Why is Vanguard Treasury Money Market yield so high?

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Electron
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Electron » Tue Jun 25, 2019 3:02 pm

Kevin M wrote:
Mon Jun 24, 2019 9:13 pm
Prime MM yield has been declining as Treasury MM yield has been defying market gravity. Prime MM SEC yield at 2.36% now is only 3 basis points higher than Treasury MM yield at 2.33%!
It will definitely be interesting to see the June portfolio holdings when they become available.

In checking the portfolio for each month starting with December, the holdings in Floating Rate Notes increased steadily after March. Floating Rate Notes represented about 4.78% of the portfolio in May.

It looks like the rates on the FRNs reset weekly with the 13 week T-Bill auction. The spreads on the May listings are 0.000, 0.060 and 0.139. The notes have a two year maturity and pay interest quarterly.

Another interesting question on this fund is why daily liquid assets are currently shown at 99.95%. Vanguard defines daily liquid assets as government securities, cash, and assets that will mature within 1 business day.

https://investor.vanguard.com/mutual-fu ... olio/vusxx
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by welderwannabe » Fri Jun 28, 2019 5:04 pm

jeffyscott wrote:
Tue Jun 25, 2019 11:59 am
Does amortization accounting mean that if they bought 6 month treasuries in Feb at ~2.5%, they are still counting those as a yield of 2.5%.
Yes, thats exactly what that means. They basically take the discount that they bought the bill for and amortize it in a straight line over the term of the bill. The money market funds still mark to market since the money market form, but that does not show up in the NAV. They just have to publish it and monitor it. I believe its referred to as thew 'ghost nav'. For example, for this MM the mark to market NAV is $1.0003. You can see the NAV going up ever so slightly on days that tbill rates were under pressure.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by greetje » Mon Jul 01, 2019 3:26 pm

TBillT wrote:
Sun Jun 16, 2019 7:24 am
Vanguard Treasury as my fav MMF at the moment, also state tax exempt for most of us.
We had some since 2008 recession.
Why do you say most of us? We have quite a bit in Vang. Prime MM fund that yields 2.35% vs 2.31% for
VUSXX Vang. Treasury MM.
Low tax bracket. But still seems like a no brainer to switch to VUSXX. Avoid WI state taxes.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Wed Jul 03, 2019 7:17 pm

Gravity has finally started catching up with VUSXX yield, which dropped to 2.26% today, down from 2.32% on 6/28 (last Friday). It's starting to approach the yield I calculate by averaging the 1m, 2m and 3m Treasury yields over the last 1, 2 and 3 months respectively, and subtracting the ER.

Image

The good news is that the 1m Treasury yield is 2.25% today, up from a recent low of 2.11% a week ago. The 2m is 2.20%, up from 2.15% on 6/28, and the 3m is 2.21%, up from 2.12% on 6/28.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Electron » Thu Jul 04, 2019 3:02 pm

Kevin M wrote:
Wed Jul 03, 2019 7:17 pm
The good news is that the 1m Treasury yield is 2.25% today, up from a recent low of 2.11% a week ago. The 2m is 2.20%, up from 2.15% on 6/28, and the 3m is 2.21%, up from 2.12% on 6/28.
If my understanding is correct, a higher 3 month Treasury auction relative to the previous week would result in a higher payout from any Floating Rate Notes in the portfolio. That could result in a slight increase in SEC yield for VUSXX.

We have yet to explain the late June increase in SEC yield and I don't believe we can look to the Floating Rate Notes. As I recall, each 3 month Treasury auction yield during that period was lower than the previous week.

The June portfolio holdings should be posted soon. It may be a coincidence, but it almost looks like the fund was crediting additional interest ahead of the month end dividend. That makes me wonder if there is any way for a money market fund to have a small amount of undistributed and uncredited income other than from some accounting error. If either did occur, all existing shareholders could be made whole with the final month end dividend.
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Thu Jul 04, 2019 10:09 pm

Electron wrote:
Thu Jul 04, 2019 3:02 pm
If my understanding is correct, a higher 3 month Treasury auction relative to the previous week would result in a higher payout from any Floating Rate Notes in the portfolio. That could result in a slight increase in SEC yield for VUSXX.
7/1 auction yield for 13-week Tbill was 2.193%, up from 2.131% for 6/24 auction.
Electron wrote:
Thu Jul 04, 2019 3:02 pm
We have yet to explain the late June increase in SEC yield and I don't believe we can look to the Floating Rate Notes. As I recall, each 3 month Treasury auction yield during that period was lower than the previous week.
Yep, the yield of the 13-week Tbills was lower at each auction since the 4/22/2019 auction, until the 7/1 auction.

I agree that it's hard to see how the the FRNs could explain the high yield relative to the Tbill yields, as they are such a small percentage of the holdings.

I should also mention that the compound TEY of VUSXX for my is 2.57% (at SEC yield of 2.26%), and even Fed MM is 2.55% (at SEC yield of 2.30%), so still better than Prime MM at 2.36%, and better than my best bank account APY of 2.50%.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by jeffyscott » Fri Jul 05, 2019 10:10 am

For comparison, Fidelity Treasury Only Money Market has yield of 1.91% and ER of 0.42%, so gross yield would be 2.33%. So it is close to Vanguard's 2.35%, I don't know if they've been consistently close as I never looked at this comparison before today.

Schwab's (SNSXX) is at 1.92% and net ER appears to be 0.35%, so that one is only at 2.27% for the gross yield.
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Electron » Fri Jul 05, 2019 2:18 pm

Fidelity appears to have two different Treasury Money Market funds. FDLXX holds only Treasury bills and Treasury notes while FZFXX has a large percentage in Repurchase Agreements. As with Vanguard, the June portfolio holdings are still not available.

FDLXX shows 4.48% of holdings having a maturity between 91 and 180 days.

https://fundresearch.fidelity.com/mutua ... /31617H300

Daily liquid assets are shown on a chart and are generally close to 100% which is consistent with Vanguard.

The latest Annual Report shows Total Investment in Securities at 103.9%. Vanguard has reported similar numbers.
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Fri Jul 05, 2019 2:24 pm

jeffyscott wrote:
Fri Jul 05, 2019 10:10 am
For comparison, Fidelity Treasury Only Money Market has yield of 1.91% and ER of 0.42%, so gross yield would be 2.33%. So it is close to Vanguard's 2.35%, I don't know if they've been consistently close as I never looked at this comparison before today.
At first I misunderstood what you are saying, but now I get it. Yeah, I would expect the gross yields to be similar, with the ERs explaining most of the differences. Ditto for all of their similar MM funds.

Fido T-only (FDLXX) SEC yield is 1.90%, while Vanguard Treasury MM (VUSXX) SEC yield is 2.26%, so the difference is in the ballpark of the difference in ERs: 0.42 - 0.09 = 0.33; 2.26 - 1.90 = 0.36. Vanguard has a slight edge even considering the ERs, but the Vanguard yield still is a bit higher than it seems it should be based on Tbill yields.

On a related note, Fidelity's "government only" MM fund (SPAXX), which is not really "government only", as only about 56% of it's income was government-only obligations exempt from state tax in 2018, now has a higher TEY for me than FDLXX. SPAXX SEC yield is 2.03% which is compound TEY for me of 2.19%, compared to 2.16% for FDLXX. This is nice for Fidelity taxable brokerage accounts, because SPAXX can be used as a core MM fund at Fidelity, while FDLXX cannot.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Fri Jul 05, 2019 2:39 pm

Electron wrote:
Fri Jul 05, 2019 2:18 pm
Fidelity appears to have two different Treasury Money Market funds. FDLXX holds only Treasury bills and Treasury notes while FZFXX has a large percentage in Repurchase Agreements. As with Vanguard, the June portfolio holdings are still not available.
Yeah, these funds are completely different with respect to state tax exemption, which is a key consideration if you pay state income tax and hold the fund in a taxable account.

Only 40% of income from Fidelity Treasury Money Market Fund (all classes, which includes FZFXX) was exempt from state income tax in 2018. This means 0% is exempt from state income tax in CA (my state), CT and NY, which require 50% or more of income to be from US government obligations for any to be tax exempt. With an SEC yield of 2.05%, it currently is not competitive with FDLXX or SPAXX, or even with SPRXX at 2.14% SEC yield with no state tax exemption.

As you note, since FDLXX holds only Tbills, 100% was exempt from state income tax in 2018, and I expect that to continue to be the case.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by TBillT » Sat Jul 06, 2019 10:25 am

greetje wrote:
Mon Jul 01, 2019 3:26 pm
TBillT wrote:
Sun Jun 16, 2019 7:24 am
Vanguard Treasury as my fav MMF at the moment, also state tax exempt for most of us.
We had some since 2008 recession.
Why do you say most of us? We have quite a bit in Vang. Prime MM fund that yields 2.35% vs 2.31% for
VUSXX Vang. Treasury MM.
Low tax bracket. But still seems like a no brainer to switch to VUSXX. Avoid WI state taxes.
I say "most of us" only because I am not an expert on what deductions all states allow.
I am aware some states disallow deducting certain types federal income that many of us can deduct from the state income.
If you live in a state without income tax (OMG in my dreams! not my fair state), then I presume the fed income deduction is inconsequential to you.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by TBillT » Sat Jul 06, 2019 10:43 am

Kevin M wrote:
Fri Jul 05, 2019 2:24 pm
jeffyscott wrote:
Fri Jul 05, 2019 10:10 am
For comparison, Fidelity Treasury Only Money Market has yield of 1.91% and ER of 0.42%, so gross yield would be 2.33%. So it is close to Vanguard's 2.35%, I don't know if they've been consistently close as I never looked at this comparison before today.
At first I misunderstood what you are saying, but now I get it. Yeah, I would expect the gross yields to be similar, with the ERs explaining most of the differences. Ditto for all of their similar MM funds.

Fido T-only (FDLXX) SEC yield is 1.90%, while Vanguard Treasury MM (VUSXX) SEC yield is 2.26%, so the difference is in the ballpark of the difference in ERs: 0.42 - 0.09 = 0.33; 2.26 - 1.90 = 0.36. Vanguard has a slight edge even considering the ERs, but the Vanguard yield still is a bit higher than it seems it should be based on Tbill yields.
I am still trying to grasp this point about adding in ER.
Are we saying Fido's all Treasury MMF is (excepting a few small hundredths of a precent yield) is essentially equal to Vanguard Treasury MMF?
If so, then my perception of Fido MMF's being signifcantly less competitive than VG may be wrong perception. Is the difference all just how yield is quoted?

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by jeffyscott » Sat Jul 06, 2019 11:04 am

greetje wrote:
Mon Jul 01, 2019 3:26 pm
TBillT wrote:
Sun Jun 16, 2019 7:24 am
Vanguard Treasury as my fav MMF at the moment, also state tax exempt for most of us.
We had some since 2008 recession.
Why do you say most of us? We have quite a bit in Vang. Prime MM fund that yields 2.35% vs 2.31% for
VUSXX Vang. Treasury MM.
Low tax bracket. But still seems like a no brainer to switch to VUSXX. Avoid WI state taxes.
Either VUSXX or VMFXX should be better for WI at current yields. Often it's about a toss-up, I think.

My effective state marginal tax rate in the 6.27% bracket is about 7.5%, due to WI's standard deduction that declines as income increases. Above that phaseout marginal rate would be 6.27%, but I won't get there. There is one lower rate and one or two higher rates, but my estimate of break even between Federal MM and Prime is a state tax rate of about 1-2%. I based that on current yields and about 75% US gov't interest in Federal vs. about 20% in Prime.

Looking at trailing returns and using the same US gov't interest factors, it's really a toss-up between all 3 at my tax rate. For trailing 1 month to 1 year periods, the after-tax net return at my rate only varies by 3 bp or less between the three money market funds.

With less than $50K, it seems to make more sense to just leave it in the settlement account, rather than move to Prime.
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sat Jul 06, 2019 1:33 pm

TBillT wrote:
Sat Jul 06, 2019 10:43 am
Kevin M wrote:
Fri Jul 05, 2019 2:24 pm
jeffyscott wrote:
Fri Jul 05, 2019 10:10 am
For comparison, Fidelity Treasury Only Money Market has yield of 1.91% and ER of 0.42%, so gross yield would be 2.33%. So it is close to Vanguard's 2.35%, I don't know if they've been consistently close as I never looked at this comparison before today.
At first I misunderstood what you are saying, but now I get it. Yeah, I would expect the gross yields to be similar, with the ERs explaining most of the differences. Ditto for all of their similar MM funds.

Fido T-only (FDLXX) SEC yield is 1.90%, while Vanguard Treasury MM (VUSXX) SEC yield is 2.26%, so the difference is in the ballpark of the difference in ERs: 0.42 - 0.09 = 0.33; 2.26 - 1.90 = 0.36. Vanguard has a slight edge even considering the ERs, but the Vanguard yield still is a bit higher than it seems it should be based on Tbill yields.
I am still trying to grasp this point about adding in ER.

Are we saying Fido's all Treasury MMF is (excepting a few small hundredths of a precent yield) is essentially equal to Vanguard Treasury MMF?
No. We're adding back the ER to estimate the average yield of the Treasuries held by the fund. If the funds held exactly the same Treasuries, then the average yield of Treasuries would be the same, but the higher Fidelity ER results in a lower SEC yield.
TBillT wrote:
Sat Jul 06, 2019 10:43 am
If so, then my perception of Fido MMF's being signifcantly less competitive than VG may be wrong perception. Is the difference all just how yield is quoted?
Your perception is correct. Fidelity's higher ERs result in lower SEC yields for their MM funds than for comparable Vanguard MM funds.

You start by comparing the SEC yields, but you also must factor in any tax exemptions. Both VUSXX and FDLXX hold 100% Treasuries, so the state tax exemption is the same, and we can just compare SEC yields.

As I stated earlier, only about 40% of Fidelity's Treasury Money Market funds (as opposed to Treasury Only MM fund) income came from state tax-exempt government obligations in 2018, so for states that require at least 50%, none of the income is exempt from state tax, and for other states only 40% of it is. So you must compute the taxable-equivalent SEC yield of this fund and any other fund you're comparing it to.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sat Jul 06, 2019 2:04 pm

Well here we go:

Image

VUSXX SEC yield now is within 1 basis point of the expected yield I calculate by subtracting the ER of 0.09% from the 1,2 and 3 month averages of the 1m, 2m, and 3m Treasuries respectively.

The holdings as of 6/30/2019 are now available here: https://advisors.vanguard.com/web/c1/fa ... /portfolio.

The floating rate notes (FRNs) comprised 6.4% of the holdings, but the yields were in line with the Tbill yields, at 2.10%, 2.11% and 2.24%, and the effective maturity is listed as 6/30, so I assume the rates have already reset.

Vanguard lists the average maturity at 43 days, although I calculate it as 40 days. At any rate, it's still in the same ballpark as the value for the May holdings.

However, I do note that there are a few longer-term Tbills now in the holdings, with the maximum of 178 days or 5.85 months. There are only three holdings with maturities of more than 90 days, comprising only 3.3% of the holdings value, and the listed yields are only 2.05%, 2.16%, and 2.05%.

Interestingly, the fund also lists one TIPS in its holdings, maturing 7/14/2019, with a yield of 1.88%.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sat Jul 06, 2019 2:11 pm

Interestingly, Vanguard Fed MM (VMFXX) SEC yield has held up while VUSXX yield has declined, so VMFXX TEY now is slightly higher for me than VUSXX TEY.

Fund, SEC yield, My Compound TEY

VUSXX, 2.22, 2.52
VMFXX, 2.30, 2.55

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by jeffyscott » Sat Jul 06, 2019 2:18 pm

TBillT wrote:
Sat Jul 06, 2019 10:43 am
I am still trying to grasp this point about adding in ER.

Are we saying Fido's all Treasury MMF is (excepting a few small hundredths of a precent yield) is essentially equal to Vanguard Treasury MMF?
Sorry, as Kevin noted, that was not the purpose. I should have mentioned the reason that I thought it might be of interest, which was just that I wondered if the "magic" was exclusive to Vanguard or if it was just a feature of the way money market funds work.

Fidelity money market funds are definitely not competitive with Vanguard's. I think that is pretty much universal, that no one really even attempts to compete with Vanguard's ERs for money markets.
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Artsdoctor » Sat Jul 06, 2019 3:15 pm

Kevin M wrote:
Sat Jul 06, 2019 2:11 pm
Interestingly, Vanguard Fed MM (VMFXX) SEC yield has held up while VUSXX yield has declined, so VMFXX TEY now is slightly higher for me than VUSXX TEY.

Fund, SEC yield, My Compound TEY

VUSXX, 2.22, 2.52
VMFXX, 2.30, 2.55

Kevin
I think that this is testament to how money market fund yields change frequently.

As we've all discussed, it's important to know your marginal tax rates for investment income, both federal and state.

What I don't know is how reliable the federal money market fund is in maintaining its allocation to federal debt. Last year it was in the 75% range but several years ago, it was below 50% (which essentially was the same as 0% for CA state purposes). I'd like to think that it will continue to be in the 70-75% range and I've done my calculations with this in mind--but I don't know if this is accurate. Since we can't know what portion of the federal money market fund will be exempt from CA tax, I don't think it's helpful to make decisions based on 0.02-0.03 differences.

One the other hand, the US Treasury money market fund should always be exempt from state tax.

Finally, the state-specific money market fund is far more volatile with interest rates and is currently attractive (earlier it was not). I can't bring myself to make weekly changes in money market allocations although I can direct new money to where the yield is most beneficial to me at the time of transfer.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Electron » Sat Jul 06, 2019 3:29 pm

Kevin M wrote:
Sat Jul 06, 2019 2:04 pm
VUSXX SEC yield now is within 1 basis point of the expected yield I calculate by subtracting the ER of 0.09% from the 1,2 and 3 month averages of the 1m, 2m, and 3m Treasuries respectively.
Thanks for the update and comments on the June portfolio holdings. Nice to see your calculation once again lining up with the SEC yield.

In trying to explain the late June increase in yield, suppose that short term capital gains could be used to offset expenses before interest income. Taking some gains over a short period of time could possibly put your calculation closer to the posted SEC yields in that timeframe. It's too bad we don't have more detailed information on the inner workings of these funds.
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sat Jul 06, 2019 9:25 pm

Artsdoctor wrote:
Sat Jul 06, 2019 3:15 pm
What I don't know is how reliable the federal money market fund is in maintaining its allocation to federal debt. Last year it was in the 75% range but several years ago, it was below 50% (which essentially was the same as 0% for CA state purposes).
Good point. It seems that the percent of income from USGO has been increasing since 2015, when it was 40.87%.

2015: 40.87%
2016: 58.77%
2017: 69.86%
2018: 77.79%

(The PDF for each year is at a URL like https://personal.vanguard.com/pdf/USGO_012019.pdf, which is the one for tax year 2018. Last four characters of the filename are the year of publication (so the year after the tax year), and the two characters before that are either 01 or 02 (Jan or Feb)--at least for the four above).

I wonder if the increasing percentage of USGO is due to the SEC money market reforms, and the related fact that VMFXX is the only fund Vanguard allows for use as a settlement fund in a brokerage account, and is not subject to liquidity fees and gates (and neither is VUSXX, but perhaps its minimum initial investment of $50K rules it out as a settlement fund).
Vanguard wrote:The fees and gates rules only apply to retail and institutional funds, although government funds may voluntarily adopt them if the fees and gates are previously disclosed to investors.

The boards of directors of Vanguard's government funds have decided to impose neither fees nor gates.
Artsdoctor wrote:
Sat Jul 06, 2019 3:15 pm
I'd like to think that it will continue to be in the 70-75% range and I've done my calculations with this in mind--but I don't know if this is accurate. Since we can't know what portion of the federal money market fund will be exempt from CA tax, I don't think it's helpful to make decisions based on 0.02-0.03 differences.
Agreed.
Artsdoctor wrote:
Sat Jul 06, 2019 3:15 pm
Finally, the state-specific money market fund is far more volatile with interest rates and is currently attractive (earlier it was not). I can't bring myself to make weekly changes in money market allocations although I can direct new money to where the yield is most beneficial to me at the time of transfer.
The state muni MM fund cycles tend to last at least a month, so weekly changes are not required to optimize on an ongoing basis, although a fund may only be attractive for 1-2 weeks or so. CA muni MM (and national muni MM) has only been attractive for me for 1-2 weeks since the beginning of the year, which was the last week of April through the first week of May.

The muni MM funds cycle is on the downswing again, so they may have been attractive a week ago but not now, but of course they may still be attractive if your federal marginal tax rate is high enough. For me, the national muni MM fund came closer than the CA MM fund on the latest upswing, which ended on 6/28 for the national fund and 7/2 for the CA muni MM fund.

National muni MM peaked at 1.75%, and was down to 1.64% on Friday. CA muni MM peaked at 1.50%, and was down to 1.40% on Friday (dropped 10 bps in three days).

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by jeffyscott » Sun Jul 07, 2019 6:43 am

Kevin M wrote:
Sat Jul 06, 2019 9:25 pm
Artsdoctor wrote:
Sat Jul 06, 2019 3:15 pm
What I don't know is how reliable the federal money market fund is in maintaining its allocation to federal debt. Last year it was in the 75% range but several years ago, it was below 50% (which essentially was the same as 0% for CA state purposes).
Good point. It seems that the percent of income from USGO has been increasing since 2015, when it was 40.87%.

2015: 40.87%
2016: 58.77%
2017: 69.86%
2018: 77.79%
Earlier data is similar to 2015, most years were in the 30s and 40s. I have most but not every year back to 2005, I happen to have downloaded them earlier this year for a different reason. The urls varied on the older ones. Lowest I see is 21.37% in 2007.

Current holdings are categorized as about 85% U.S. Govt. Obligations and U.S. Treasury Bills. So 2019 would appear to be more like the past 2 years, than earlier ones.
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Artsdoctor » Sun Jul 07, 2019 9:14 am

jeffyscott wrote:
Sun Jul 07, 2019 6:43 am
Kevin M wrote:
Sat Jul 06, 2019 9:25 pm
Artsdoctor wrote:
Sat Jul 06, 2019 3:15 pm
What I don't know is how reliable the federal money market fund is in maintaining its allocation to federal debt. Last year it was in the 75% range but several years ago, it was below 50% (which essentially was the same as 0% for CA state purposes).
Good point. It seems that the percent of income from USGO has been increasing since 2015, when it was 40.87%.

2015: 40.87%
2016: 58.77%
2017: 69.86%
2018: 77.79%
Earlier data is similar to 2015, most years were in the 30s and 40s. I have most but not every year back to 2005, I happen to have downloaded them earlier this year for a different reason. The urls varied on the older ones. Lowest I see is 21.37% in 2007.

Current holdings are categorized as about 85% U.S. Govt. Obligations and U.S. Treasury Bills. So 2019 would appear to be more like the past 2 years, than earlier ones.
I'd like to think that this is a trend which will remain. For California residents, this is an important topic because if the government obligation debt falls below 50%, the state resident will owe state income tax on the full year's income. In other words, if 50.5% of the interest earned during the year is from government debt, you don't pay state income tax on the 49.5%; however, if 49% of the interest earned is from government debt, you're obligated to pay tax on the entire amount.

I called Vanguard in 2017 to ask if this trend should be considered permanent and they said that they could not comment on that. I couldn't find anything written in the prospectus about the intent.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by grok87 » Sun Jul 07, 2019 9:18 am

Artsdoctor wrote:
Sun Jul 07, 2019 9:14 am
jeffyscott wrote:
Sun Jul 07, 2019 6:43 am
Kevin M wrote:
Sat Jul 06, 2019 9:25 pm
Artsdoctor wrote:
Sat Jul 06, 2019 3:15 pm
What I don't know is how reliable the federal money market fund is in maintaining its allocation to federal debt. Last year it was in the 75% range but several years ago, it was below 50% (which essentially was the same as 0% for CA state purposes).
Good point. It seems that the percent of income from USGO has been increasing since 2015, when it was 40.87%.

2015: 40.87%
2016: 58.77%
2017: 69.86%
2018: 77.79%
Earlier data is similar to 2015, most years were in the 30s and 40s. I have most but not every year back to 2005, I happen to have downloaded them earlier this year for a different reason. The urls varied on the older ones. Lowest I see is 21.37% in 2007.

Current holdings are categorized as about 85% U.S. Govt. Obligations and U.S. Treasury Bills. So 2019 would appear to be more like the past 2 years, than earlier ones.
I'd like to think that this is a trend which will remain. For California residents, this is an important topic because if the government obligation debt falls below 50%, the state resident will owe state income tax on the full year's income. In other words, if 50.5% of the interest earned during the year is from government debt, you don't pay state income tax on the 49.5%; however, if 49% of the interest earned is from government debt, you're obligated to pay tax on the entire amount.

I called Vanguard in 2017 to ask if this trend should be considered permanent and they said that they could not comment on that. I couldn't find anything written in the prospectus about the intent.
why not just use the treasury money market instead?
RIP Mr. Bogle.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Gleevec » Sun Jul 07, 2019 10:35 am

Kevin M wrote:
Fri Jul 05, 2019 2:39 pm
Electron wrote:
Fri Jul 05, 2019 2:18 pm
Fidelity appears to have two different Treasury Money Market funds. FDLXX holds only Treasury bills and Treasury notes while FZFXX has a large percentage in Repurchase Agreements. As with Vanguard, the June portfolio holdings are still not available.
Yeah, these funds are completely different with respect to state tax exemption, which is a key consideration if you pay state income tax and hold the fund in a taxable account.

Only 40% of income from Fidelity Treasury Money Market Fund (all classes, which includes FZFXX) was exempt from state income tax in 2018. This means 0% is exempt from state income tax in CA (my state), CT and NY, which require 50% or more of income to be from US government obligations for any to be tax exempt. With an SEC yield of 2.05%, it currently is not competitive with FDLXX or SPAXX, or even with SPRXX at 2.14% SEC yield with no state tax exemption.

As you note, since FDLXX holds only Tbills, 100% was exempt from state income tax in 2018, and I expect that to continue to be the case.

Kevin
Does SPAXX clear the 50% hurdle for state tax exemption (since FZFXX doesnt from your post)? If so, may be nice if one of the mods could update the wiki on Fidelity as one stop shop with this nice piece of info I have not heard before. To me it looks like SPAXX does since USG repurchase agreements should be state tax exempt?

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Artsdoctor » Sun Jul 07, 2019 11:16 am

grok87 wrote:
Sun Jul 07, 2019 9:18 am
Artsdoctor wrote:
Sun Jul 07, 2019 9:14 am
jeffyscott wrote:
Sun Jul 07, 2019 6:43 am
Kevin M wrote:
Sat Jul 06, 2019 9:25 pm
Artsdoctor wrote:
Sat Jul 06, 2019 3:15 pm
What I don't know is how reliable the federal money market fund is in maintaining its allocation to federal debt. Last year it was in the 75% range but several years ago, it was below 50% (which essentially was the same as 0% for CA state purposes).
Good point. It seems that the percent of income from USGO has been increasing since 2015, when it was 40.87%.

2015: 40.87%
2016: 58.77%
2017: 69.86%
2018: 77.79%
Earlier data is similar to 2015, most years were in the 30s and 40s. I have most but not every year back to 2005, I happen to have downloaded them earlier this year for a different reason. The urls varied on the older ones. Lowest I see is 21.37% in 2007.

Current holdings are categorized as about 85% U.S. Govt. Obligations and U.S. Treasury Bills. So 2019 would appear to be more like the past 2 years, than earlier ones.
I'd like to think that this is a trend which will remain. For California residents, this is an important topic because if the government obligation debt falls below 50%, the state resident will owe state income tax on the full year's income. In other words, if 50.5% of the interest earned during the year is from government debt, you don't pay state income tax on the 49.5%; however, if 49% of the interest earned is from government debt, you're obligated to pay tax on the entire amount.

I called Vanguard in 2017 to ask if this trend should be considered permanent and they said that they could not comment on that. I couldn't find anything written in the prospectus about the intent.
why not just use the treasury money market instead?
I do although the treasury money market cannot be used for the default settlement fund. Only the federal money market fund is available. Of course, there's nothing more than a few clicks but it's an active decision-making process nonetheless--you can't just default to the treasury fund for your settlement fund (or the tax-exempt money market fund for that matter).

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Artsdoctor » Sun Jul 07, 2019 11:31 am

Gleevec wrote:
Sun Jul 07, 2019 10:35 am
Kevin M wrote:
Fri Jul 05, 2019 2:39 pm
Electron wrote:
Fri Jul 05, 2019 2:18 pm
Fidelity appears to have two different Treasury Money Market funds. FDLXX holds only Treasury bills and Treasury notes while FZFXX has a large percentage in Repurchase Agreements. As with Vanguard, the June portfolio holdings are still not available.
Yeah, these funds are completely different with respect to state tax exemption, which is a key consideration if you pay state income tax and hold the fund in a taxable account.

Only 40% of income from Fidelity Treasury Money Market Fund (all classes, which includes FZFXX) was exempt from state income tax in 2018. This means 0% is exempt from state income tax in CA (my state), CT and NY, which require 50% or more of income to be from US government obligations for any to be tax exempt. With an SEC yield of 2.05%, it currently is not competitive with FDLXX or SPAXX, or even with SPRXX at 2.14% SEC yield with no state tax exemption.

As you note, since FDLXX holds only Tbills, 100% was exempt from state income tax in 2018, and I expect that to continue to be the case.

Kevin
Does SPAXX clear the 50% hurdle for state tax exemption (since FZFXX doesnt from your post)? If so, may be nice if one of the mods could update the wiki on Fidelity as one stop shop with this nice piece of info I have not heard before. To me it looks like SPAXX does since USG repurchase agreements should be state tax exempt?
The answer is "usually." The income that is exempt from state income tax is usually in the 50+% range. If you take a look at the investments in the fund, the government agency investments are in the 45% range (those are not exempt from state income tax). Again, I don't know if Fidelity makes a commitment to keep the treasury component above 50% or not. I can tell you that I spoke to a Fidelity rep a while back and they had no idea that more than 50% government debt was required to qualify for state income tax exemption for CA residents.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by ofckrupke » Sun Jul 07, 2019 1:42 pm

Artsdoctor wrote:
Sun Jul 07, 2019 9:14 am
I'd like to think that this is a trend which will remain. For California residents, this is an important topic because if the government obligation debt falls below 50%, the state resident will owe state income tax on the full year's income. In other words, if 50.5% of the interest earned during the year is from government debt, you don't pay state income tax on the 49.5%; however, if 49% of the interest earned is from government debt, you're obligated to pay tax on the entire amount.
The underlined passage mis-states the actual requirement, which for CA is that the asset fraction of CA-exempt debt (in the VMFXX context, US Govt obligations), not the income fraction, be greater than or equal to half the total; if the asset criterion is met then the income fraction from such source(s) is exempt.
[Under CA's R&TC section 17145, this 50% bar is applied to the fund's portfolio at the end of each quarter of its accounting year and the fund must pass all four instances of the test for the threshold to be considered met. Other states define their asset- or income-fraction criterion specifics otherwise.]
The point is that if a fund has 51% CA-exempt US Govt obligations at each of the four test epochs but only 40% of the distributed income is from US Govt obligation sources (as might occur if credit spreads widen enough that non-Govt debt has much higher yield), then 40% of that income will be CA-exempt; and if the fund portfolio has only 49% CA-exempt holdings at one or more of the test epochs, then even if 60% of the year's income distributions are attributed to the CA-exempt holdings, none of it will be CA tax-exempt.

What I don't know is whether net accounting rules require a fund to pro-rate its expenses across the various source income slices, xor across the various source asset slices, in determining the division across sources of the net income distributed. Above my pay grade; I rely on the fund provider to supply percentages. Likewise, when a fund provider lists a single percentage over 50% for CA's asset threshold, I don't know whether that represents the average of the four tests and an implicit assertion that the worst of the four still exceeds 50%, or whether that number represents the single test with the narrowest clearance.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by ofckrupke » Sun Jul 07, 2019 2:28 pm

Gleevec wrote:
Sun Jul 07, 2019 10:35 am
Does SPAXX clear the 50% hurdle for state tax exemption (since FZFXX doesnt from your post)? If so, may be nice if one of the mods could update the wiki on Fidelity as one stop shop with this nice piece of info I have not heard before. To me it looks like SPAXX does since USG repurchase agreements should be state tax exempt?
No (to the underlined part of the question). At least, the federal law (colloquially, section 3124) exempting federal government debt obligation income from state taxation was held by SCOTUS in late 1994 not to apply to repurchase agreements involving such obligations (Nebraska vs. Loewenstein, no. 93-823) - in summary, repo income is just interest on a loan arrangement between two private parties.
After that decision, CA FTB would be throwing money away to extend such a generosity to its own taxpayers...so it doesn't.
Maybe this resolves your question about SPAXX, at least for the year to which your inspection of asset composition pertains.
Last edited by ofckrupke on Sun Jul 07, 2019 2:37 pm, edited 1 time in total.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Electron » Sun Jul 07, 2019 2:36 pm

Vanguard provides a document every year entitled U.S. government obligations information. Percentage information is provided for the applicable funds along with the important notes below.

https://personal.vanguard.com/pdf/USGO_012019.pdf

"Column 1. Percentage of the fund’s total income derived from U.S. government obligations in 2018. Check with your state or local tax office or with your tax advisor to determine whether your state allows you to exclude some or all of the income you earn from mutual funds that invest in U.S. government obligations. If your state allows an exclusion, refer to this column for the percentage of income that may be excluded for each fund in which you’re invested."

"Column 2. Percentage of the fund’s assets invested in U.S. government obligations as of December 31, 2018. Certain states and municipalities require residents to pay intangible or personal property tax. If you’re required to pay either of these taxes, refer to this column for the percentage that may be excluded from these taxes for each fund in which you’re invested."

Holders of funds marked with two asterisks are referred to the following note. "This fund meets the threshold requirements for California, Connecticut, and New York, which require that 50% of the fund’s assets at each quarter-end within the tax year consist of U.S. government obligations."

On the subject of Vanguard Federal Money Market now having a higher after-tax yield for some investors relative to Vanguard Treasury Money Market, the relationship may change in the days and weeks ahead.

VMFXX currently has a weighted average life of 90 days versus 66 days for VUSXX.
Electron

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sun Jul 07, 2019 3:14 pm

Gleevec wrote:
Sun Jul 07, 2019 10:35 am
Does SPAXX clear the 50% hurdle for state tax exemption (since FZFXX doesnt from your post)? If so, may be nice if one of the mods could update the wiki on Fidelity as one stop shop with this nice piece of info I have not heard before. To me it looks like SPAXX does since USG repurchase agreements should be state tax exempt?
For 2018, Fidelity shows 56.16% of income from Government Money Market Fund: All Classes (one of which is SPAXX) as exempt from state income tax, and the fund is not flagged as not meeting the requirements for CA, CT and NY. Although we don't know what will be the case for 2019, I'm using 56% as an estimate for state tax exemption.

I've already posted in the Fido one-stop shop thread that I'm using SPAXX in preference to SPRXX as my core MM fund in taxable brokerage accounts due to the assumed state tax exemption. However, with the drop in Treasury yields and the 56% assumption, SPAXX compound TEY for me is only 2.19%, compared to 2.16% for SPRXX, so considering the uncertainty about the state tax exemption, this might not be the best choice now. Compound TEY of FDLXX (Treasury only) for me is 2.16%, so a certain state tax exemption, but currently no advantage for me over SPRXX, and it can't be used as a core MM fund.

Wiki editing is not limited to moderators, so anyone who's really interested could update the one-stop shop Wiki article.

Kevin
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sun Jul 07, 2019 3:29 pm

Electron wrote:
Sun Jul 07, 2019 2:36 pm
VMFXX currently has a weighted average life of 90 days versus 66 days for VUSXX.
The average weighted maturity probably is more relevant, as it uses the interest reset dates for floating rate instruments rather than the final maturity, and it's the average weighted maturity that affects duration (term risk). Vanguard shows average weighted maturity for VMFXX of 39 days, and 43 days for VUSXX.

Kevin
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Artsdoctor » Sun Jul 07, 2019 3:38 pm

ofckrupke wrote:
Sun Jul 07, 2019 1:42 pm
Artsdoctor wrote:
Sun Jul 07, 2019 9:14 am
I'd like to think that this is a trend which will remain. For California residents, this is an important topic because if the government obligation debt falls below 50%, the state resident will owe state income tax on the full year's income. In other words, if 50.5% of the interest earned during the year is from government debt, you don't pay state income tax on the 49.5%; however, if 49% of the interest earned is from government debt, you're obligated to pay tax on the entire amount.
The underlined passage mis-states the actual requirement, which for CA is that the asset fraction of CA-exempt debt (in the VMFXX context, US Govt obligations), not the income fraction, be greater than or equal to half the total; if the asset criterion is met then the income fraction from such source(s) is exempt.
[Under CA's R&TC section 17145, this 50% bar is applied to the fund's portfolio at the end of each quarter of its accounting year and the fund must pass all four instances of the test for the threshold to be considered met. Other states define their asset- or income-fraction criterion specifics otherwise.]
The point is that if a fund has 51% CA-exempt US Govt obligations at each of the four test epochs but only 40% of the distributed income is from US Govt obligation sources (as might occur if credit spreads widen enough that non-Govt debt has much higher yield), then 40% of that income will be CA-exempt; and if the fund portfolio has only 49% CA-exempt holdings at one or more of the test epochs, then even if 60% of the year's income distributions are attributed to the CA-exempt holdings, none of it will be CA tax-exempt.

What I don't know is whether net accounting rules require a fund to pro-rate its expenses across the various source income slices, xor across the various source asset slices, in determining the division across sources of the net income distributed. Above my pay grade; I rely on the fund provider to supply percentages. Likewise, when a fund provider lists a single percentage over 50% for CA's asset threshold, I don't know whether that represents the average of the four tests and an implicit assertion that the worst of the four still exceeds 50%, or whether that number represents the single test with the narrowest clearance.
Your detailed explanation is appreciated.

Vanguard actually instructs you to use the INCOME and not the ASSETS, as you'll see below:

https://personal.vanguard.com/pdf/USGO_012019.pdf

However, they will always defer to the accountant, etc. I've always used the income percentage (column 1 from Vanguard) but the numbers are awfully close so it probably makes little practical significance.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sun Jul 07, 2019 3:38 pm

Artsdoctor wrote:
Sun Jul 07, 2019 11:16 am
grok87 wrote:
Sun Jul 07, 2019 9:18 am
Artsdoctor wrote:
Sun Jul 07, 2019 9:14 am
jeffyscott wrote:
Sun Jul 07, 2019 6:43 am
Kevin M wrote:
Sat Jul 06, 2019 9:25 pm
Good point. It seems that the percent of income from USGO has been increasing since 2015, when it was 40.87%.
<snip>
Earlier data is similar to 2015, most years were in the 30s and 40s. I have most but not every year back to 2005, I happen to have downloaded them earlier this year for a different reason. The urls varied on the older ones. Lowest I see is 21.37% in 2007.

Current holdings are categorized as about 85% U.S. Govt. Obligations and U.S. Treasury Bills. So 2019 would appear to be more like the past 2 years, than earlier ones.
I'd like to think that this is a trend which will remain. For California residents, this is an important topic because if the government obligation debt falls below 50%, the state resident will owe state income tax on the full year's income.
<snip>
why not just use the treasury money market instead?
I do although the treasury money market cannot be used for the default settlement fund. Only the federal money market fund is available.
There are a couple of other reasons the state tax exemption of VMFXX could be of interest.

One is the $50K minimum investment for VUSXX, which may be difficult for some people to meet. Note though that once the fund is open, you can let the value drop as low as you want, and the fund will remain open. At least that's been the case for me for all Vanguard money market funds with minimums.

I guess the other reason is just a variation of what Artsdoctor said, which is that even if one does use VUSXX, one can be lazier about transferring dividends and proceeds from maturing fixed income securities out of the settlement fund into VUSXX without incurring an income penalty.

Kevin
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sun Jul 07, 2019 3:45 pm

Artsdoctor wrote:
Sun Jul 07, 2019 3:38 pm
ofckrupke wrote:
Sun Jul 07, 2019 1:42 pm
Artsdoctor wrote:
Sun Jul 07, 2019 9:14 am
<snip>
In other words, if 50.5% of the interest earned during the year is from government debt, you don't pay state income tax on the 49.5%; however, if 49% of the interest earned is from government debt, you're obligated to pay tax on the entire amount.
<snip>
The point is that if a fund has 51% CA-exempt US Govt obligations at each of the four test epochs but only 40% of the distributed income is from US Govt obligation sources (as might occur if credit spreads widen enough that non-Govt debt has much higher yield), then 40% of that income will be CA-exempt; and if the fund portfolio has only 49% CA-exempt holdings at one or more of the test epochs, then even if 60% of the year's income distributions are attributed to the CA-exempt holdings, none of it will be CA tax-exempt.
<snip>
Vanguard actually instructs you to use the INCOME and not the ASSETS, as you'll see below:

https://personal.vanguard.com/pdf/USGO_012019.pdf
There is no conflict in what you both are saying. You use the percent income to figure the state tax exemption, but the fund must meet the 50% of assets in USGO text each quarter for any of the income to be tax exempt in CA, CT and NY. As shared by Electron, Vanguard includes a flag indicating which assets meet this test.

Similarly, in its annual tax publication on this topic, Fidelity flags funds that do not meet the requirements for CA, CT and NY.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Artsdoctor » Sun Jul 07, 2019 3:59 pm

Very helpful explanation, Kevin. So you use the ASSETS to see if you get on the map; it has to be greater than 50% (CA residents). Then, you use the INCOME to quantify exactly how much of the total is exempt.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Electron » Sun Jul 07, 2019 5:48 pm

Kevin M wrote:
Sun Jul 07, 2019 3:29 pm
The average weighted maturity probably is more relevant, as it uses the interest reset dates for floating rate instruments rather than the final maturity, and it's the average weighted maturity that affects duration (term risk). Vanguard shows average weighted maturity for VMFXX of 39 days, and 43 days for VUSXX.
The next week or two should be interesting.

The spread of VMFXX over VUSXX is the highest since late 2016. The spread was generally positive from late 2015 through May 2017 although rates were much lower in that time period. The spread has been mostly negative since early 2018.
Electron

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by grok87 » Sun Jul 07, 2019 7:18 pm

Kevin M wrote:
Sun Jul 07, 2019 3:38 pm
Artsdoctor wrote:
Sun Jul 07, 2019 11:16 am
grok87 wrote:
Sun Jul 07, 2019 9:18 am
Artsdoctor wrote:
Sun Jul 07, 2019 9:14 am
jeffyscott wrote:
Sun Jul 07, 2019 6:43 am

Earlier data is similar to 2015, most years were in the 30s and 40s. I have most but not every year back to 2005, I happen to have downloaded them earlier this year for a different reason. The urls varied on the older ones. Lowest I see is 21.37% in 2007.

Current holdings are categorized as about 85% U.S. Govt. Obligations and U.S. Treasury Bills. So 2019 would appear to be more like the past 2 years, than earlier ones.
I'd like to think that this is a trend which will remain. For California residents, this is an important topic because if the government obligation debt falls below 50%, the state resident will owe state income tax on the full year's income.
<snip>
why not just use the treasury money market instead?
I do although the treasury money market cannot be used for the default settlement fund. Only the federal money market fund is available.
There are a couple of other reasons the state tax exemption of VMFXX could be of interest.

One is the $50K minimum investment for VUSXX, which may be difficult for some people to meet. Note though that once the fund is open, you can let the value drop as low as you want, and the fund will remain open. At least that's been the case for me for all Vanguard money market funds with minimums.

I guess the other reason is just a variation of what Artsdoctor said, which is that even if one does use VUSXX, one can be lazier about transferring dividends and proceeds from maturing fixed income securities out of the settlement fund into VUSXX without incurring an income penalty.

Kevin
thanks.
i'm still on the old mutual fund account setup so my dividends and distributions get directed straight into VUSXX- the treasury money market
RIP Mr. Bogle.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Sun Jul 07, 2019 9:06 pm

grok87 wrote:
Sun Jul 07, 2019 7:18 pm
Kevin M wrote:
Sun Jul 07, 2019 3:38 pm
Artsdoctor wrote:
Sun Jul 07, 2019 11:16 am
grok87 wrote:
Sun Jul 07, 2019 9:18 am
Artsdoctor wrote:
Sun Jul 07, 2019 9:14 am
<snip>
why not just use the treasury money market instead?
I do although the treasury money market cannot be used for the default settlement fund. Only the federal money market fund is available.
There are a couple of other reasons the state tax exemption of VMFXX could be of interest.
<snip>
I guess the other reason is just a variation of what Artsdoctor said, which is that even if one does use VUSXX, one can be lazier about transferring dividends and proceeds from maturing fixed income securities out of the settlement fund into VUSXX without incurring an income penalty.
thanks.
i'm still on the old mutual fund account setup so my dividends and distributions get directed straight into VUSXX- the treasury money market
Sure, I do the same for my mutual fund only account. But aren't you a TIPS ladder person? You can't hold individual TIPS in a mutual fund account, so must use a brokerage account. You probably hold them in an IRA, so the state tax exemption is irrelevant, but the principle still applies. If one holds brokered products, one must have a brokerage account, and interest and proceeds from maturing securities goes into the settlement fund.

So you don't hold any individual fixed income securities in taxable accounts at Vanguard. I do.

Kevin
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Gleevec » Sun Jul 07, 2019 10:55 pm

Kevin M wrote:
Sun Jul 07, 2019 3:14 pm
Gleevec wrote:
Sun Jul 07, 2019 10:35 am
Does SPAXX clear the 50% hurdle for state tax exemption (since FZFXX doesnt from your post)? If so, may be nice if one of the mods could update the wiki on Fidelity as one stop shop with this nice piece of info I have not heard before. To me it looks like SPAXX does since USG repurchase agreements should be state tax exempt?
For 2018, Fidelity shows 56.16% of income from Government Money Market Fund: All Classes (one of which is SPAXX) as exempt from state income tax, and the fund is not flagged as not meeting the requirements for CA, CT and NY. Although we don't know what will be the case for 2019, I'm using 56% as an estimate for state tax exemption.
Kevin
Makes sense thanks! By the way is there a link to the Fidelity document or site that flags funds for not meeting requirements for CA/NY/CT?

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by grok87 » Wed Jul 10, 2019 8:24 pm

Kevin M wrote:
Sun Jul 07, 2019 9:06 pm
grok87 wrote:
Sun Jul 07, 2019 7:18 pm
Kevin M wrote:
Sun Jul 07, 2019 3:38 pm
Artsdoctor wrote:
Sun Jul 07, 2019 11:16 am
grok87 wrote:
Sun Jul 07, 2019 9:18 am

why not just use the treasury money market instead?
I do although the treasury money market cannot be used for the default settlement fund. Only the federal money market fund is available.
There are a couple of other reasons the state tax exemption of VMFXX could be of interest.
<snip>
I guess the other reason is just a variation of what Artsdoctor said, which is that even if one does use VUSXX, one can be lazier about transferring dividends and proceeds from maturing fixed income securities out of the settlement fund into VUSXX without incurring an income penalty.
thanks.
i'm still on the old mutual fund account setup so my dividends and distributions get directed straight into VUSXX- the treasury money market
Sure, I do the same for my mutual fund only account. But aren't you a TIPS ladder person? You can't hold individual TIPS in a mutual fund account, so must use a brokerage account. You probably hold them in an IRA, so the state tax exemption is irrelevant, but the principle still applies. If one holds brokered products, one must have a brokerage account, and interest and proceeds from maturing securities goes into the settlement fund.

So you don't hold any individual fixed income securities in taxable accounts at Vanguard. I do.

Kevin
it's a good point. i do find it annoying i can't use VUSXX as the settlement fund for my brokerage IRA.
RIP Mr. Bogle.

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Thu Jul 11, 2019 2:02 pm

grok87 wrote:
Wed Jul 10, 2019 8:24 pm
it's a good point. i do find it annoying i can't use VUSXX as the settlement fund for my brokerage IRA.
Well, the good news is that VMFXX (Fed MM) SEC yield at 2.29% currently is higher than VUSXX (Treasury MM) yield at 2.18%!

But yeah, I find it even stranger that one cannot use Fidelity Treasury Only MM fund (FDLXX) as a settlement fund in a Fidelity brokerage account, since it has even less credit risk than the Fidelity government MM fund (SPAXX) that they allow as a settlement fund, and unlike Vanguard, there is no minimum for FDLXX.

Not that it matters for an IRA, but if the income from USGO for VMFXX is about the same percentage as last year, the TEY also is slightly higher for me than for VUSXX.

Kevin
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LinusP
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by LinusP » Thu Jul 11, 2019 4:54 pm

Kevin M wrote:
Thu Jul 11, 2019 2:02 pm
[...] if the income from USGO for VMFXX is about the same percentage as last year, the TEY also is slightly higher for me than for VUSXX.
I pulled the trigger on switching back from VUSXX to VMFXX today - no sense leaving 5 bp on the table, right?

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by centrifuge41 » Thu Jul 11, 2019 5:55 pm

LinusP wrote:
Thu Jul 11, 2019 4:54 pm
Kevin M wrote:
Thu Jul 11, 2019 2:02 pm
[...] if the income from USGO for VMFXX is about the same percentage as last year, the TEY also is slightly higher for me than for VUSXX.
I pulled the trigger on switching back from VUSXX to VMFXX today - no sense leaving 5 bp on the table, right?
Same transition today for me.

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Leif
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Leif » Fri Jul 12, 2019 10:47 am

I'll leave my money in VUSXX. I currently have less then $50k in the fund. So if I moved completely out for 5 bp I could not get back in.

I believe VUSXX is state tax free since it is all Treasuries. Is VMFXX considered state tax free?

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by jeffyscott » Fri Jul 12, 2019 11:11 am

Leif wrote:
Fri Jul 12, 2019 10:47 am
Is VMFXX considered state tax free?
Partially, it's been 70-75% the last couple years but as low as 20-30% many years ago. So there is some uncertainty with regard to that. I don't qualify for the treasury fund, I thought I might get there this summer/fall, but now that looks unlikely, makes my choice easy :) .

Some history was posted upthread: viewtopic.php?p=4638337#p4628808
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Leif
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Re: Why is Vanguard Treasury Money Market yield so low?

Post by Leif » Fri Jul 12, 2019 11:52 am

LinusP wrote:
Thu Jul 11, 2019 4:54 pm
no sense leaving 5 bp on the table, right?
Then I guess the answer to this question is maybe, maybe not depending on their state of residence.

We may need to change the title of this thread.

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Re: Why was Vanguard Treasury Money Market yield so high??

Post by jeffyscott » Fri Jul 12, 2019 12:15 pm

Leif wrote:
Fri Jul 12, 2019 11:52 am
LinusP wrote:
Thu Jul 11, 2019 4:54 pm
no sense leaving 5 bp on the table, right?
Then I guess the answer to this question is maybe, maybe not depending on their state of residence.

We may need to change the title of this thread.
And marginal state tax rate.

I disagree with your title change :D
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Why is Vanguard Treasury Money Market yield so high?

Post by ReformedSpender » Fri Jul 12, 2019 12:23 pm

Treasuries have been ticking back up the past few days and VUSXX will follow suit. Not losing sleep over 0.05%

:beer
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Re: Why is Vanguard Treasury Money Market yield so high?

Post by Kevin M » Fri Jul 12, 2019 1:04 pm

ReformedSpender wrote:
Fri Jul 12, 2019 12:23 pm
Treasuries have been ticking back up the past few days and VUSXX will follow suit. Not losing sleep over 0.05%

:beer
1m to 3m yields, the ones VUSXX yield is based on, actually have been ticking down the last few days.

The 1m hit high of 2.26 on 7/5, and was 2.17 yesterday.

The 2m was at its recent high of 2.24 on 7/9, and was 2.17 yesterday.

The 3m was at its recent high of 2.26 on 7/9, and was 2.17 yesterday.

A calculate the trailing average of the 1m, 2m and 3m Treasuries over the last 1m, 2m and 3m respectively at 2.20% as of yesterday, and VUSXX SEC yield minus ER of 9 basis points was 2.18%, so slightly less than the Tbill average, but quite close.

The title of this thread was accurate at the time of the OP, as it had nothing to do with state tax exemption, but simply the raw SEC yield of VUSXX compared to the 1m, 2m, and 3m Treasury yields. The yield no longer is high relative to the Tbills, so the title does not apply at this moment.

Kevin
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Re: Why is Vanguard Treasury Money Market yield so low?

Post by Leif » Fri Jul 12, 2019 2:37 pm

Kevin M wrote:
Fri Jul 12, 2019 1:04 pm
The title of this thread was accurate at the time of the OP, as it had nothing to do with state tax exemption, but simply the raw SEC yield of VUSXX compared to the 1m, 2m, and 3m Treasury yields. The yield no longer is high relative to the Tbills, so the title does not apply at this moment.

Kevin
Thats right. It just is surprising to me how rapid VUSXX has dropped relative to VMFXX. That is why I'm asking why is the Vanguard Treasury Money Market yield is so low. For almost all of the last 6 months (maybe longer, my chart shows the last 6 months) you almost needed a magnifying glass to see the chart differences between the two. For my TEY VUSXX is down 9 bp and VMFXX is down 1 bp in the last week. The SEC 7 day is 11 bp lower for VUSXX (2.18%) then VMFXX (2.29%).

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