Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Right Now: Treasuries vs CDs

2»

Comments

  • @sma3, check this thread out, https://big-bang-investors.proboards.com/post/34619/thread

    Schwab clients pull 8.8 B from prime funds in three days

    (YBB)

    OK, so lot of money shifted internally from Schwab Prime m-mkt funds (subject to gates and/or redemption fees) to Schwab Government m-mkt funds (no gates or redemption fees).

    I looked at prime-retail SWVXX specifically (I am a bit short for its Ultra class SNAXX) using Schwab website data on flows,
    www.schwabassetmanagement.com/products/swvxx

    YTD Net Flows to 3/16/23 +$21.55 billion (inflow)
    7-day Net Flows to 3/16/23 -$2.11 billion (outflow)
    3-day Net Flows to 3/16/23 -$3.91 billion (outflow)
    Peak Outflow on 3/14/23 -$3.34 billion (outflow)

    Fund AUM on 3/17/23 $114.51 billion

    It is a big fund with big numbers. I don't see problems with the numbers above in the context of the fund AUM. BTW, the OP is for ALL Schwab m-mkt funds. For SWVXX, the modified headline may be "Schwab clients pull 3.9 B from prime SWVXX in three days".
  • Isn't the real issue with Schwab Bank that while 80% of their deposits are under FDIC limit, of their $550 Billions asset base a very large % is in the Schwab Bank Deposit Program, paying almost no interest to the depositors.

    This represents cash balances in folks brokerage accounts, and Schwab invests the money in T Bills etc that generate income for Schwab, not the depositor.

    If people use these funds to buy their own Tbills and get that interest for themselves, Schwab loose a huge source of income and assets on the bank, not the brokerage balance sheet.
  • Lot of Schwab Bank deposits are from Schwab Robo-Advisors that keep high % allocation in cash but robo-holders don't control those bank deposits directly. Schwab was also fined on this but it continues this practice with just a tweak in its disclosure.

    If brokerage clients have left money in brokerage cash or Schwab Bank, that money could leave anytime for T-Bills or other purchases.

    Schwab indeed is losing some discretionary cash to other brokerages because it doesn't offer m-mkt fund as a core/settlement fund (as Fido, Vanguard, etc do). BoA recently downgraded Schwab on just this issue. Of course, people can use Schwab m-mkt funds with T+1 settlements.
  • I had forgotten the Robo Advisor cash level isssue

    Not having a sweep account is extremely irritating as it requires you to determine exactly how much you need to sell to cover a buy and since sells are not settled for a couple of days you have to go back and buy the MMF then. I think a lot of small accounts keep money in cash because of this, and a lot of people forget and have higher cash balances than they would like.

    IT didn't make much difference when MMF rates were below 1% but now with big accounts it adds up.

    Per "Simply Safe Dividends"

    "During the last tightening cycle from 2004 to 2007, clients' cash balances fell from 3.6% of assets to 2.2%. The decade of rock-bottom interest rates that followed caused uninvested cash balances to swell to around 6% to 7% of client assets....

    That said, if uninvested cash balances moved closer to 3.5% of client assets versus current levels near 6%, Schwab could lose $200 billion of cheap deposits – that's equivalent to nearly 40% of the firm's total assets."

    It seems unlikely they will create a sweep feature with those numbers.

    As Fidelity and Vanguard are not publicly traded, the problems we are less likely to hear about problems there.

  • This morning there are fewer CDs (1 year) available this morning at Fidelity and Vanguard. On last Friday, there were many more choices. Stayed with large banks only - Morgan Stanley, UBS and Barclays.

    Will wait after March 22th FOMC meeting to see if treasury will return. Two weeks ago T bills were yielding over 5.2% (6 mo) and 4.8% (2 years). Just like that they were all gone.

    It is time to refocus on investment grade bond funds since corporate junk and bank loan funds took a sizable hit this week.
  • I continue to buy short term CDs--bought two, 9 mo CDs, at 5.2% each, a few days ago. I limit the amount of my CDs to $50k to 100k. All of my recent CD purchases are either 6 month, or 9 month CDs. I have four other CDs maturing this summer, and I expect to be purchasing additional CDs when those mature. Until I am convinced that the Feds are going to stop raising rates, I prefer the shorter CDs.
  • "I limit the amount of my CDs to $50k to 100k."

    $25 to 50k here. But maturities from 4/23 out to 11/25.
Sign In or Register to comment.