but it does reduce your reinvestment risk as well.

How are you getting 2.49 TEY for muni mm at 35 fed and 5 state? I am using this calculator: https://www.calcxml.com/do/inc11?skn=#results and getting 2.415 fed tax exempt. I assume I am paying state taxes since this a national muni mm.

That calculator is bogus--it doesn't calculate TEY in the conventional sense. Big hint: you do not use tax-free rate to calculate TEY (in the conventional sense). TEY stands on its own, all rates of interest can be converted to TEY, including any tax-free rate, so one is comparing apples to apples.

We can start by looking at after-tax yield (ATY) instead, as there probably is less confusion about that. Yes, you pay state tax, unless your state exempts the income from the fund's holdings of your state's munis, which it may, in which case your ATY would be somewhat higher than if you don't get any state tax exemption at all. My calculations assume no state tax exemption for national muni funds, as I am in CA, and there is no state tax exemption unless >50% of the income is from CA munis. With that assumption, the factor for calculating ATY for you is (1 - 0.05) = 0.95.

So your ATY on VMSXX at 1.57% = 1.57% * 0.95 = 1.49%.

For fully taxable, ATY factor is (1 - 35% - 5%) = 1 - 0.40 = 0.60. So your ATY on VMMXX at 2.43% = 2.43% * 0.60 = 1.46%.

Since 1.49% > 1.46%, you would be better off with VMSXX if you go by SEC yields, but as I noted, VMSXX daily yield probably is lower.

To get TEY, you take the ATY and multiply by the factor you'd use to get TEY for a fully tax-exempt muni; i.e., a muni fund that held 100% munis for your state. This is because for a state muni fund, the ATY equals the yield, so we first convert everything to ATY, then multiply by the state muni factor to get TEY. This is the reciprocal of the ATY factor for fully taxable, so 1 / 0.60 = 1.667. To calculate TEY calc in one step, you use factor 0.95 / 0.60 = 1.583.

So, 1.57% * 0.95 / 0.60 = 2.49%.

Also, it's important to use marginal tax rates, not tax brackets. A typical example for high tax brackets is the additional NIIT you might pay, so you must include this in your marginal tax rate. Other examples are phase-outs and phase-ins of different credits or tax rates on marginal income. For example, my tax bracket on ordinary income is 12%, but my marginal tax rate is 27% due to marginal ordinary income pushing QD/LTCG from 0% to 15% tax rate.

The short term muni fund seems to be slightly higher risk fluctuating in price <1%. I think I can tolerate that. But agree that it’s yield chasing. But is it all bad ?

Like I said, I'm not saying not to do it, just to be aware of the additional risk. You don't get much extra yield for the extra interest-rate risk, but you do reduce your reinvestment risk.

Kevin

[Electron]

If any of you have been concerned with the safety of Tax-Exempt Money Market funds, the Municipal Securities Rulemaking Board has a very nice seven page document explaining how VRDOs and other variable rate securities work.

http://www.msrb.org/msrb1/pdfs/About-Mu ... rities.pdf

The document has information on the Bank Letters of Credit (LOC) and Standby Purchase Agreements (SBPA) used to provide liquidity. A VRDO is a floating rate derivative security based on a long term municipal bond with the interest rate reset periodically. Note the section on VRDO risks with a short description in six different categories.

The Tax-Exempt Money Market funds appear to have adequate diversification in the number of different securities but one unknown is how many different banks back those securities. The number of different banks involved with the state specific funds could be even more limited. I'd be interested if anyone has additional information on this subject.

Since we are forgoing FDIC insurance when investing in Money Market funds, I'm more comfortable with the taxable Federal and Treasury Money Market funds.

[zonto]

Now at 1.36%, lower than when this thread was started. I was about to move over from online savings right before the plummet started. Vanguard Treasury Money Market is looking even more attractive right now.

[Electron]

The latest decline in SEC yield from May 1 (2.05%) through May 29 (1.34%) seemed remarkably swift. The yield has now rebounded to 1.66% and may be headed higher. The SIFMA Municipal Swap Index Yield which is updated every Wednesday is currently at 1.90%.

https://www.bloomberg.com/quote/MUNIPSA:IND

To see the chart you may need to click on 1Y or 5Y and then View Full Chart.

It's disappointing to hear that rate cuts are now a possibility. I think we've all been enjoying the increases in yield starting in late 2015 for the taxable funds and early 2016 for the tax exempt funds.

[sperry8]

Rates are going up again (if math is correct). 7 day SEC Yield is now 1.75%. In 32% bracket that's 2.57% equivalent. Might transfer back in to pick up the extra basis points next week

[Kevin M]

Rates are going up again (if math is correct). 7 day SEC Yield is now 1.75%. In 32% bracket that's 2.57% equivalent. Might transfer back in to pick up the extra basis points next week

Right. The national muni fund taxable equivalent yield (TEY) is approaching that of Treasury MM fund for me, but not quite there yet. Be sure to check TEY of the Treasury and Fed MM funds if you pay state income tax. Last time I switched, earlier this year, the CA muni MM TEY was only higher for me for about one week.

Kevin

[sperry8]

Rates are going up again (if math is correct). 7 day SEC Yield is now 1.75%. In 32% bracket that's 2.57% equivalent. Might transfer back in to pick up the extra basis points next week

Right. The national muni fund taxable equivalent yield (TEY) is approaching that of Treasury MM fund for me, but not quite there yet. Be sure to check TEY of the Treasury and Fed MM funds if you pay state income tax. Last time I switched, earlier this year, the CA muni MM TEY was only higher for me for about one week.

Kevin

I don't pay State income tax (I live in FL) so I believe that makes Muni MM higher by ~20 basis points over Treasury MM (on a tax equivalent basis). Vanguard Prime MM is also higher than Treasury by 3 basis points. Is there a difference between Prime MM and Treasury?

[MikeG62]

Rates are going up again (if math is correct). 7 day SEC Yield is now 1.75%. In 32% bracket that's 2.57% equivalent. Might transfer back in to pick up the extra basis points next week

These yield spikes have tended to be very short lived historically (usually lasting one month of part of one month). Every 10bps TEY picked up (for an entire month) amounts to $8.33 per month per $100K invested. Even if you could pick up 30bps doing this for a full month (over where your cash is otherwise invested) is it worth the bother at $25 per $100K? Even if you did it with $1.0 million it only amounts to $250. And considering the peak in these yield spikes is days or a week and not a month, very likely to be a fraction of those amounts.

Just wondering if it's really worth the effort - much as I like as much yield as I can get.

[am]

Rates are going up again (if math is correct). 7 day SEC Yield is now 1.75%. In 32% bracket that's 2.57% equivalent. Might transfer back in to pick up the extra basis points next week

These yield spikes have tended to be very short lived historically (usually lasting one month of part of one month). Every 10bps TEY picked up (for an entire month) amounts to $8.33 per month per $100K invested. Even if you could pick up 30bps doing this for a full month (over where your cash is otherwise invested) is it worth the bother at $25 per $100K? Even if you did it with $1.0 million it only amounts to $250. And considering the peak in these yield spikes is days or a week and not a month, very likely to be a fraction of those amounts.

Just wondering if it's really worth the effort - much as I like as much yield as I can get.

A few mouse clicks for a few bucks is worth it to some. Plus it feels good to maximize every ounce of portfolio.

[sperry8]

Rates are going up again (if math is correct). 7 day SEC Yield is now 1.75%. In 32% bracket that's 2.57% equivalent. Might transfer back in to pick up the extra basis points next week

These yield spikes have tended to be very short lived historically (usually lasting one month of part of one month). Every 10bps TEY picked up (for an entire month) amounts to $8.33 per month per $100K invested. Even if you could pick up 30bps doing this for a full month (over where your cash is otherwise invested) is it worth the bother at $25 per $100K? Even if you did it with $1.0 million it only amounts to $250. And considering the peak in these yield spikes is days or a week and not a month, very likely to be a fraction of those amounts.

Just wondering if it's really worth the effort - much as I like as much yield as I can get.

As the prior poster stated for a few clicks I'm happy to pick up $25 or $250. But also, every "month" i'm in Muni is one month I'm not in a taxable fund. As such, this lowers my total taxable income which assists in me not getting into the next tax higher bracket. So it's worth slightly more than just the interest.

If it truly happens every month I wonder if anyone ever did an analysis if it's worth just staying in - that is, 2 weeks it beats, 2 weeks it loses but in totality it ties. A tie is a win in my book (due to the aforementioned tax issue).

[LSLover]

Rates are going up again (if math is correct). 7 day SEC Yield is now 1.75%. In 32% bracket that's 2.57% equivalent. Might transfer back in to pick up the extra basis points next week

These yield spikes have tended to be very short lived historically (usually lasting one month of part of one month). Every 10bps TEY picked up (for an entire month) amounts to $8.33 per month per $100K invested. Even if you could pick up 30bps doing this for a full month (over where your cash is otherwise invested) is it worth the bother at $25 per $100K? Even if you did it with $1.0 million it only amounts to $250. And considering the peak in these yield spikes is days or a week and not a month, very likely to be a fraction of those amounts.

Just wondering if it's really worth the effort - much as I like as much yield as I can get.

As the prior poster stated for a few clicks I'm happy to pick up $25 or $250. But also, every "month" i'm in Muni is one month I'm not in a taxable fund. As such, this lowers my total taxable income which assists in me not getting into the next tax higher bracket. So it's worth slightly more than just the interest.

If it truly happens every month I wonder if anyone ever did an analysis if it's worth just staying in - that is, 2 weeks it beats, 2 weeks it loses but in totality it ties. A tie is a win in my book (due to the aforementioned tax issue).

Tax-exempt income is also free from NIIT...

[MikeG62]

Rates are going up again (if math is correct). 7 day SEC Yield is now 1.75%. In 32% bracket that's 2.57% equivalent. Might transfer back in to pick up the extra basis points next week

These yield spikes have tended to be very short lived historically (usually lasting one month of part of one month). Every 10bps TEY picked up (for an entire month) amounts to $8.33 per month per $100K invested. Even if you could pick up 30bps doing this for a full month (over where your cash is otherwise invested) is it worth the bother at $25 per $100K? Even if you did it with $1.0 million it only amounts to $250. And considering the peak in these yield spikes is days or a week and not a month, very likely to be a fraction of those amounts.

Just wondering if it's really worth the effort - much as I like as much yield as I can get.

As the prior poster stated for a few clicks I'm happy to pick up $25 or $250. But also, every "month" i'm in Muni is one month I'm not in a taxable fund. As such, this lowers my total taxable income which assists in me not getting into the next tax higher bracket. So it's worth slightly more than just the interest.

If it truly happens every month I wonder if anyone ever did an analysis if it's worth just staying in - that is, 2 weeks it beats, 2 weeks it loses but in totality it ties. A tie is a win in my book (due to the aforementioned tax issue).

Based upon the past, it seems to happen two or three times per year (April, July and I believe January). In those months there are only days or a week or two where the yield is more than insignificantly better in VMSXX. And usually this is not clear until after the fact since we are usually looking at the trailing 7-day yield to identify the opportunity in the first place. The other times you would earn more elsewhere.

I’d be happy to pick up $250 for the month, but by my math that requires the yield spike to be 30bps above what you are yielding elsewhere for a “full month” and you’d have to be dealing with $1.0 million. Very few people on these forums have this level of uninvested cash lying around. It would also need to be in taxable. Long way of saying, I don’t believe folks are picking up hundreds of dollars in a month doing this. Probably more like a small fraction of that.