Muni MM Closing in on Prime MM

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William Million
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Muni MM Closing in on Prime MM

Post by William Million » Sat May 04, 2019 8:49 pm

2.02% versus 2.44%. Close enough, now, for me to switch to municipal. Anyone else shifting?

Even best CDs are not breaking 3%, so 2% tax free on Muni MM not an awful deal. In fact, tax-exempt short term corp only paying 1.8%.

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Re: Muni MM Closing in on Prime MM

Post by Vanguard Fan 1367 » Sat May 04, 2019 10:16 pm

I switched a day or so ago. At the moment Vanguard's Muni MM is looking pretty good.

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beyou
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Re: Muni MM Closing in on Prime MM

Post by beyou » Sat May 04, 2019 11:28 pm

I moved from US Tsy to NY muni.
The rates move quickly so if this matters so much to you, check regularly.
Personally I decided to make less portfolio moves until there are life events (such as retirement where maybe munis make little sense at a lower tax bracket).

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Re: Muni MM Closing in on Prime MM

Post by Dale_G » Sat May 04, 2019 11:33 pm

It won't last folks. Muni money market yields spike every year around tax time. The yields will go down with respect to Prime MM in due course, just like they do every year.

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Re: Muni MM Closing in on Prime MM

Post by neurosphere » Sat May 04, 2019 11:34 pm

William Million wrote:
Sat May 04, 2019 8:49 pm
2.02% versus 2.44%. Close enough, now, for me to switch to municipal. Anyone else shifting?
You should probably check out this thread:
viewtopic.php?p=4528043#p4526802

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Re: Muni MM Closing in on Prime MM

Post by William Million » Sun May 05, 2019 1:50 am

Dale_G wrote:
Sat May 04, 2019 11:33 pm
It won't last folks. Muni money market yields spike every year around tax time. The yields will go down with respect to Prime MM in due course, just like they do every year.

Dale
That's fine. To me, the easiest investment switcheroo is from MM Prime to MM Muni and back. If I can make a bit of $, I'll do it.

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Re: Muni MM Closing in on Prime MM

Post by Kevin M » Sun May 05, 2019 1:57 am

neurosphere wrote:
Sat May 04, 2019 11:34 pm
William Million wrote:
Sat May 04, 2019 8:49 pm
2.02% versus 2.44%. Close enough, now, for me to switch to municipal. Anyone else shifting?
You should probably check out this thread:
viewtopic.php?p=4528043#p4526802
Yep, we've been monitoring this for quite some time now. Muni MM yields peaked on 5/1, and are on their way back down. I switched from Treasury MM to CA Muni MM on 4/30, as documented a few posts above the one linked above. I expect to be switching back within a few weeks at most.

Also keep in mind, as discussed in the linked thread, that MM SEC yield is a 7-day lagging average, so when yields are moving quickly, what you actually earn today could be a fair amount different than the SEC yield. So the yields actually peaked a few days before the SEC yield peak, and now that they're headed down, the daily yields are lower than the SEC yields. For example, CA muni MM SEC yield on 5/3 was 1.86%, but I calculate a rate of 1.75% based on my dividend accrual on 5/3. This is 11 basis points lower than the rate of 1.86% I calculated for 5/1 (when SEC yield was 1.90%).

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Re: Muni MM Closing in on Prime MM

Post by Ricchan » Sun May 05, 2019 7:57 am

Here's a chart of Muni Yield for the past year. While the swings around 4/15 tend to be among the largest, there are also swings every couple months as well.

Image

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Re: Muni MM Closing in on Prime MM

Post by AerialWombat » Sun May 05, 2019 8:11 am

I use Vanguard High Yield Tax Exempt Admiral (VWALX) for the purpose most people use Prime or Muni MM, so I’ve got a ways to go before I jump entirely to Prime. I’m definitely watching it, though, and my next monthly transfer will be into Prime instead of the junk bond muni.

Yes, I’m well aware of the risks, and yes, I yield chase. But if you’re switching between Muni MM and Prime MM, you’re yield chasing, too. :beer
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Re: Muni MM Closing in on Prime MM

Post by Kevin M » Sun May 05, 2019 9:40 am

AerialWombat wrote:
Sun May 05, 2019 8:11 am
I use Vanguard High Yield Tax Exempt Admiral (VWALX) for the purpose most people use Prime or Muni MM,<snip>
No, you don't. Well, it depends what you mean by "purpose". Someone could also say they use a stock fund for the same purpose, but saying either is really just saying you don't use cash or cash equivalents, or as Vanguard calls it, short-term reserves.
Yes, I’m well aware of the risks, and yes, I yield chase. But if you’re switching between Muni MM and Prime MM, you’re yield chasing, too.
Not the same at all. I think the term "chasing yield" usually refers to taking more risk for more yield. Switching between two money market funds doesn't change your duration, which is 0 years. Maybe there's a little difference in credit risk, but not much. So you're not really changing your risk much be switching between MM funds.

VWALX has a duration of 6.7 years, and of course the credit risk is significantly higher as well. I'd say "chasing yield" applies much more to choosing this much more term risk and credit risk than switching between two 0-year-duration funds with not that much difference in credit risk.

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Re: Muni MM Closing in on Prime MM

Post by am » Sun May 05, 2019 9:46 am

Kevin M wrote:
Sun May 05, 2019 9:40 am
AerialWombat wrote:
Sun May 05, 2019 8:11 am
I use Vanguard High Yield Tax Exempt Admiral (VWALX) for the purpose most people use Prime or Muni MM,<snip>
No, you don't. Well, it depends what you mean by "purpose". Someone could also say they use a stock fund for the same purpose, but saying either is really just saying you don't use cash or cash equivalents, or as Vanguard calls it, short-term reserves.
Yes, I’m well aware of the risks, and yes, I yield chase. But if you’re switching between Muni MM and Prime MM, you’re yield chasing, too.
Not the same at all. I think the term "chasing yield" usually refers to taking more risk for more yield. Switching between two money market funds doesn't change your duration, which is 0 years. Maybe there's a little difference in credit risk, but not much. So you're not really changing your risk much be switching between MM funds.

VWALX has a duration of 6.7 years, and of course the credit risk is significantly higher as well. I'd say "chasing yield" applies much more to choosing this much more term risk and credit risk than switching between two 0-year-duration funds with not that much difference in credit risk.

Kevin
Do you think there’s much of difference in yearly income if staying the course with a money market at higher brackets, muni versus prime?

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Re: Muni MM Closing in on Prime MM

Post by am » Sun May 05, 2019 9:56 am

AerialWombat wrote:
Sun May 05, 2019 8:11 am
I use Vanguard High Yield Tax Exempt Admiral (VWALX) for the purpose most people use Prime or Muni MM, so I’ve got a ways to go before I jump entirely to Prime. I’m definitely watching it, though, and my next monthly transfer will be into Prime instead of the junk bond muni.

Yes, I’m well aware of the risks, and yes, I yield chase. But if you’re switching between Muni MM and Prime MM, you’re yield chasing, too. :beer
The high yield muni had a -10% return in 2008, and otherwise mostly positive returns since 2004. 10% loss is tolerable for me, why shouldn’t I use this fund instead of intermediate muni or money market for all my taxable bonds and reserves?

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Re: Muni MM Closing in on Prime MM

Post by William Million » Sun May 05, 2019 10:27 am

AerialWombat wrote:
Sun May 05, 2019 8:11 am
I use Vanguard High Yield Tax Exempt Admiral (VWALX) for the purpose most people use Prime or Muni MM, so I’ve got a ways to go before I jump entirely to Prime. I’m definitely watching it, though, and my next monthly transfer will be into Prime instead of the junk bond muni.

Yes, I’m well aware of the risks, and yes, I yield chase. But if you’re switching between Muni MM and Prime MM, you’re yield chasing, too. :beer
No depreciation risk switching between MM funds. No so with longer-term bonds.

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Re: Muni MM Closing in on Prime MM

Post by AerialWombat » Sun May 05, 2019 4:07 pm

Kevin M wrote:
Sun May 05, 2019 9:40 am
AerialWombat wrote:
Sun May 05, 2019 8:11 am
I use Vanguard High Yield Tax Exempt Admiral (VWALX) for the purpose most people use Prime or Muni MM,<snip>
No, you don't. Well, it depends what you mean by "purpose". Someone could also say they use a stock fund for the same purpose, but saying either is really just saying you don't use cash or cash equivalents, or as Vanguard calls it, short-term reserves.
Good point.

To clarify: Many BH readers seems to use Prime or Muni MM for emergency fund, sinking fund, cash reserves, house down payments, etc. I use VWALX for all these purposes, plus maintenance reserve for rentals.

FWIW, I do also have some cash and equivalent. It’s not an either/or to me.
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Re: Muni MM Closing in on Prime MM

Post by Kevin M » Sun May 05, 2019 5:30 pm

am wrote:
Sun May 05, 2019 9:46 am
Do you think there’s much of difference in yearly income if staying the course with a money market at higher brackets, muni versus prime?
It depends on amount of money and marginal tax rates. If your marginal tax rates are high enough, you're probably better off sticking with a muni MM fund. If lower, probably better of sticking with Prime. I chart the taxable-equivalent yields (TEYs) over time for my marginal tax rates to get a sense of how much difference switching is likely to make.

And if you pay state income tax, you could be better off with Treasury MM than Prime MM, which has been the case for me for some months.

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Re: Muni MM Closing in on Prime MM

Post by Kevin M » Tue May 07, 2019 12:09 pm

As expected, the muni MM SEC yields have continued to fall, and at a fairly rapid pace. Here is a chart showing my taxable-equivalent yields (TEYs) for five MM funds a couple of short-term bond funds since 1/1/2018:

Image

TEYs are based on marginal tax rates of 27% fed and 8% state (CA).

There now are enough days of declining yields that we can see the declines at the far-right of the chart, after the steep run-up in April (peaking on May 1).

Here's a zoomed-in view of the last 60 days:

Image

I calculate the daily yield of CA muni MM for 5/6 as 1.73%, based on increase in my accrued dividend interest. The SEC yield is 1.79%. The average yield based on my six days of accrued dividends (all I can see since my purchase on 4/30) is 1.77%. The SEC yield has one older, higher yield included in the calculation, so all of these numbers make sense. Tomorrow I expect the average of the yields based on seven days of accrued dividends to equal the SEC yield for 5/7.

Based on the daily yield, CA Muni MM TEY for me now only is a couple of basis points higher than Treasury MM fund (for which SEC yield has been steady at 2.35% for some time now, so daily yield probably is the same). So the party probably ends tomorrow, which means only about a week of higher TEY than the best alternative for me. Note though that Treasury MM TEY for me is 20 basis points higher than Prime MM yield.

Here's a chart of the various yields:

Image

I only added VWALX to the table (not to the chart) because it was mentioned in this thread. Due to the much longer duration of 6.7 years, I don't think most people would consider it as an alternative to a money market fund. I've seen much more mention of using Limited-Term Tax-Exempt, with a duration of 2.4 years, as an alternative to a MM fund, which is why I included that in the chart. Short-Term Treasury Index fund has an even shorter duration at 1.9 years, which is why it's included.

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Re: Muni MM Closing in on Prime MM

Post by Kevin M » Wed May 08, 2019 2:39 pm

Kevin M wrote:
Tue May 07, 2019 12:09 pm
I calculate the daily yield of CA muni MM for 5/6 as 1.73%, based on increase in my accrued dividend interest. The SEC yield is 1.79%. The average yield based on my six days of accrued dividends (all I can see since my purchase on 4/30) is 1.77%. The SEC yield has one older, higher yield included in the calculation, so all of these numbers make sense. Tomorrow I expect the average of the yields based on seven days of accrued dividends to equal the SEC yield for 5/7.
Daily yield of CA Muni MM for 5/7 was 1.71% (down 2 bps), and SEC yield was 1.76% (down 3 bps). As expected, the 7-day average of my daily yields equals the SEC yield of 1.76%, which increases my confidence that I'm calculating the daily yield correctly.
Kevin M wrote:
Tue May 07, 2019 12:09 pm
Based on the daily yield, CA Muni MM TEY for me now only is a couple of basis points higher than Treasury MM fund (for which SEC yield has been steady at 2.35% for some time now, so daily yield probably is the same). So the party probably ends tomorrow, which means only about a week of higher TEY than the best alternative for me.
At yesterday's daily yield of 1.71%, TEY of CA Muni MM for me was equal to TEY of Treasury MM at 2.63%. That means that the CA Muni MM TEY today probably is lower than Treasury MM, but I think I'll hold CA Muni MM one more day just to track the daily yield for another day.

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

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Re: Muni MM Closing in on Prime MM

Post by Kevin M » Mon Jan 13, 2020 7:59 pm

A forum member recently PM'd me that Vanguard muni MM yields once again were competitive with taxable MM fund yields, and suggested I might post some updated charts. By the time I looked, I could see that the muni MM yields already had peaked, were on their way down, and that the peak was quite narrow--up fast, down fast. Of course it depends on your tax rates, but here's the way it looked at my expected marginal tax rates of 27% fed and 8% CA state since 12/1/2019.

Image

Stepping back to see how this compares to the Dec-Jan cycle a year ago:

Image

We see that although there was a bit of a peak in early Jan 2019, the upswing beginning in mid-Dec 2018 was much milder than this last Dec, but we see similar sharp downswings in Jan of both years.

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