Ultra short-term bond funds

[safari]

I'm just wondering what your thoughts are with regards to ultra short term bond funds such as the Schwab YieldPlus Fund - Select Shares (SWYSX) for storing some of my cash? I know that with longer term bond funds you run the risk of the NAV going down when interest rates rise. I recall that in December 1993/January 1994 I put money into the Strong Short Term Bond fund, which was highly recommended in various places, and then as the Fed raised interest rates, 7 times I recall, in 1994 I watched as the NAV sunk. Anyway, for those more astute than me in this area what do you think about SWYSX to put $50k in?

 

[mathjak107]

it all depends which way you think rates are headed. no one can answere that question for you. my opinion is we most likely are headed for a slowdown and i think more likely to see lower rates than higher rates so i have more in short term bond funds than cd's and money markets. but if im wrong the money markets will do a little better.

a short term bond fund usually wont loose much in rising rates and if you re-invest the dividends it recovers very quickly

also although your nav dropped the interest rate you were getting rose so overall i bet you werent down as much as you thought.

 

[brewer12345]

I use the yieldplus fund as a good parking place. Good yield with minimal risk.

 

[Spanky]

If you need your money in less than 2 years, park it at a money market fund. Otherwise, a short-term bond will suffice if you are concerned about interest rate.

 

[clifp]

I'm just wondering what your thoughts are with regards to ultra short term bond funds such as the Schwab YieldPlus Fund - Select Shares (SWYSX) for storing some of my cash?

Schwab YieldPlus is one of Schwab's best funds (M* 5 stars). The NAV has fluctuated between $9.65 and $9.69 over the last year, never more than a penny in a week, and not much more over many years. The SEC 30 yields is 5.52 which beats pretty much any money market I've seen.

The only tricky thing is that the settlement time is 3 days like a stock or mutual fund, not 1 day like a money market fund.

 

[mickeyd]

ultra short term bond fund

Can someone advise me what makes a bond fund ultra short? Sounds like a MMF/STB hybrid to me?

 

[mathjak107]

they buy paper going out up to a year or so.

 

[mickeyd]

0-365 days? Thanks

 

[Brat]

MY $$$ is at Fidelity. As mentioned earlier I think I will increase my cash position. I looked at their short term bond funds and it appears that returns are equal to or less than current money markets. Their mm funds are Cash Reserves (FDRXX) and Select MM Portfolio (FSLXX). For the life of me I can't find any difference that .05% return.

What would you choose?

 

[mathjak107]

if money market rates drop the bond funds will have a higher return. the thing with bond funds are you need to be in them before the event and wait it out a little bit. if you wait for rates to drop and then do it you probley missed it.

 

[Spanky]

Their mm funds are Cash Reserves (FDRXX) and Select MM Portfolio (FSLXX). For the life of me I can't find any difference that .05% return.

What would you choose?

I would select Cash Reserve because of its higher yield and lower ER.

Cash Reserve:
Yield=4.97%
Return
1 Year 5.02
3 Year 3.38
5 Year 2.45
10 Year 3.70

ER: 0.45%

Fidelity U.S. Treasury Money Market Fund:
yield=4.66%

1 Year 4.69
3 Year 3.11
5 Year 2.23
10 Year 3.40

ER: 0.52%

I hope you are referring to which money market fund would you choose. If you are talking about whether to pick a short-term bond fund or MMF, I would say that they are not the same. Money market fund is for saving while a bond fund is for investing. If you need your money within a year, stay with a market money fund because it is virtually risk-free while a short-term bond fund may fall if interest rate should rise.

 

[Brat]

Yes, I am trying to choose between FDRXX and FSLXX - both money market funds. When I looked at bond funds it didn't appear that the yield spread was worth the principal risk (not that there are absolute guarantees with mm funds).

For the life of me I can't see the difference between FDRXX and FSLXX, other than a slightly higher yield in the latter. Please take a look. Tell me what merits the .05 difference in yield (except maybe the manager).

I know, I know, I am splitting pennies but with mm funds it often makes a difference. As my DD once said, a small % of the carry can be real money.

 

[megacorp-firee]

What would the Vanguard equivilents be and what ar their rates?

 

[Brat]

My problem is that my money is at Fidelity. Unless it is a NTF fund, the difference it yield would need to be substantial to offset the transaction fee.

 

[mathjak107]

Yes, I am trying to choose between FDRXX and FSLXX - both money market funds. When I looked at bond funds it didn't appear that the yield spread was worth the principal risk (not that there are absolute guarantees with mm funds).

For the life of me I can't see the difference between FDRXX and FSLXX, other than a slightly higher yield in the latter. Please take a look. Tell me what merits the .05 difference in yield (except maybe the manager).

I know, I know, I am splitting pennies but with mm funds it often makes a difference. As my DD once said, a small % of the carry can be real money.

fslxx is the same as fdrxx . it was the money market you used when trading select funds as opposed to the regular fidelity funds thats all. theres times they vary by a fraction of a % but basically they are the same.

 

[mathjak107]

I would select Cash Reserve because of its higher yield and lower ER.

Cash Reserve:
Yield=4.97%
Return
1 Year 5.02
3 Year 3.38
5 Year 2.45
10 Year 3.70

ER: 0.45%

Fidelity U.S. Treasury Money Market Fund:
yield=4.66%

1 Year 4.69
3 Year 3.11
5 Year 2.23
10 Year 3.40

ER: 0.52%

I hope you are referring to which money market fund would you choose. If you are talking about whether to pick a short-term bond fund or MMF, I would say that they are not the same. Money market fund is for saving while a bond fund is for investing. If you need your money within a year, stay with a market money fund because it is virtually risk-free while a short-term bond fund may fall if interest rate should rise.

us treasury mm is state tax free in most states which can make it the best deal. aside from being backed by the full faith and credit of the us treasury. for what its worth its actually safer in a money crises than a bank

 

[Brat]

fslxx is the same as fdrxx . it was the money market you used when trading select funds as opposed to the regular fidelity funds thats all. theres times they vary by a fraction of a % but basically they are the same.

Thanks. With MMs even a fraction is money in the pocket.

 

[PPT]

I'm just wondering what your thoughts are with regards to ultra short term bond funds such as the Schwab YieldPlus Fund - Select Shares (SWYSX) for storing some of my cash? I know that with longer term bond funds you run the risk of the NAV going down when interest rates rise. I recall that in December 1993/January 1994 I put money into the Strong Short Term Bond fund, which was highly recommended in various places, and then as the Fed raised interest rates, 7 times I recall, in 1994 I watched as the NAV sunk. Anyway, for those more astute than me in this area what do you think about SWYSX to put $50k in?

Economy is slowing down. Vanguard Prime Money Market.

 

[brewer12345]

Economy is slowing down. Vanguard Prime Money Market.

If the economy is slowing and the Fed chops rates, a short term bond fund should (slightly) outperform a money market.

 

[PPT]

If the economy is slowing and the Fed chops rates, a short term bond fund should (slightly) outperform a money market.

Great point. But I do not expect the Fed to lower their short term rate:

(1) The U.S. dollar index is near 80. If it breaks 80 big trouble and higher yields.
(2) Crude/Gas will go through the roof since it is priced in U.S. dollars.
(3) We are a borrow to spend economy if the Treasury can not borrow (from foreign central banks) then the economy stops.
(4) To many large economics throught the world have higher short term rates. Lowering ours will make our paper less attractive.

Only thing the Fed can do is talk tough and hope the subprime situation does not spread. Dr. Bernanke will just continue to flood M3 - Gold and inflating U.S. stock prices is a product of this.

 

[brewer12345]

Only thing the Fed can do is talk tough and hope the subprime situation does not spread. Dr. Bernanke will just continue to flood M3 - Gold and inflating U.S. stock prices is a product of this.

Maybe, or maybe not.

I think an equally likely scenario is that the Fed chops short term rates, the USD continues slumping and longer rates eventually rise. The yield curve de-inverts, and the pain lasts until the UK and Europe stop raising rates.

 

[PPT]

Maybe, or maybe not.

I think an equally likely scenario is that the Fed chops short term rates, the USD continues slumping and longer rates eventually rise. The yield curve de-inverts, and the pain lasts until the UK and Europe stop raising rates.

Then yields will go up because who wants to buy U.S. debt when they know the Fed will sacrifice the U.S. dollar? We need to be able to borrow $2.5B from overseas to keep this economy humming along.

Whatever way you cut it - Greenspan is probably very happy he is gone.

 

[brewer12345]

Then yields will go up because who wants to buy U.S. debt when they know the Fed will sacrifice the U.S. dollar? We need to be able to borrow $2.5B from overseas to keep this economy humming along.

Uhuh, but it will only matter as long as the US is slowing as other economies are expansionary.

 

[PPT]

Uhuh, but it will only matter as long as the US is slowing as other economies are expansionary.

We will get a sniff tomorrow at 1pm when the Treasury holds the 10 year auction. I wish the 10 year auction was on Thursday (FOMC announcement on Wednesday) but they probably planned it that way.

I will be watching the indirect bids.

Nice talking to you. My plane is boarding for lovely Boston. . Go Red Socks.

 

[Brat]

Nice talking to you. My plane is boarding for lovely Boston.

The long wait times in airports are almost bearable with free WiFi.