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Vanguard Treasury MM Fund closed
Old 03-03-2009, 07:06 AM   #1
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Vanguard Treasury MM Fund closed

I just got a notice from Vanguard that they've closed the Treasury Money Market fund to new contributions. New money will be redirected to the Prime Money Market Fund. The reason given is that yield on short term Treasuries is so low that the fund's future yield could falll to negligible levels.

I really don't understand why they would close a MM fund for that reason. Of course returns are negligible (0.08 YTD) but hey, they're non-negative, which is more than can be said for just about any other Vanguard Fund, and it's safe, which is all I care about at this point.

Treasure MM has an average maturity of 77 days, whereas Prime MM has a whhopping YTD return of 0.27% an average maturity of 68 days. I also note Prime MM is 50% in Treasuries and the rest in CDs and commercial paper.

Mmmm.... something doesn't add up here. They want me force me to change my savings to a fund with comparable yield, shorter maturity, and higher risk... Could it be they're running short of cash and need some infusion?

Any insights?
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Old 03-03-2009, 07:16 AM   #2
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I just got a notice from Vanguard that they've closed the Treasury Money Market fund to new contributions. . .

Mmmm.... something doesn't add up here. They want me force me to change my savings to a fund with comparable yield, shorter maturity, and higher risk... Could it be they're running short of cash and need some infusion?

Any insights?
I think when we kicked this topic around before, one theory was that Vanguard didn't want the hassle/expense of having the fund go negative. If yields on the underlying portfolio drop low enough so that they won't even cover Vanguard's puny ER, then they'd either have to "break the buck" or pay the money out of their own pocket (which really means have other account holders pay the cost--an increasingly popular approach at the federal level).

I'm not sure how Vanguard would end up with a "cash infusion" by sending you to Prime. They still have to buy the securities, and don't make any more money. This move just limits the scale of their exposure if Treasury yields dip further.
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Old 03-03-2009, 07:20 AM   #3
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My apologies if this was discussed earlier, don't want to reopen a topic that's been kicked around. One thing, though, about cash infusion, what I meant was that money in their CDs is within their control, whereas money in treasuries isn't. Anyway, I'll look around for the other discussion on this.
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Old 03-03-2009, 07:24 AM   #4
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Most of us who have money in Vanguard's treasury money market funds do so for safety. To me it is right up there with burying my money in the back yard (which I would feel stupid doing) - - I *know* it is there and don't have to worry about it for now.

Something I have been wondering about, is whether or not my money is really any safer there than in Prime money market? At least in Prime I would be earning a little interest. I doubt that any Vanguard MM fund would break the buck, but it sounds like the treasury MM funds are no safer than Prime.
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Old 03-03-2009, 07:43 AM   #5
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<< edit - sorry, didn't see others already answered this - back to my coffee infusion>>

I think they may fear that the yield goes below expenses and so it does go negative.

Probably make a bad headline. The newshounds would flash something like "Vanguard's SAFEST Money Fund is losing Money - it is the End of the World!!!", then they would interview some Grandma crying about how she thought her money was safe, and now she is losing money even there. Bogle will be crucified, and the govt will force them to take bailout money (like they did with Northern Trust) to stabilize everyone's emotions.

Just a guess. - ERD50
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Old 03-03-2009, 07:53 AM   #6
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Probably make a bad headline. The newshounds would flash something like "Vanguard's SAFEST Money Fund is losing Money - it is the End of the World!!!"
Just a guess. - ERD50
ERD, that was my guess too, but something still doesn't add up. If their Treasury MM broke the buck, they could say it wasn't their problem, it was because govt treasuries had such a low yield. But if their Prime MM broke the buck, which it well might, they would have to explain why their CDs and commercial paper are going down. The problem is, they're forcing people to move from investments backed by the US govt into investments that are 50% govt and 50% their own. So I don't really think the headline concern is the problem.
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Old 03-03-2009, 08:11 AM   #7
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ERD, that was my guess too, but something still doesn't add up.
I agree from a rational viewpoint. But your explanation took too many words and too much thought to fit a sound bite. You would lose them at "have to explain".

The sound bite would be "SAFEST FUNDS ARE LOSING MONEY FOR GRANDMA, NOW EATING GENERIC DOG FOOD".

-ERD50
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Old 03-03-2009, 08:28 AM   #8
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Also, new contributions further dilute the interest rate current shareholders receive since all shareholders receive a blended rate.

If you really want to own T-bills, you can always buy them from Treasury Direct (without commission) or at auction through your broker (no commision at Vanguard Brokerage if you are Flagship).
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Old 03-03-2009, 08:34 AM   #9
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The sound bite would be "SAFEST FUNDS ARE LOSING MONEY FOR GRANDMA, NOW EATING GENERIC DOG FOOD"
The sad thing is that I could see the media doing this. Maybe not the dog food part, but certainly the "money market funds are breaking the buck" part as if the underlying paper is defaulting...
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