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Vanguard Tax-Exempt Money Market (VMSXX) Yield = 4.46%
Old 09-24-2008, 11:55 AM   #1
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Vanguard Tax-Exempt Money Market (VMSXX) Yield = 4.46%

Here's the thread from the Boglehead's forum:

Bogleheads :: View topic - Vanguard MONEY MARKET at 4.05%

And the link to Vanguard's site for the fund:

https://personal.vanguard.com/us/JSP...NT#hist::tab=0

Maybe it's time for some yield chasing...
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Old 09-24-2008, 12:13 PM   #2
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Thats a temporary thing and its happened before. The yields will end up settling right back down to the ~1.6% they were at in short order.
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Old 09-24-2008, 12:28 PM   #3
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Yeah -- this would be great if it could be locked in for any length of time.

But as soon as the panic has subsided, the yield will plummet again. Probably within weeks.
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Old 09-24-2008, 05:47 PM   #4
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I know... It's pretty sad when one starts to chase variations in yield that are temporary....

For anyone that's interested, here's another boglehead's thread with charts:

Bogleheads :: View topic - Charts comparing yields of VG Prime and TaxEx MMF

I really appreciated his concluding remark:

"You know strange things are happening when it is worthwhile to chart MMF yields. "
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Old 09-25-2008, 08:27 AM   #5
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Fidelity muni money market spiked to 5.04%.


Fidelity Municipal Money Market Fund (FTEXX) - Mutual Funds from Fidelity Investments

Can someone shed some light on this?

Are some hedge funds dumping 30 day municipal bonds into the market and taking a beating?
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Old 09-25-2008, 09:03 AM   #6
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Vanguard's yield went to 4.83%.

If I remember correctly, somebody on the Boglehead's thread speculated that this is caused by a flight to safety, with the perception that the muni's might not be safe.

But I'll throw in my two cents. Maybe funds are being forced into dumping muni's in order to solve other liquidity problems?
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Old 09-25-2008, 09:17 AM   #7
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Theres only one reason why a MM yield jumps. The underlying assets are being beaten over the head with a baseball bat, driving their NAV into the ground.

That would mean that said underlying assets are being perceived as excessively risky or undesirable.

So its up to the buyer to decide whether the underlying assets are actually risky/undesirable and if so, within their risk tolerance.

Prime directive of investing: If something looks like a great deal but you dont understand why, figure that out before you stick money into it.

That having been said, in this case your money is probably okay, you'll get a couple of points of extra interest for a week or two or three, then a rate thats well below other perfectly safe MM funds like Prime.
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Old 09-25-2008, 09:27 AM   #8
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CFB, understood. The question is: why are the underlying assets dropping in value?

The only way that can happen is if someone is selling. So, who's selling and why?

That's where the speculation seems to come in. I'm guessing that funds are selling because funds are panicked, need cash, etc. Just a guess on my part. Maybe at some point we'll know (Vanguard's not saying).

Either way, I have conservative faith in Vanguard. I don't think they'd buy assets that were overly risky. They just wouldn't risk breaking the buck.

In my case, I have short-term funds that have been sitting in the prime fund. It's easy to move them to the tax-exempt fund and in a few weeks, the money's gone anyways. A few weeks yield don't buy much, but it'll be at least enough for a bottle of wine. Maybe even a good bottle.
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Old 09-25-2008, 09:50 AM   #9
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A sudden yield spike wouldnt necessarily come from buying risky assets, it'd more likely be from having the assets currently owned becoming worth less.
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Old 09-25-2008, 10:08 AM   #10
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But it would only become worth less if there are more sellers than buyers.

I'm curious to know why they are selling. Is it for liquidity or perceived risk in munis?
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Old 09-25-2008, 10:19 AM   #11
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I dont know and I doubt we'd be able to find out. I think its just a fluke thing that'll go away in a couple of weeks.

In any case, I wouldnt recommend throwing significant funds into something without knowing why the yield spiked. And throwing insignificant funds in there is a waste of time. Hmm?
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Old 09-25-2008, 10:32 AM   #12
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CFB, understood. The question is: why are the underlying assets dropping in value?
The only way that can happen is if someone is selling. So, who's selling and why?
Perhaps the value of the assets has been written down by a ratings agency, causing yet another mark to market...
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Old 09-25-2008, 10:43 AM   #13
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Originally Posted by cute fuzzy bunny View Post
I dont know and I doubt we'd be able to find out. I think its just a fluke thing that'll go away in a couple of weeks.

In any case, I wouldnt recommend throwing significant funds into something without knowing why the yield spiked. And throwing insignificant funds in there is a waste of time. Hmm?
Probably so. It's also possible that the funds are buying new assets at a significant discount to par.

Of course, that in turn would lead to more questions about asset quality, even if all of them were currently performing.
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Old 09-25-2008, 10:48 AM   #14
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Well...many municipalities derive their income from property and sales taxes. With properties in the big buck areas dropping and people tightening up their wallets, the income is going to start dropping and continue on that path.

In my experience, most municipalities seem to have great difficulty reducing their spending level. They build up a head of steam and a collection of bureaucrats and they'll cut public services like fire, police and teachers to stir up the electorate rather than trim the fat.

So life in the muni world over the next 3-5 years might not be quite as good as the last ten years when property was on a run and people couldnt keep their wallets in their pockets.

I want to see how long it takes before someone in CA touches the 3rd rail while trying to undo prop 13.
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Old 09-25-2008, 10:54 AM   #15
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In my experience, most municipalities seem to have great difficulty reducing their spending level. They build up a head of steam and a collection of bureaucrats and they'll cut public services like fire, police and teachers to stir up the electorate rather than trim the fat.
Yes, this is the status quo in most local governments. The politicians don't have the guts to raise taxes so they instead cut the most popular services and tell the voters they can restore the cuts by voting for a tax hike. That way the gutless legislators can say THEY never raised taxes -- the voters did. Even though the legislators intentionally cut where they thought the voters would vote to tax themselves more -- police, fire, schools, libraries, parks and the like.

And many local governments are becoming more and more threatened by the ever-rising cost of pension obligations and health insurance. Combine that with falling property taxes and you have a recipe for more Vallejos.
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Old 09-25-2008, 11:13 AM   #16
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Just to be fair, Vallejo is sort of a stink hole...

My apologies to anyone who inadvertently moved there.
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Old 09-25-2008, 11:40 AM   #17
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I dont know and I doubt we'd be able to find out. I think its just a fluke thing that'll go away in a couple of weeks.

In any case, I wouldnt recommend throwing significant funds into something without knowing why the yield spiked. And throwing insignificant funds in there is a waste of time. Hmm?
I agree, it won't last. In my case, the money is out in a few weeks anyways. If it was otherwise, I probably wouldn't have bothered transferring.

I'm personally hoping the yield holds to get me something better than two buck chuck.
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Old 09-25-2008, 05:00 PM   #18
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From the Vanguard website:

What's causing yields to rise for tax-exempt money market funds?
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Old 09-25-2008, 09:07 PM   #19
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Thx for posting this - exactly as I expected. I'm still not pleased - these flaky emotion-driven markets are difficult to predict.
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