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Practical Debt Limit Advice - Be Very Careful About Money Market Funds
Move your money out of money markets that have exposure to U.S. government debt. Take the time to find out if your money market holds U.S. government securities (there’s a very good chance it does), and, if so, move your money out of it within the next week. If there is a debt default, the likelihood of many money markets breaking the buck is quite high. -
I am in Vanguard Tax-Exempt Money Market symbol VMSXX which has over 800 holdings. I took a look at a few hundred and I am not seeing U.S. Government debt. I see a bunch of state, city, county, school, housing, state highway and transportation, water authority, etc., etc. bond holdings, but not U.S. Government.
That said, I can't say that I know what I am looking for.
Geez - Too much hysteria here IMHO. Govt. ain't gonna default. (Take that to the bank - and also see Flack's post in the Boehner thread.) I do understand a money market fund manager taking this ultra-conservative "safe" stance. Breaking the buck - even overnight - would be a real black eye for the firm. They have a mandate to preserve principal. That's what money market funds are about. On the other hand, suspect Fidelity is also hereby attempting to bring some pressure to bear on our *##!!* politicians. But, I still say - calm down folks! Now, T-Bill rates edged up today. If that continues, might be a buying opportunity, but only for those who perceive a need for such investments in their portfolios. I bought both TIPS and high yield munis couple months back. No regrets. Way ahead of where cash would be today. Which reminds me: Is Fidelity really sacrificing anything in "yield" by taking this audacious step? 0% still equals 0%. Right?
If there was a large enough financial sucking sound (2008); it wouldn't really matter what commercial paper products and related, as are common in MM funds might be held within such a fund, IMHO. If and/or when the trust disappears with any of these financial issues, they are only worth what a buyer would offer. No, I am not writing as an alarmist; nor do I see/find that in this thread. I have no clue as to what will become of the current battle of the motivated folks in the D.C. crowd. If I knew what the hell was going to be the story in the next 2 weeks, I would be very rich come December.
The AP/CNBC reporting on how funds are handling the situation seems somewhat misleading. The lead is that "the nation's largest manager of money market mutual funds said Wednesday that it [Fidelity] no longer holds any U.S. government debt [that comes due in the next several weeks]."
It is only in the last sentence that the AP notes, well maybe Fidelity as a whole isn't even selling off any holdings, it could just be moving them around (to its bond funds): " Fidelity said it is unclear whether Fidelity holds any short-term U.S. government debt in any of its other mutual funds. Fidelity's [sell] actions apply only to Fidelity's money market portfolio. "
In other words, Fidelity could be doing exactly what Bill Gross says he is doing with his bond funds - buying. Which makes one wonder where Gross gets the idea that Fidelity Management and Research (FMR) as a whole is selling anything for him to buy. (Large ego, perhaps?)
I suspect that Fidelity (and other MMF managers) figure that the interest rate on ultrashort term Treasuries (i.e. Treasuries found in MMFs) is so petty that they can cover it temporarily if the Treasury defaults on the interest payments. They're just not willing to risk covering a default on the principal.
Reply to @Derf: Yes Derf. As I recall the YTD losses were in double-digit territory at the time. Bought when the 10 year was close to 3% roughly 8-10 weeks back. Along with most rate sensitive bonds, TIPS have rallied nicely as the 10 year dropped back (to around 2.65% today). Same with muni junk. Killed by Detroit and all. But nice bounce past 6 weeks. Not sure how long I'll keep either. Already sold off a bit of the TIPS. Just monkeying around for the heck of it - with money market funds returning essentially 0%.
This is what I think. If your MM is with a major institution, they will either make you whole, or they will collapse. Fido, TRP, Vanguard, and co. and cannot survive a MM that breaks the buck. Not happening. Don't invest in Amco MM.
Comments
That said, I can't say that I know what I am looking for.
Mona
http://www.cnbc.com/id/101075950
No, I am not writing as an alarmist; nor do I see/find that in this thread.
I have no clue as to what will become of the current battle of the motivated folks in the D.C. crowd. If I knew what the hell was going to be the story in the next 2 weeks, I would be very rich come December.
It is only in the last sentence that the AP notes, well maybe Fidelity as a whole isn't even selling off any holdings, it could just be moving them around (to its bond funds): " Fidelity said it is unclear whether Fidelity holds any short-term U.S. government debt in any of its other mutual funds. Fidelity's [sell] actions apply only to Fidelity's money market portfolio. "
In other words, Fidelity could be doing exactly what Bill Gross says he is doing with his bond funds - buying. Which makes one wonder where Gross gets the idea that Fidelity Management and Research (FMR) as a whole is selling anything for him to buy. (Large ego, perhaps?)
I suspect that Fidelity (and other MMF managers) figure that the interest rate on ultrashort term Treasuries (i.e. Treasuries found in MMFs) is so petty that they can cover it temporarily if the Treasury defaults on the interest payments. They're just not willing to risk covering a default on the principal.
The market seems to agree - it is concerned about default on principal, but not on interest. 1-month T-bills sold yesterday saw a big rise in interest rate demanded (but still a low 0.330%). Purchases of longer term Treasuries were largely unaffected.
http://www.marketwatch.com/story/treasurys-slip-before-1-month-3-year-auctions-2013-10-08