TIAA warns on negative yields on money market funds

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CULater
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TIAA warns on negative yields on money market funds

Post by CULater » Fri May 22, 2020 8:46 pm

Looks like negative rates may be coming sooner rather than later as giant TIAA warns.
TIAA has put a limited, short-term expense waiver in place to help prevent the CREF Money Market Account from having negative yields
https://www.tiaa.org/public/land/moneym ... t_18841162
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Re: TIAA warns on negative yields on money market funds

Post by WolfgangPauli » Fri May 22, 2020 9:13 pm

CULater wrote:
Fri May 22, 2020 8:46 pm
Looks like negative rates may be coming sooner rather than later as giant TIAA warns.
TIAA has put a limited, short-term expense waiver in place to help prevent the CREF Money Market Account from having negative yields
https://www.tiaa.org/public/land/moneym ... t_18841162
Wow, that is scary.. Thank you for sharing.
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Re: TIAA warns on negative yields on money market funds

Post by whodidntante » Fri May 22, 2020 9:17 pm

T-bills out to six months are trading at negative yields. Money's cheap.

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Re: TIAA warns on negative yields on money market funds

Post by columbia » Fri May 22, 2020 9:19 pm

It becomes a more realistic problem, if your broker is charging 30 basis points for a money market account - which was what was happening at TIAA.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: TIAA warns on negative yields on money market funds

Post by WolfgangPauli » Fri May 22, 2020 9:20 pm

whodidntante wrote:
Fri May 22, 2020 9:17 pm
T-bills out to six months are trading at negative yields. Money's cheap.
That is one way to look at it. However, the other side is this makes retirement saving and planning very difficult. We always here how little Americans have saved for retirement. Negative and 0 yields actually make this problem expotentially worse.
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Re: TIAA warns on negative yields on money market funds

Post by CULater » Fri May 22, 2020 9:37 pm

Wonder what Vanguard is going to do? I'm not waiting to find out.
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Re: TIAA warns on negative yields on money market funds

Post by grabiner » Fri May 22, 2020 10:15 pm

CULater wrote:
Fri May 22, 2020 8:46 pm
Looks like negative rates may be coming sooner rather than later as giant TIAA warns.
TIAA has put a limited, short-term expense waiver in place to help prevent the CREF Money Market Account from having negative yields
https://www.tiaa.org/public/land/moneym ... t_18841162
Many other money-market funds have done this in the past, when their expenses have exceeded Treasury yields.

What is different here is that CREF Money Market Account is not a traditional money-market fund with a share price of $1.00 per share, earning all its value from dividends. It is a subaccount in the CREF variable annuity with a variable share price; if the yield is 1%, a share price might go from $20.00 to $20.20 in one year. Likewise, if the yield is -0.2% for a year, the share price would decline from $20.00 to $19.96 in that year, which is still disconcerting to investors.
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Re: TIAA warns on negative yields on money market funds

Post by TropikThunder » Fri May 22, 2020 10:28 pm

CULater wrote:
Fri May 22, 2020 9:37 pm
Wonder what Vanguard is going to do? I'm not waiting to find out.
What is that supposed to mean?

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Re: TIAA warns on negative yields on money market funds

Post by packer16 » Fri May 22, 2020 10:28 pm

CULater wrote:
Fri May 22, 2020 9:37 pm
Wonder what Vanguard is going to do? I'm not waiting to find out.
They have stopped new customers from opening new accounts in their treasury MMF.

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Re: TIAA warns on negative yields on money market funds

Post by whodidntante » Fri May 22, 2020 10:38 pm

WolfgangPauli wrote:
Fri May 22, 2020 9:20 pm
whodidntante wrote:
Fri May 22, 2020 9:17 pm
T-bills out to six months are trading at negative yields. Money's cheap.
That is one way to look at it. However, the other side is this makes retirement saving and planning very difficult. We always here how little Americans have saved for retirement. Negative and 0 yields actually make this problem expotentially worse.
It means that expected returns are lower. Saving more will mitigate that. But yes, it will likely mean that fewer people achieve financial independence and more poverty among seniors.

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Re: TIAA warns on negative yields on money market funds

Post by dru808 » Fri May 22, 2020 10:45 pm

This is horrible for savers.
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Re: TIAA warns on negative yields on money market funds

Post by CULater » Sat May 23, 2020 7:30 am

packer16 wrote:
Fri May 22, 2020 10:28 pm
CULater wrote:
Fri May 22, 2020 9:37 pm
Wonder what Vanguard is going to do? I'm not waiting to find out.
They have stopped new customers from opening new accounts in their treasury MMF.

Packer
I saw that. I wonder if it had anything to do with the fact that they saw negative yields coming.
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Re: TIAA warns on negative yields on money market funds

Post by columbia » Sat May 23, 2020 7:36 am

I have no idea if negative MM yields are coming, but that’s *not* what TIAA is discussing/acting on. It’s about yields going low enough, such that their MM fee would result in a negative return for those holding money in the account.
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Re: TIAA warns on negative yields on money market funds

Post by nisiprius » Sat May 23, 2020 7:36 am

dru808 wrote:
Fri May 22, 2020 10:45 pm
This is horrible for savers.
Of course.

It's a bad time for low-risk investments. It's not clear whether or not it is still a decent time for stock market investments. It's not clear on what inflation is going to be like.

Bad times happen. People seem to feel entitled to "reasonable" returns on investments, but that doesn't mean they necessarily get one.
It does suggest that people who don't need to deal with millions in cash should be thinking seriously about how to use banks rather than lazily relying on money market mutual funds. As I write this, VFMXX has an 0.26% SEC yield, while Capital One 360 Performance Savings (1.30%). On a $250,000 investing (FDIC limit for a single account), if sustained, that's a difference of $2,500/year. In my financial world that's not "life-changing" but "too big to just ignore."
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Re: TIAA warns on negative yields on money market funds

Post by abuss368 » Sat May 23, 2020 7:39 am

That is incredible.
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Re: TIAA warns on negative yields on money market funds

Post by JoMoney » Sat May 23, 2020 7:46 am

columbia wrote:
Sat May 23, 2020 7:36 am
I have no idea if negative MM yields are coming, but that’s *not* what TIAA is discussing/acting on. It’s about yields going low enough, such that their MM fee would result in a negative return for those holding money in the account.
It's interesting that they're explicitly warning :
TIAA has put a limited, short-term expense waiver in place to help prevent the CREF Money Market Account from having negative yields; the waiver is in place no later than December 31, 2020 to the extent necessary to keep yields positive, and can not be renewed.

You could lose money in the Account if interest rates do not rise sufficiently once the expense waiver expires December 31, 2020.
So it's not unreasonable to imagine their MM could have a negative yield after expenses after that date.
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Re: TIAA warns on negative yields on money market funds

Post by aristotelian » Sat May 23, 2020 7:53 am

dru808 wrote:
Fri May 22, 2020 10:45 pm
This is horrible for savers.
Counterpoint, it is no worse than high inflation.
Last edited by aristotelian on Sat May 23, 2020 7:54 am, edited 1 time in total.

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Re: TIAA warns on negative yields on money market funds

Post by grabiner » Sat May 23, 2020 7:54 am

JoMoney wrote:
Sat May 23, 2020 7:46 am
columbia wrote:
Sat May 23, 2020 7:36 am
I have no idea if negative MM yields are coming, but that’s *not* what TIAA is discussing/acting on. It’s about yields going low enough, such that their MM fee would result in a negative return for those holding money in the account.
It's interesting that they're explicitly warning :
TIAA has put a limited, short-term expense waiver in place to help prevent the CREF Money Market Account from having negative yields; the waiver is in place no later than December 31, 2020 to the extent necessary to keep yields positive, and can not be renewed.

You could lose money in the Account if interest rates do not rise sufficiently once the expense waiver expires December 31, 2020.
So it's not unreasonable to imagine their MM could have a negative yield after expenses after that date.
And current yields mean that investors expect this. Six-month Treasuries yield 0.16%, and one-year Treasuries yield 0.17%. If there were no risk premium for the longer term, this would imply an expected 0.18% yield of six-month Treasuries six months from now.
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Re: TIAA warns on negative yields on money market funds

Post by bgf » Sat May 23, 2020 8:16 am

aristotelian wrote:
Sat May 23, 2020 7:53 am
dru808 wrote:
Fri May 22, 2020 10:45 pm
This is horrible for savers.
Counterpoint, it is no worse than high inflation.
if inflation is 8% and your MM pays 7% is that the same as inflation at 0% and MM paying -1%? at first glance it appears so, but taxes probably make the former the worse situation.
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Re: TIAA warns on negative yields on money market funds

Post by increment » Sat May 23, 2020 8:34 am

The linked FAQ (PDF) warns in addition, "Fees waived on the Account will be subject to possible recovery by TIAA after the waiver expires on December 31, 2020. Recoupment will occur when short-term interest rate levels produce a daily positive yield on a class of the Account"!!

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Re: TIAA warns on negative yields on money market funds

Post by JoMoney » Sat May 23, 2020 8:51 am

bgf wrote:
Sat May 23, 2020 8:16 am
aristotelian wrote:
Sat May 23, 2020 7:53 am
dru808 wrote:
Fri May 22, 2020 10:45 pm
This is horrible for savers.
Counterpoint, it is no worse than high inflation.
if inflation is 8% and your MM pays 7% is that the same as inflation at 0% and MM paying -1%? at first glance it appears so, but taxes probably make the former the worse situation.
I think It's a little worse, the effects of inflation are gradual and over time
...Prices tend to be sticky. Consumers are somewhat resistant to price changes (it takes time for retailers to game it and ease the new prices in through various 'tricks'). People have some fixed expenses (like a lease or mortgage)...
If you have short-term money in a MM and expect that nominal dollar amount to be there to match a fixed liability, and suddenly you don't have that absolute dollar amount, then that's a unreliable bad place to keep your short-term money.
The fact that inflation would gradually eat away at the purchasing power if you leave it in short-term MM for the long-term might be an acceptable risk relative to knowing your near-term needs/liabilities are covered.
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Re: TIAA warns on negative yields on money market funds

Post by ResearchMed » Sat May 23, 2020 8:57 am

CULater wrote:
Fri May 22, 2020 8:46 pm
Looks like negative rates may be coming sooner rather than later as giant TIAA warns.
TIAA has put a limited, short-term expense waiver in place to help prevent the CREF Money Market Account from having negative yields
https://www.tiaa.org/public/land/moneym ... t_18841162
Is anything similar happening to their TIAA-CREF MM fund?

That's the "TIAA-CREF Money Market Fund (Institutional) TCIXX: NASDAQ"

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Re: TIAA warns on negative yields on money market funds

Post by Kenkat » Sat May 23, 2020 9:04 am

CULater wrote:
Fri May 22, 2020 9:37 pm
Wonder what Vanguard is going to do? I'm not waiting to find out.
I believe in 2008-09, Vanguard also had a fee waiver in place for their money market funds.

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Re: TIAA warns on negative yields on money market funds

Post by jeffyscott » Sat May 23, 2020 9:25 am

whodidntante wrote:
Fri May 22, 2020 9:17 pm
T-bills out to six months are trading at negative yields. Money's cheap.
Where are you seeing this? Treasury daily yield curve site shows small positive yield on them all, 0.09% to 0.16% as of Friday and in about that same range all month.

Both Schwab and Fidelity would have negative yields on their treasury money market funds, if they were not waiving some of the fees. They each are waiving just enough so that net yield is 0.01%. Though why anyone would pay them 0.3-0.4% to manage a portfolio of T-bills is a mystery to me.
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Re: TIAA warns on negative yields on money market funds

Post by grok87 » Sat May 23, 2020 9:46 am

Kenkat wrote:
Sat May 23, 2020 9:04 am
CULater wrote:
Fri May 22, 2020 9:37 pm
Wonder what Vanguard is going to do? I'm not waiting to find out.
I believe in 2008-09, Vanguard also had a fee waiver in place for their money market funds.
true. but based on current yield curves, we may be in this period of low interest rates for longer. and its possible rates will go negative.
RIP Mr. Bogle.

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Re: TIAA warns on negative yields on money market funds

Post by Robot Monster » Sat May 23, 2020 10:09 am

bgf wrote:
Sat May 23, 2020 8:16 am
aristotelian wrote:
Sat May 23, 2020 7:53 am
dru808 wrote:
Fri May 22, 2020 10:45 pm
This is horrible for savers.
Counterpoint, it is no worse than high inflation.
if inflation is 8% and your MM pays 7% is that the same as inflation at 0% and MM paying -1%? at first glance it appears so, but taxes probably make the former the worse situation.
Yes, it's important to keep inflation in mind when looking at negative yields. For instance, Japan has a -.19% interest, but it also has .1% inflation, making that negative yield a lot less scary!

Inflation seems to be slipping in the U.S. Inflation (PCE) for March was 1.3%. So, even though rates are low, the silent, punishing effect of inflation is tempered--cash holders rejoice!

Sources:

I got my Japan numbers here:
https://www.marketwatch.com/investing/b ... trycode=bx
https://tradingeconomics.com/japan/inflation-cpi

U.S. 6-month is currently at .13%
https://www.bloomberg.com/markets/rates ... t-bonds/us

PCE
https://www.bea.gov/data/personal-consu ... rice-index
We are in a permanent and anxious "just don't know" situation, where the stock market is inherently risky because of unstable investor psychology.

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Re: TIAA warns on negative yields on money market funds

Post by livesoft » Sat May 23, 2020 10:22 am

TIAA needs to put a warning on their TIAA Real Estate Account as well.
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Re: TIAA warns on negative yields on money market funds

Post by JonnyB » Sat May 23, 2020 10:27 am

People react as if there is some horrible difference between +0.1% and -0.1%. It's pretty insignificant. It's just two very close numbers on a continuum.

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Re: TIAA warns on negative yields on money market funds

Post by grok87 » Sat May 23, 2020 11:23 am

livesoft wrote:
Sat May 23, 2020 10:22 am
TIAA needs to put a warning on their TIAA Real Estate Account as well.
why?
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Re: TIAA warns on negative yields on money market funds

Post by packer16 » Sat May 23, 2020 11:54 am

CULater wrote:
Sat May 23, 2020 7:30 am
packer16 wrote:
Fri May 22, 2020 10:28 pm
CULater wrote:
Fri May 22, 2020 9:37 pm
Wonder what Vanguard is going to do? I'm not waiting to find out.
They have stopped new customers from opening new accounts in their treasury MMF.

Packer
I saw that. I wonder if it had anything to do with the fact that they saw negative yields coming.
I think so. The concern was new money had to be invested at much lower rates which would hurt current investors. I think there was a wave of cash due to the pandemic.

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Re: TIAA warns on negative yields on money market funds

Post by jjustice » Sat May 23, 2020 12:37 pm

livesoft wrote:
Sat May 23, 2020 10:22 am
TIAA needs to put a warning on their TIAA Real Estate Account as well.
https://www.sec.gov/Archives/edgar/data ... 20x10q.htm

See pp. 69-70.

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Re: TIAA warns on negative yields on money market funds

Post by Kenkat » Sat May 23, 2020 12:42 pm

grok87 wrote:
Sat May 23, 2020 9:46 am
Kenkat wrote:
Sat May 23, 2020 9:04 am
CULater wrote:
Fri May 22, 2020 9:37 pm
Wonder what Vanguard is going to do? I'm not waiting to find out.
I believe in 2008-09, Vanguard also had a fee waiver in place for their money market funds.
true. but based on current yield curves, we may be in this period of low interest rates for longer. and its possible rates will go negative.
No disagreement from me. Just stating the fee waiver has happened before at Vanguard.

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Re: TIAA warns on negative yields on money market funds

Post by grok87 » Sat May 23, 2020 12:52 pm

jjustice wrote:
Sat May 23, 2020 12:37 pm
livesoft wrote:
Sat May 23, 2020 10:22 am
TIAA needs to put a warning on their TIAA Real Estate Account as well.
https://www.sec.gov/Archives/edgar/data ... 20x10q.htm

See pp. 69-70.

John
page 46
wrote: COVID-19 Risks. In response to the COVID-19 pandemic, governmental authorities throughout the world, including the United States, have taken significant measures to inhibit the spread of the disease, such as prohibiting people from congregating in heavily populated areas, instituting localized quarantines, restricting nonessential travel, issuing “stay-at-home” orders, closing schools, and most notably, restricting the types of businesses that may continue to operate. The restrictions have had an adverse impact on economic and market conditions across the United States. It is possible that public health officials and governmental authorities in the markets in which we own properties may impose additional restrictions in an effort to further slow the spread of the COVID-19 pandemic or may relax or revoke existing restrictions too quickly, which could, in either case, exacerbate the severity of adverse impacts on the economy. The COVID-19 pandemic, including these responsive measures, will likely have an adverse effect on the Account. For example, the negative impact of the COVID-19 pandemic on our tenants may include an immediate reduction in cash flow available to pay rent under our leases which, in turn, could adversely affect our own liquidity, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms and could result in the Account exercising the liquidity guarantee. Moreover, the market volatility and economic uncertainty surrounding the COVID-19 pandemic may negatively impact our liquid investments, such as those in real estate investment trusts ("REIT") securities and mortgage backed securities ("MBS"). Thes
e and other consequences of the COVID-19 pandemic are expected to have an adverse effect on the Account’s business and results of operations;
..
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Re: TIAA warns on negative yields on money market funds

Post by livesoft » Sat May 23, 2020 12:54 pm

Well, there you go, thanks!
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Re: TIAA warns on negative yields on money market funds

Post by RetiredArtist » Sat May 23, 2020 1:03 pm

Just curious--what are the mechanics when the interest rate on your money market fund goes negative? I guess they take $$ out of your account? Is that a tax deductible loss?

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Re: TIAA warns on negative yields on money market funds

Post by Robot Monster » Sat May 23, 2020 1:09 pm

JonnyB wrote:
Sat May 23, 2020 10:27 am
People react as if there is some horrible difference between +0.1% and -0.1%. It's pretty insignificant. It's just two very close numbers on a continuum.
The difference is that money markets will perform worse then having money hidden under a mattress, making something wrapped in dirty bedsheets a superior investment vehicle.
We are in a permanent and anxious "just don't know" situation, where the stock market is inherently risky because of unstable investor psychology.

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Re: TIAA warns on negative yields on money market funds

Post by vineviz » Sat May 23, 2020 1:11 pm

nisiprius wrote:
Sat May 23, 2020 7:36 am
dru808 wrote:
Fri May 22, 2020 10:45 pm
This is horrible for savers.
Of course.

It's a bad time for low-risk investments. It's not clear whether or not it is still a decent time for stock market investments. It's not clear on what inflation is going to be like.

Bad times happen. People seem to feel entitled to "reasonable" returns on investments, but that doesn't mean they necessarily get one.
I agree. We get the opportunity set the market provides for us, for better or worse.

It should be clear to any student of financial assets that the expected return of stocks is inextricably linked to the yield on Treasury notes. With the yield on the five year Treasury at such low levels, I think investors should prepare for lower returns in
all asset classes than we are used to.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: TIAA warns on negative yields on money market funds

Post by sarabayo » Sat May 23, 2020 1:29 pm

grabiner wrote:
Fri May 22, 2020 10:15 pm
What is different here is that CREF Money Market Account is not a traditional money-market fund with a share price of $1.00 per share, earning all its value from dividends. It is a subaccount in the CREF variable annuity with a variable share price; if the yield is 1%, a share price might go from $20.00 to $20.20 in one year. Likewise, if the yield is -0.2% for a year, the share price would decline from $20.00 to $19.96 in that year, which is still disconcerting to investors.
If this is the case, shouldn't the thread topic be changed, since this warning from TIAA is not about a money market fund?

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Re: TIAA warns on negative yields on money market funds

Post by Broken Man 1999 » Sat May 23, 2020 1:34 pm

YTD DW and I have earned $4.25 in our MMFs, all of them being our sweep accounts for our various accounts.

So, negative interest rates aren't very scary for us.

To go along with our very low dividends on our MMFs, the majority of our bonds are treasury index bond funds, and they aren't exactly setting the world on fire with their yields. Of course this year's capital gains are a different matter.

I hope seniors who are seeking yield for their expenses become total return investors, and do not reach into lower-rated bonds/bond funds or reach for yield using individual stock dividends/dividend stock funds, either. Their decision could very well bite them, leaving them worse off than before.

Interesting times we are living in, for sure.

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Re: TIAA warns on negative yields on money market funds

Post by FIREchief » Sat May 23, 2020 2:42 pm

jeffyscott wrote:
Sat May 23, 2020 9:25 am
Both Schwab and Fidelity would have negative yields on their treasury money market funds, if they were not waiving some of the fees. They each are waiving just enough so that net yield is 0.01%. Though why anyone would pay them 0.3-0.4% to manage a portfolio of T-bills is a mystery to me.
^^^this. We can auto roll 4 weeks bills right now at .09%. Granted, that's not really much different, but it's kind of the principle of the thing. 8-)
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Re: TIAA warns on negative yields on money market funds

Post by FIREchief » Sat May 23, 2020 2:43 pm

sarabayo wrote:
Sat May 23, 2020 1:29 pm
grabiner wrote:
Fri May 22, 2020 10:15 pm
What is different here is that CREF Money Market Account is not a traditional money-market fund with a share price of $1.00 per share, earning all its value from dividends. It is a subaccount in the CREF variable annuity with a variable share price; if the yield is 1%, a share price might go from $20.00 to $20.20 in one year. Likewise, if the yield is -0.2% for a year, the share price would decline from $20.00 to $19.96 in that year, which is still disconcerting to investors.
If this is the case, shouldn't the thread topic be changed, since this warning from TIAA is not about a money market fund?
+1. The thread title is a bit misleading.
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Oicuryy
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Re: TIAA warns on negative yields on money market funds

Post by Oicuryy » Sat May 23, 2020 3:10 pm

sarabayo wrote:
Sat May 23, 2020 1:29 pm
If this is the case, shouldn't the thread topic be changed, since this warning from TIAA is not about a money market fund?
Right. The title should be: TIAA warns that Variable Annuity Subaccounts are Variable.

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Re: TIAA warns on negative yields on money market funds

Post by ofcmetz » Sat May 23, 2020 3:31 pm

The big question is will we have disinflation or actual deflation? In the case of deflation, real yields could still be positive even if money market funds are have negative nominal yields. Getting 0.6% on those treasuries or 0.01% on a money market fund might not be that bad.

Wonder how TIAA will sustain its guaranteed 3% on its Traditional account?
Last edited by ofcmetz on Sat May 23, 2020 3:36 pm, edited 1 time in total.
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Re: TIAA warns on negative yields on money market funds

Post by HEDGEFUNDIE » Sat May 23, 2020 3:35 pm

So, will Bogleheads finally stop ridiculing those of us who extol the virtues of long term Treasuries?

I’m not holding my breath.

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Re: TIAA warns on negative yields on money market funds

Post by klaus14 » Sat May 23, 2020 3:44 pm

columbia wrote:
Fri May 22, 2020 9:19 pm
It becomes a more realistic problem, if your broker is charging 30 basis points for a money market account - which was what was happening at TIAA.
See Jp Morgan MM fund:
https://am.jpmorgan.com/us/en/asset-man ... -4812a2827

7 Day SEC Yield 0.00%
7 Day SEC Yield Unsubsidized -0.26%

This is the fund available in ETrade as core position.
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Re: TIAA warns on negative yields on money market funds

Post by ram » Sat May 23, 2020 3:46 pm

IF I hold 300K in MM accounts and if it pays -1% = -3000/year, then can I use it to offset $3000 of earned income for income tax purposes?
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Re: TIAA warns on negative yields on money market funds

Post by garlandwhizzer » Sat May 23, 2020 4:21 pm

Risk of negative rates coming to some MMF? Looks that way. What about the risk of negative rates coming to Treasuries? That has already happened in Japan and Europe. With the 1 yr yielding 0.17% and the 10 yr. yielding 0.64% there's not far to go to hit zero. Powell has previously stated that he intends no such thing, but he also says that he'll respond as necessary to whatever crisis occurs. So there's no guarantee that it won't happen in the US too. These are very difficult times for balanced portfolios in the accumulation phase. Save more, invest more, invest longer, work longer, retire later, and spend less is not what we want to hear but it appears to be what the market is telling us.

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Re: TIAA warns on negative yields on money market funds

Post by itsmeagain » Sat May 23, 2020 4:48 pm

ofcmetz wrote:
Sat May 23, 2020 3:31 pm
Wonder how TIAA will sustain its guaranteed 3% on its Traditional account?
That shouldn't be a problem for many years. Almost all of the bonds backing the TIAA Traditional account were purchased when rates were much higher. Also, they hold mostly long-duration bonds, given the restrictions on removing funds and the long horizon of these retirement accounts. So the TIAA Traditional portfolio has high coupons and huge embedded capital gains (as interest rates drop, bond prices go up), both of which will support the Traditional account for many years. In fact, the underlying investments in that account have (like the bond market in general) earned multiples of 3% in recent years. They could easily pay out more, except they have to plan for low interest rates lasting for many years. So like a good stable-value fund, the payout rate moves slowly.

In another 10-15 years, if rates stay this low throughout that time, it may be more of a problem ...

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Re: TIAA warns on negative yields on money market funds

Post by grabiner » Sat May 23, 2020 4:51 pm

ram wrote:
Sat May 23, 2020 3:46 pm
IF I hold 300K in MM accounts and if it pays -1% = -3000/year, then can I use it to offset $3000 of earned income for income tax purposes?
Not with TIAA, because the CREF Money Market can be held only inside a variable annuity. The decline in value would reduce the amount of tax you owe when you withdraw from the 403(b).

But if your money-market fund breaks the buck, you do have a capital loss, just as you do if any other fund loses share value. If you buy 300K shares of a money-market fund for $1 per share, and sell them for $0.99 per share, you have a $3000 capital loss.
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FIREchief
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Re: TIAA warns on negative yields on money market funds

Post by FIREchief » Sat May 23, 2020 5:05 pm

klaus14 wrote:
Sat May 23, 2020 3:44 pm
columbia wrote:
Fri May 22, 2020 9:19 pm
It becomes a more realistic problem, if your broker is charging 30 basis points for a money market account - which was what was happening at TIAA.
See Jp Morgan MM fund:
https://am.jpmorgan.com/us/en/asset-man ... -4812a2827

7 Day SEC Yield 0.00%
7 Day SEC Yield Unsubsidized -0.26%

This is the fund available in ETrade as core position.
That's some funny accounting by JPM. That fund has a .59% expense ratio, so they really seem to be saying that the underlying SEC yield is really .33%, but they're "only" charging a .33% ER now (I presume because they are "good guys"). Am I reading that right?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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