Negative interest rate has arrived

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Hector
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Negative interest rate has arrived

Post by Hector » Tue Mar 24, 2020 12:38 am

Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.

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watchnerd
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Re: Negative interest rate has arrived

Post by watchnerd » Tue Mar 24, 2020 1:04 am

Hector wrote:
Tue Mar 24, 2020 12:38 am
Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.
Go go long term Treasuries!

On the downside, I'm curious to see what this does to my Treasury MM fund, which uses T-bills (VUSXX).

Win some, lose some...
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Ari
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Re: Negative interest rate has arrived

Post by Ari » Tue Mar 24, 2020 4:48 am

Even in this bear, 100% stocks still sounds pretty good to me. :mrgreen:
All in, all the time.

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Re: Negative interest rate has arrived

Post by ReformedSpender » Tue Mar 24, 2020 4:53 am

watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Hector wrote:
Tue Mar 24, 2020 12:38 am
Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.
I'm curious to see what this does to my Treasury MM fund, which uses T-bills (VUSXX).

Win some, lose some...
Same here, yield has been falling rapidly. Not sure what occurs in this MM if its T bills go negative...
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

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Ramjet
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Re: Negative interest rate has arrived

Post by Ramjet » Tue Mar 24, 2020 6:39 am

Wow :shock:

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Re: Negative interest rate has arrived

Post by MotoTrojan » Tue Mar 24, 2020 6:49 am

Ari wrote:
Tue Mar 24, 2020 4:48 am
Even in this bear, 100% stocks still sounds pretty good to me. :mrgreen:
Agreed. I think I’ll move my E-fund to QQQ.

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Cubicle
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Re: Negative interest rate has arrived

Post by Cubicle » Tue Mar 24, 2020 10:38 am

Wow. Kinda gave me pause.
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Doc
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Re: Negative interest rate has arrived

Post by Doc » Tue Mar 24, 2020 11:13 am

watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Go go long term Treasuries!
Huh? :D

I'm going to lock in 1.33% for thirty years? :oops:
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Negative interest rate has arrived

Post by thx1138 » Tue Mar 24, 2020 11:18 am

Doc wrote:
Tue Mar 24, 2020 11:13 am
watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Go go long term Treasuries!
Huh? :D

I'm going to lock in 1.33% for thirty years? :oops:
I think he means if you already owned them. That end of the yield curve is going down to parodying nice capital gains for folks.

btenny
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Re: Negative interest rate has arrived

Post by btenny » Tue Mar 24, 2020 11:28 am

I am curious what will happen to T-bill funds like BIL. It paid a 1.27% dividend on March 2. It is due for a dividend payment on April 2nd. Some of new bond holdings were bought today and those holdings will have negative interest. But the other holdings still have positive yields. TBD if the yield on this will ever go below 0.1%

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Kenkat
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Re: Negative interest rate has arrived

Post by Kenkat » Tue Mar 24, 2020 11:31 am

ReformedSpender wrote:
Tue Mar 24, 2020 4:53 am
watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Hector wrote:
Tue Mar 24, 2020 12:38 am
Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.
I'm curious to see what this does to my Treasury MM fund, which uses T-bills (VUSXX).

Win some, lose some...
Same here, yield has been falling rapidly. Not sure what occurs in this MM if its T bills go negative...
It’s gonna pay near zero interest soon just like it did from 2009-2016. I believe Vanguard waived some expenses so that fund investors wouldn’t lose ground (i.e., negative net of fees) but we will have to see if that’s possible in this rate environment.

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Re: Negative interest rate has arrived

Post by watchnerd » Tue Mar 24, 2020 12:19 pm

Doc wrote:
Tue Mar 24, 2020 11:13 am
watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Go go long term Treasuries!
Huh? :D

I'm going to lock in 1.33% for thirty years? :oops:
If we have negative interest rates and deflation you'll wish you had!

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Re: Negative interest rate has arrived

Post by watchnerd » Tue Mar 24, 2020 12:20 pm

thx1138 wrote:
Tue Mar 24, 2020 11:18 am
Doc wrote:
Tue Mar 24, 2020 11:13 am
watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Go go long term Treasuries!
Huh? :D

I'm going to lock in 1.33% for thirty years? :oops:
I think he means if you already owned them. That end of the yield curve is going down to parodying nice capital gains for folks.
Yep.

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Makefile
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Re: Negative interest rate has arrived

Post by Makefile » Tue Mar 24, 2020 12:32 pm

ReformedSpender wrote:
Tue Mar 24, 2020 4:53 am
Same here, yield has been falling rapidly. Not sure what occurs in this MM if its T bills go negative...
Looks like Treasury money market (VUSXX) closed to new investors in Jan 2009 and stayed closed for seven years. So I supposed that could happen again.

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Re: Negative interest rate has arrived

Post by Day9 » Tue Mar 24, 2020 12:44 pm

Thankfully small time individual investors have better alternatives for low-duration, safe fixed income than negative yielding T-Bills. FDIC insured bank accounts yielding 0% are better than negative yielding T-Bills, not to mention other examples with more restrictions like I Bonds and Stable Value Funds in 401k. This is one reason I prefer a bond barbell.
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Re: Negative interest rate has arrived

Post by Doc » Tue Mar 24, 2020 12:55 pm

watchnerd wrote:
Tue Mar 24, 2020 12:19 pm
If we have negative interest rates and deflation you'll wish you had!

:sharebeer
No I won't. I just bought a 26 wk and a 52 wk T-Bill at last weeks auction and am perfectly happy with the positive yields that I got.

But it's for cash to buy equities if the stock market keeps sinking. The amount of money I make from T's either bills, notes or bonds is irrelevant. They are just one part of a portfolio that has both FI and equities and both have to work together. Neither one must work by itself at all times.

If my new T-Bills have not been used to buy equities when they mature they will either be rolled into new T-Bills or use to buy ~7 yr notes if the yield curve is more "normal" at that time. So I may have given up ~1% in the next 6 to 12 months but I won't be stuck with a 1.3% return for the next 30 years.

If I was concerned with income only over the next 30 years I would buy AAA corporates or an annuity not Treasuries..
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watchnerd
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Re: Negative interest rate has arrived

Post by watchnerd » Tue Mar 24, 2020 1:09 pm

Doc wrote:
Tue Mar 24, 2020 12:55 pm
watchnerd wrote:
Tue Mar 24, 2020 12:19 pm
If we have negative interest rates and deflation you'll wish you had!

:sharebeer
No I won't. I just bought a 26 wk and a 52 wk T-Bill at last weeks auction and am perfectly happy with the positive yields that I got.
I was being facetious.

But more seriously -- positive real yields are all proportional to deflation / inflation.

It's all relative.

Some say the boom in long Treasuries is over. It might be. It also might not be if we get deflation.

I barbell long nominals /short TIPS :: deflation / inflation
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ImmigrantSaver
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Re: Negative interest rate has arrived

Post by ImmigrantSaver » Tue Mar 24, 2020 1:45 pm

EE bonds are starting to look more and more attractive :greedy

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Re: Negative interest rate has arrived

Post by Doc » Tue Mar 24, 2020 2:16 pm

watchnerd wrote:
Tue Mar 24, 2020 1:09 pm
But more seriously -- positive real yields are all proportional to deflation / inflation
Agreed but that is possibly less important than the lack of or even better negative, correlation with equities when the equity market is stressed. And the 2008 market had TIPS prices going down and nominal Treasury prices going up.

In the last 15 days VGLT (long Treasuries) is up some 5% and VIPSX (TIPS) is down almost 3%.

But we only have had one such incident since TIPS became more than a "novelty" market segment so we have a very limited history to look at.

(I think of 2002 to 2005 as the period when TIPS became more than just a novelty.)
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Re: Negative interest rate has arrived

Post by Doc » Tue Mar 24, 2020 2:18 pm

ImmigrantSaver wrote:
Tue Mar 24, 2020 1:45 pm
EE bonds are starting to look more and more attractive :greedy
You're looking at bonds in isolation not as part of an overall portfolio.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Negative interest rate has arrived

Post by ImmigrantSaver » Tue Mar 24, 2020 2:24 pm

Doc wrote:
Tue Mar 24, 2020 2:18 pm
ImmigrantSaver wrote:
Tue Mar 24, 2020 1:45 pm
EE bonds are starting to look more and more attractive :greedy
You're looking at bonds in isolation not as part of an overall portfolio.
You are right. I am also entrenched in the "bonds are for safety" mantra :oops:

It's hard (for me at least) to see how are different parts are supposed to work in the portfolio though

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Re: Negative interest rate has arrived

Post by watchnerd » Tue Mar 24, 2020 2:33 pm

ImmigrantSaver wrote:
Tue Mar 24, 2020 2:24 pm

You are right. I am also entrenched in the "bonds are for safety" mantra :oops:

It's hard (for me at least) to see how are different parts are supposed to work in the portfolio though
MVO well help you figure it out.
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Re: Negative interest rate has arrived

Post by watchnerd » Tue Mar 24, 2020 2:35 pm

Doc wrote:
Tue Mar 24, 2020 2:16 pm

Agreed but that is possibly less important than the lack of or even better negative, correlation with equities when the equity market is stressed. And the 2008 market had TIPS prices going down and nominal Treasury prices going up.

In the last 15 days VGLT (long Treasuries) is up some 5% and VIPSX (TIPS) is down almost 3%.

But we only have had one such incident since TIPS became more than a "novelty" market segment so we have a very limited history to look at.

(I think of 2002 to 2005 as the period when TIPS became more than just a novelty.)
Yes, as expected.

If both ends of my barbell go up at the same time, something funky is going on.
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ImmigrantSaver
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Re: Negative interest rate has arrived

Post by ImmigrantSaver » Tue Mar 24, 2020 2:59 pm

watchnerd wrote:
Tue Mar 24, 2020 2:33 pm
ImmigrantSaver wrote:
Tue Mar 24, 2020 2:24 pm

You are right. I am also entrenched in the "bonds are for safety" mantra :oops:

It's hard (for me at least) to see how are different parts are supposed to work in the portfolio though
MVO well help you figure it out.
MVO?

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Re: Negative interest rate has arrived

Post by watchnerd » Tue Mar 24, 2020 3:08 pm

ImmigrantSaver wrote:
Tue Mar 24, 2020 2:59 pm
watchnerd wrote:
Tue Mar 24, 2020 2:33 pm
ImmigrantSaver wrote:
Tue Mar 24, 2020 2:24 pm

You are right. I am also entrenched in the "bonds are for safety" mantra :oops:

It's hard (for me at least) to see how are different parts are supposed to work in the portfolio though
MVO well help you figure it out.
MVO?
Mean Variance Optimization

https://www.investopedia.com/terms/m/me ... alysis.asp

https://www.effisols.com/basics/MVO.htm

https://en.wikipedia.org/wiki/Modern_portfolio_theory
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Re: Negative interest rate has arrived

Post by Doc » Tue Mar 24, 2020 3:10 pm

watchnerd wrote:
Tue Mar 24, 2020 2:35 pm
If both ends of my barbell go up at the same time, something funky is going on.
Early 20th century TIPS mantra: "Tips are just like nominal Treasuries except for the inflation protection." I finished building my ten year TIPS ladder in the spring of '08. By the end of the year it was all sold at a loss. Once bitten, twice shy.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

ImmigrantSaver
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Re: Negative interest rate has arrived

Post by ImmigrantSaver » Tue Mar 24, 2020 3:16 pm

watchnerd wrote:
Tue Mar 24, 2020 3:08 pm
ImmigrantSaver wrote:
Tue Mar 24, 2020 2:59 pm
watchnerd wrote:
Tue Mar 24, 2020 2:33 pm
ImmigrantSaver wrote:
Tue Mar 24, 2020 2:24 pm

You are right. I am also entrenched in the "bonds are for safety" mantra :oops:

It's hard (for me at least) to see how are different parts are supposed to work in the portfolio though
MVO well help you figure it out.
MVO?
Mean Variance Optimization

https://www.investopedia.com/terms/m/me ... alysis.asp

https://www.effisols.com/basics/MVO.htm

https://en.wikipedia.org/wiki/Modern_portfolio_theory
Thank you

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Re: Negative interest rate has arrived

Post by watchnerd » Tue Mar 24, 2020 3:16 pm

Doc wrote:
Tue Mar 24, 2020 3:10 pm

Early 20th century TIPS mantra:
20th century?

Like 1920?
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Doc
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Re: Negative interest rate has arrived

Post by Doc » Tue Mar 24, 2020 3:19 pm

watchnerd wrote:
Tue Mar 24, 2020 3:16 pm
Doc wrote:
Tue Mar 24, 2020 3:10 pm

Early 20th century TIPS mantra:
20th century?

Like 1920?
OK 21st.

Well what do you expect from someone who has to make two trips to the bathroom to get his teeth and p.. ?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Negative interest rate has arrived

Post by Call_Me_Op » Tue Mar 24, 2020 3:21 pm

watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Hector wrote:
Tue Mar 24, 2020 12:38 am
Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.
Go go long term Treasuries!
On the downside, I'm curious to see what this does to my Treasury MM fund, which uses T-bills (VUSXX).
Worst case is Vanguard will lower interest rate to zero and close the fund like they did in 2008. Still perfectly safe and liquid.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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sam5
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Re: Negative interest rate has arrived

Post by sam5 » Tue Mar 24, 2020 3:25 pm

I just checked the yield curve. It looks healthy.

https://www.gurufocus.com/yield_curve.php

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Re: Negative interest rate has arrived

Post by Doc » Tue Mar 24, 2020 3:32 pm

Call_Me_Op wrote:
Tue Mar 24, 2020 3:21 pm
watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Hector wrote:
Tue Mar 24, 2020 12:38 am
Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.
Go go long term Treasuries!
On the downside, I'm curious to see what this does to my Treasury MM fund, which uses T-bills (VUSXX).
Worst case is Vanguard will lower interest rate to zero and close the fund like they did in 2008. Still perfectly safe and liquid.
"In 2008 however, the day after Lehman Brothers Holdings Inc. filed for bankruptcy, one money market fund fell to 97 cents after writing off the debt it owned that was issued by Lehman."

https://www.investopedia.com/articles/m ... k-buck.asp
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Negative interest rate has arrived

Post by Call_Me_Op » Tue Mar 24, 2020 3:53 pm

Doc wrote:
Tue Mar 24, 2020 3:32 pm
Call_Me_Op wrote:
Tue Mar 24, 2020 3:21 pm
watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Hector wrote:
Tue Mar 24, 2020 12:38 am
Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.
Go go long term Treasuries!
On the downside, I'm curious to see what this does to my Treasury MM fund, which uses T-bills (VUSXX).
Worst case is Vanguard will lower interest rate to zero and close the fund like they did in 2008. Still perfectly safe and liquid.
"In 2008 however, the day after Lehman Brothers Holdings Inc. filed for bankruptcy, one money market fund fell to 97 cents after writing off the debt it owned that was issued by Lehman."

https://www.investopedia.com/articles/m ... k-buck.asp
Sure, but we are talking about a treasury money market fund - not one that invests in (low quality) commercial paper.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Hector
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Re: Negative interest rate has arrived

Post by Hector » Wed Mar 25, 2020 12:42 am

watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Hector wrote:
Tue Mar 24, 2020 12:38 am
Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.
Go go long term Treasuries!

On the downside, I'm curious to see what this does to my Treasury MM fund, which uses T-bills (VUSXX).

Win some, lose some...
Its time to check MM yield every day and move to cash or short term CDs soon.

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watchnerd
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Re: Negative interest rate has arrived

Post by watchnerd » Wed Mar 25, 2020 1:01 am

Hector wrote:
Wed Mar 25, 2020 12:42 am


Its time to check MM yield every day and move to cash or short term CDs soon.
Every day?

I've got better things to do with my life.

VUSXX current yield = 1.09%

On $100k = $1090 / year

$1090 / 365 = $2.98 / day

I think it can wait till the weekend...
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Re: Negative interest rate has arrived

Post by alpenglow » Wed Mar 25, 2020 8:04 am

watchnerd wrote:
Tue Mar 24, 2020 1:09 pm

I barbell long nominals /short TIPS :: deflation / inflation
Out of curiosity, do you use etfs like EDV and VTIP or do you buy individual treasuries?

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Re: Negative interest rate has arrived

Post by Doc » Wed Mar 25, 2020 9:53 am

Call_Me_Op wrote:
Tue Mar 24, 2020 3:53 pm
Doc wrote:
Tue Mar 24, 2020 3:32 pm
Call_Me_Op wrote:
Tue Mar 24, 2020 3:21 pm
watchnerd wrote:
Tue Mar 24, 2020 1:04 am
Hector wrote:
Tue Mar 24, 2020 12:38 am
Per https://www.wsj.com/market-data/bonds, the 3-month bill is trading at -0.005% and the 1 month at -0.010% right now.
Go go long term Treasuries!
On the downside, I'm curious to see what this does to my Treasury MM fund, which uses T-bills (VUSXX).
Worst case is Vanguard will lower interest rate to zero and close the fund like they did in 2008. Still perfectly safe and liquid.
"In 2008 however, the day after Lehman Brothers Holdings Inc. filed for bankruptcy, one money market fund fell to 97 cents after writing off the debt it owned that was issued by Lehman."

https://www.investopedia.com/articles/m ... k-buck.asp
Sure, but we are talking about a treasury money market fund - not one that invests in (low quality) commercial paper.
Yesterday not 2008: "Money Markets May Be At Risk Of Breaking The Buck" https://seekingalpha.com/article/433384 ... m=referral

"Money market funds that invest in commercial paper and other forms of corporate debt are now at high risk of holding the bag on potentially bad debt.

Investors have begun exiting prime money funds en masse lately in favor of more high quality government money funds."

I bought 26 and 52 week T-Bills at last weeks auction and would not be surprised at all that if I sold them in the next several weeks I would get less than I paid. A government MM fund has the same problem to a certain extent. The question becomes what recourse does that fund sponsor have to prevent "breaking the buck" beside reducing their management fee? Will that be enough?

I don't see this to be a significant problem unless retail investors panic if it does happens and they bail out. Caveat emptor.
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Re: Negative interest rate has arrived

Post by watchnerd » Wed Mar 25, 2020 9:55 am

alpenglow wrote:
Wed Mar 25, 2020 8:04 am
watchnerd wrote:
Tue Mar 24, 2020 1:09 pm

I barbell long nominals /short TIPS :: deflation / inflation
Out of curiosity, do you use etfs like EDV and VTIP or do you buy individual treasuries?
Long Treasuries are in funds.

Short TIPS are a mix of 5 year TIPS in a ladder and VTIP.
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