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Are those of you investing in muni bond funds doing so in taxable accounts only?
Not all brokerage houses allow you to purchase a muni bond fund in a retirement account. I'm sure FD will comment on this.
Mona, I am with Schwab, and they allow me to invest in Munis in IRA accounts, as long as I acknowledge that it is not a typical investment for an IRA. I consider Investment Grade Intermediate Munis as one of the better bond categories to invest in right now, so I am using Munis in all accounts. I doubt that I will stay in Munis in IRA accounts very long, but for now that is where I prefer to be.
Hi @Mona, Currently, the only muni fund I own is FLAAX which I hold in a taxable account. Years back, I held six of them all in my taxable account. The reason that I own a muni fund is that it gives me diversification within my income sleeve and not so much for the tax benefit. Old_Skeet
@Art I'm investing in HY munis in my IRAs too. Schwab lets you do it after you acknowledge their warning. Fidelity would not let you do with most/all mutual funds (I checked dozens). As a trader, I invest where I can make the most and I have used HY Munis in the last 2 years more in my IRAs than taxable because I have a lot more money in my IRAs.
The rates that you see on Muni MM (3-4%) are just the results of the last several days/weeks. You will not get anything close to it and they will revert back to 1-1.5% and lower than prime MM. If Muni MM could give you even 2-2.5% performance all the cash would be invested in them.
In fact, Muni MM and prime MM can have the following: "The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors."
In this market, I stay away from the above MM and invest in Fed or treasury MM where I will able to sell at any time and buy something if I need to. It is not worth the additional small performance.
Agree with @FD1000 on muni MM. The 3+% yield is illogical and it has been drifting downward daily! Never thought liquidity issues would impact muni money market until @msf pointed out the fine points.
In fact, Muni MM and prime MM can have the following: "The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors.".
It may be difficult to parse the part of the regulation that allows government MMFs to advertise the same restrictions. This SEC PR page says it more clearly:
Government Money Market Funds – Government money market funds would not be subject to the new fees and gates provisions. However, under the proposed rules, these funds could voluntarily opt into them, if previously disclosed to investors.
IMHO liquidity is not the issue now, NAV is (risk of breaking a buck). While muni bonds may have been the most volatile, muni MMFs have had much greater liquidity than prime MMFs. Vanguard funds tend to be both the highest yielding and the most liquid of the bunch. See below.
Liquidity thresholds are 30% weekly / 10% daily (funds must not fall below these). Lowest liquidity weekly/daily over the past six months, and current weekly/daily for various MMFs ...
Fidelity: SPRXX/FZDXX 33%(12/24) / 12%(12/24); now 49% and 39% Fidelity: FTEXX (weekly only): 63% (12/31); now at 67% Fidelity: FMOXX (weekly only): (current and lowest) 69%
Vanguard: VMMXX 37.60%(3/25) / 23.16%(1/3); now at 44.32% and 35.40% Vanguard: VMSXX (weekly only): 64.83%(10/28); now at 66.67%
Schwab: SWVXX/SNAXX 35.33%(12/10) / 14.49%(1/7); now 41.62% and 30.11% Schwab: SWTXX/SWOXX (weekly only): 64.69% (3/23); now at 68.57% Schwab: SWWXX (weekly only): 64.44% (12/20); now at 73.40%
T.Rowe Price: TSCXX 33.32% (2/24) / 11.77% (3/18); now 36.72% and 15.35% T.Rowe Price: TRSXX (weekly only): 46.24% (2/13); now at 73.46%
VMSXX - up to and including 3-13, the daily market value was $1.00 and above. 3-16 through 3-24, the daily market value ranged from $0.9986 to $0.9998 (fortunately carried out to four decimal places). 3-26 and 3-27, the value was back to $1.00.
SWTXX - up to and including 3-17, the daily market value was $1.00 and above. 3-18 through 3-25, the daily market value ranged from $0.9988 to $0.9994. 3-26 and 3-27, the value was back to $1.00.
While two days is not a trend, does this give you any sense that muni money market funds are stabilizing? It seems the answer is it depends on the daily net shareholder cash flows.
@msf Last week I called Fidelity and Schwab reps and both told me the following...this is from Schwab "All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund, Schwab Government Money Market Portfolio, and Schwab Retirement Government Money Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors"
We are talking about generic Muni MM. The big 3 VG, Fidelity and Schwab have similar narratives on their site. Prime + Muni MM will probably be OK but I prefer to take the safer route.
So, with all due respect, I believe the reps at Fidelity and Schwab and the narratives on their site that support it.
While two days is not a trend, does this give you any sense that muni money market funds are stabilizing? It seems the answer is it depends on the daily net shareholder cash flows.
Certainly that's a part of it. However, ⅔ of these funds are in cash or paper that will mature or can be redeemed within five business days (weekly liquid assets). So it's hard to see such a stampede moving the shadow price (mark-to-market NAV) four times what we've just seen (i.e. to below 99.5¢). These funds have enough "cash" to handle a run on the bank, and the remainder of the assets will make its way through the fund over a few months.
The government, as the WSJ put it, recently "backstopped" these MMFs. With all due respect, I think most MMF investors just see this as a "government guarantee". It's not quite that, but perception is reality and it should have a calming effect.
That doesn't mean that the muni bond market won't again go wacko. This only addresses the question of cash flow of muni MMFs.
Given that "Individual, or 'retail,' investors are the largest holders of municipal securities", a herd mentality reaction could make a real impact on the muni bond market. That in turn could depress the value of a fund's holdings. (Quote is from ICI's FAQ About Municipal Bonds.)
ISTM that the government MMF loan program lets MMFs prop up their shadow price by swapping undervalued paper for cash. For example, a MMF might have a muni bond that will mature and be redeemed at par in 11 months, while the market is currently pricing it at $0.98. This loan program allows the MMF to borrow against the bond as if it were worth $1 (amortized cost).
But that program doesn't come without a cost of its own. There's an interest charge equal to the primary credit rate (currently 0.25%) + 0.25% for muni MMFs. Will sponsors go for this?
If past is prologue, the answer is largely yes.
at least twenty-nine MMFs had losses large enough to cause them to break the buck in September and October 2008 despite significant government intervention and support of the sector. Five funds or more experienced losses exceeding the 3 percent reported by Reserve, and one fund reported a loss of nearly 10 percent. Among the twenty-nine funds that would have broken the buck without sponsor support, the average loss was 2.2 percent."
Aside from the Reserve Fund that broke a buck, that's 28 other funds where their sponsors propped up their funds. They did this not at a rate of 50 basis points for a few months, but by infusing 200 basis points give or take up front. The loan program is a fantastic deal for the MMFs. From a psychological perspective, the expectation is that they won't have to use it. And should they need to, it is dirt cheap.
Then again, what do I know? As Will Rogers said, all I know is what I read in the papers. I didn't go to a seventh-rated MMF sponsor (Schwab, according to Crane Data) to ask about this new development.
Though I did speak with the big kahuna (Fidelity dominates money-market industry) a few years ago after the liquidity regs were finalized. At that time Fidelity was very courteous, confirming that I was reading the regs correctly, but declining to provide any information about how Fidelity would implement them in practice. As expected, and no different from Schwab's response - just boilerplate.
The rates that you see on Muni MM (3-4%) are just the results of the last several days/weeks. You will not get anything close to it and they will revert back to 1-1.5% and lower than prime MM. If Muni MM could give you even 2-2.5% performance all the cash would be invested in them.
In fact, Muni MM and prime MM can have the following: "The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors."
In this market, I stay away from the above MM and invest in Fed or treasury MM where I will able to sell at any time and buy something if I need to. It is not worth the additional small performance.
Not long time ago, I have seen several posts on different site about Muni MM and how great it is because it had 7 day SEC yield over 3%. You can see my response above.
So how much more did you really get for VMSXX(muni mm) vs VMMXX(prime)? You got about 0.1% more in one month, see (chart)
VMSXX 7 day SEC yield = 1.35% now and VMMXX = 0.94 but again, soon enough VMMXX will be the better performer. BTW, I don't use prime or Muni MM but Fed MM. I already stated my reasons.
The most recent distribution yield on VMSXX was 2.19%. The current NAV is 1.0002. If it didn't break the buck in the last meltdown it's probably not going to anytime soon. I have my max allocation to this fund at the present time. If I see NAV start to drift below a buck I will shift into the treasury MM. At last read VUSXX's distribution yield was 1.20%. That's quite a difference for the time being.
Comments
I'm investing in HY munis in my IRAs too. Schwab lets you do it after you acknowledge their warning. Fidelity would not let you do with most/all mutual funds (I checked dozens).
As a trader, I invest where I can make the most and I have used HY Munis in the last 2 years more in my IRAs than taxable because I have a lot more money in my IRAs.
In fact, Muni MM and prime MM can have the following: "The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund's liquidity falls below required minimums because of market conditions or other factors."
In this market, I stay away from the above MM and invest in Fed or treasury MM where I will able to sell at any time and buy something if I need to. It is not worth the additional small performance.
The SEC regulation mandating this precise verbiage in MMF advertising is 17 CFR § 230.482(b)(4)(ii). That regulation also allows, but does not require, government MMFs to make the same statement that they might impose a gate or redemption fee.
https://www.law.cornell.edu/cfr/text/17/230.482#ii1f2023c2-4879-11ea-8b86-0a6e5d7645f8
It may be difficult to parse the part of the regulation that allows government MMFs to advertise the same restrictions. This SEC PR page says it more clearly: https://www.sec.gov/news/press-release/2014-143
IMHO liquidity is not the issue now, NAV is (risk of breaking a buck). While muni bonds may have been the most volatile, muni MMFs have had much greater liquidity than prime MMFs. Vanguard funds tend to be both the highest yielding and the most liquid of the bunch. See below.
Liquidity thresholds are 30% weekly / 10% daily (funds must not fall below these).
Lowest liquidity weekly/daily over the past six months, and current weekly/daily for various MMFs ...
Fidelity: SPRXX/FZDXX 33%(12/24) / 12%(12/24); now 49% and 39%
Fidelity: FTEXX (weekly only): 63% (12/31); now at 67%
Fidelity: FMOXX (weekly only): (current and lowest) 69%
Vanguard: VMMXX 37.60%(3/25) / 23.16%(1/3); now at 44.32% and 35.40%
Vanguard: VMSXX (weekly only): 64.83%(10/28); now at 66.67%
Schwab: SWVXX/SNAXX 35.33%(12/10) / 14.49%(1/7); now 41.62% and 30.11%
Schwab: SWTXX/SWOXX (weekly only): 64.69% (3/23); now at 68.57%
Schwab: SWWXX (weekly only): 64.44% (12/20); now at 73.40%
T.Rowe Price: TSCXX 33.32% (2/24) / 11.77% (3/18); now 36.72% and 15.35%
T.Rowe Price: TRSXX (weekly only): 46.24% (2/13); now at 73.46%
VMSXX - up to and including 3-13, the daily market value was $1.00 and above. 3-16 through 3-24, the daily market value ranged from $0.9986 to $0.9998 (fortunately carried out to four decimal places). 3-26 and 3-27, the value was back to $1.00.
SWTXX - up to and including 3-17, the daily market value was $1.00 and above. 3-18 through 3-25, the daily market value ranged from $0.9988 to $0.9994. 3-26 and 3-27, the value was back to $1.00.
While two days is not a trend, does this give you any sense that muni money market funds are stabilizing? It seems the answer is it depends on the daily net shareholder cash flows.
Mona
Last week I called Fidelity and Schwab reps and both told me the following...this is from Schwab "All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund, Schwab Government Money Market Portfolio, and Schwab Retirement Government Money Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors"
We are talking about generic Muni MM. The big 3 VG, Fidelity and Schwab have similar narratives on their site. Prime + Muni MM will probably be OK but I prefer to take the safer route.
So, with all due respect, I believe the reps at Fidelity and Schwab and the narratives on their site that support it.
The government, as the WSJ put it, recently "backstopped" these MMFs. With all due respect, I think most MMF investors just see this as a "government guarantee". It's not quite that, but perception is reality and it should have a calming effect.
That doesn't mean that the muni bond market won't again go wacko. This only addresses the question of cash flow of muni MMFs.
Given that "Individual, or 'retail,' investors are the largest holders of municipal securities", a herd mentality reaction could make a real impact on the muni bond market. That in turn could depress the value of a fund's holdings. (Quote is from ICI's FAQ About Municipal Bonds.)
ISTM that the government MMF loan program lets MMFs prop up their shadow price by swapping undervalued paper for cash. For example, a MMF might have a muni bond that will mature and be redeemed at par in 11 months, while the market is currently pricing it at $0.98. This loan program allows the MMF to borrow against the bond as if it were worth $1 (amortized cost).
But that program doesn't come without a cost of its own. There's an interest charge equal to the primary credit rate (currently 0.25%) + 0.25% for muni MMFs. Will sponsors go for this?
If past is prologue, the answer is largely yes. https://libertystreeteconomics.newyorkfed.org/2013/10/twenty-eight-money-market-funds-that-could-have-broken-the-buck-new-data-on-losses-during-the-2008-c.html
Aside from the Reserve Fund that broke a buck, that's 28 other funds where their sponsors propped up their funds. They did this not at a rate of 50 basis points for a few months, but by infusing 200 basis points give or take up front. The loan program is a fantastic deal for the MMFs. From a psychological perspective, the expectation is that they won't have to use it. And should they need to, it is dirt cheap.
Then again, what do I know? As Will Rogers said, all I know is what I read in the papers. I didn't go to a seventh-rated MMF sponsor (Schwab, according to Crane Data) to ask about this new development.
Though I did speak with the big kahuna (Fidelity dominates money-market industry) a few years ago after the liquidity regs were finalized. At that time Fidelity was very courteous, confirming that I was reading the regs correctly, but declining to provide any information about how Fidelity would implement them in practice. As expected, and no different from Schwab's response - just boilerplate.
So how much more did you really get for VMSXX(muni mm) vs VMMXX(prime)? You got about 0.1% more in one month, see (chart)
VMSXX 7 day SEC yield = 1.35% now and VMMXX = 0.94 but again, soon enough VMMXX will be the better performer.
BTW, I don't use prime or Muni MM but Fed MM. I already stated my reasons.