We are entering a "Golden Period" for fixed income investing

[bmcgonig]

The issues with Schwab are explained here:

Without quoting the material directly in the article and violating copyright, the issue is that with rates at 5% investors are less willing to leave their cash in a near zero interest sweep account. That would result in lower net interest margins. The other big issue is that they have a material amount fixed income securities on their balance sheets that are underwater but there is no issue with liquidity.

https://www.barrons.com/articles/charles-schwab-stock-price-bank-selloff-4bb1ae5f?mod=hp_LEAD_1_B_4

We (wife and I joint tenancy) own Schwab CDs that are 100% FDIC insured so, I really am not concerned. We have accounts at TDA that are invested in Bonds and CDs. We closed our Schwab account after Schwab bought TDA from TD Bank.

After seeing how much uninsured funds were kept at SVB by many companies, one has to wonder if these companies have ever heard of T-bills and other short term instruments? When I was working, the division of the corporation I worked for maintained a Treasury Direct Corporate Entity account. We routinely floated tens of millions in T-Bills monthly to earn interest on cash balances. We never left excess cash sitting at our company bank account. Our risk management never allowed us to lock more than 6 month durations in treasuries at our division level.

What about their money market funds like SWVXX. If you own those how safe are they. Assuming the underlying investments within the funds are safe.

 

[Freedom56]

What about their money market funds like SWVXX. If you own those how safe are they. Assuming the underlying investments within the funds are safe.

Money market funds are very safe since they invest in very short duration securities like 30 day T-Bills and 15-30 day commercial paper. They can maintain their $1 NAV while rates are high but at near zero rates, they have been rare cases where NAV has dropped below $1. If you are worried about risk, you can just roll-over your own risk free 4 week T-Bills and earn even more than money market funds as you will be saving the fund expenses. Every week 4-week, 8-week, 13-week, 17-week, and 26-week bills are auctioned. So you can stagger 25% of your funds in weekly auctions to maintain some liquidity and create you own MM fund.

 

[pb4uski]

....If you are worried about risk, you can just roll-over your own risk free 4 week T-Bills and earn even more than money market funds as you will be saving the fund expenses. Every week 4-week, 8-week, 13-week, 17-week, and 26-week bills are auctioned. So you can stagger 25% of your funds in weekly auctions to maintain some liquidity and create you own MM fund.

Unless the Congresscritters lose their frickin' minds and refuse to approve an increase in the debt ceiling!

 

[bmcgonig]

Money market funds are very safe since they invest in very short duration securities like 30 day T-Bills and 15-30 day commercial paper. They can maintain their $1 NAV while rates are high but at near zero rates, they have been rare cases where NAV has dropped below $1. If you are worried about risk, you can just roll-over your own risk free 4 week T-Bills and earn even more than money market funds as you will be saving the fund expenses. Every week 4-week, 8-week, 13-week, 17-week, and 26-week bills are auctioned. So you can stagger 25% of your funds in weekly auctions to maintain some liquidity and create you own MM fund.

Interesting. Thank you.

 

[Montecfo]

Just to be clear all financial institutions (and all bond investors) will have significant amounts of bonds underwater in a rising rate environment.

That by itself is not the issue, it is poor preparation for withdrawals or misunderstanding your deposit base.

But this also is a cautionary tale for the "interim losses are not real because I am holding to maturity" crowd. It is true until life happens.

Life happened to SVB, the losses were real, and it cost them the bank. It may also have sunk some businesses they banked.

 

[Sasquatch1]

The issues with Schwab are explained here:

Without quoting the material directly in the article and violating copyright, the issue is that with rates at 5% investors are less willing to leave their cash in a near zero interest sweep account. That would result in lower net interest margins. The other big issue is that they have a material amount fixed income securities on their balance sheets that are underwater but there is no issue with liquidity.

https://www.barrons.com/articles/charles-schwab-stock-price-bank-selloff-4bb1ae5f?mod=hp_LEAD_1_B_4

We (wife and I joint tenancy) own Schwab CDs that are 100% FDIC insured so, I really am not concerned. We have accounts at TDA that are invested in Bonds and CDs. We closed our Schwab account after Schwab bought TDA from TD Bank.

After seeing how much uninsured funds were kept at SVB by many companies, one has to wonder if these companies have ever heard of T-bills and other short term instruments? When I was working, the division of the corporation I worked for maintained a Treasury Direct Corporate Entity account. We routinely floated tens of millions in T-Bills monthly to earn interest on cash balances. We never left excess cash sitting at our company bank account. Our risk management never allowed us to lock more than 6 month durations in treasuries at our division level.

Perhaps why we see a 5.40% non callable CD from Schwab…best out there…trying to attract deposits.

 

[wallygator69]

Unless the Congresscritters lose their frickin' minds and refuse to approve an increase in the debt ceiling!

Howdy,


SO are you saying MMF are no better than treasuries if Debt Ceiling drama goes on for a while?


What are ya'll doing to cover your A$$. We are 100% MMF and treasuries right now.


Thx

 

[baseman250]

Fidelity has fixed income analysis tools that helps track your fixed income portfolio (bonds/CDs). I use excel to project and track my coupon payments by month.

I’m looking at the Fidelity Fixed Income Analysis Tool… since it doesn’t appear to look at price paid for the bonds, it’s only considering coupon payments and bond price at maturity (par) when doing all of the calculations, correct?

 

[pb4uski]

No, I have no idea what will happen if Congress refuses to increase the debt ceiling, but this whole SVB drama will be a proverbial nit if it happens. That said, I hope that calmer heads will prevail.

If I were king I would eliminate the debt ceiling entirely, its silly to incur expenses/commitments and then refuse to honor them

 

[pb4uski]

I’m looking at the Fidelity Fixed Income Analysis Tool… since it doesn’t appear to look at price paid for the bonds, it’s only considering coupon payments and bond price at maturity (par) when doing all of the calculations, correct?

I believe so because the outside bond input is ony CUSIP and quantity so the tool had no idea what my cost basis is, but it can look up the coupon, last interest payment date and par based on the inputs and knows today's date so it can schedule out the cash flows.

 

[Freedom56]

I’m looking at the Fidelity Fixed Income Analysis Tool… since it doesn’t appear to look at price paid for the bonds, it’s only considering coupon payments and bond price at maturity (par) when doing all of the calculations, correct?

That is correct you have no way of determining what you paid for the bonds based on the fixed income tool cash flow summary. The fixed income analysis tool calculates the average coupon based on your current holdings which changes as bonds/CDs mature or are bought and sold. The yield to maturity and average duration are variable. It provides the par value of your holdings and current value also. As your portfolio approaches maturity, the par value and current value converges and so does the yield to maturity and coupon. Your cost basis for individual bonds is in your "positions" page.

 

[bmcgonig]

Money market funds are very safe since they invest in very short duration securities like 30 day T-Bills and 15-30 day commercial paper. They can maintain their $1 NAV while rates are high but at near zero rates, they have been rare cases where NAV has dropped below $1. If you are worried about risk, you can just roll-over your own risk free 4 week T-Bills and earn even more than money market funds as you will be saving the fund expenses. Every week 4-week, 8-week, 13-week, 17-week, and 26-week bills are auctioned. So you can stagger 25% of your funds in weekly auctions to maintain some liquidity and create you own MM fund.

I bring this up again because I was listening to the All In podcast by a bunch of VCs.

If you listen to just one minute from 37:50 onwards one of them talks about how one of his portfolio companies had their money in a MMF at SVB , one even with a ticker symbol from Blackrock and Morgan Stanley, that is now considered an asset of SVB.

https://youtu.be/CEee7dAk25c

 

[Freedom56]

I bring this up again because I was listening to the All In podcast by a bunch of VCs.

If you listen to just one minute from 37:50 onwards one of them talks about how one of his portfolio companies had their money in a MMF at SVB , one even with a ticker symbol from Blackrock and Morgan Stanley, that is now considered an asset of SVB.

https://youtu.be/CEee7dAk25c

Money market funds are not covered by FDIC. In a brokerage account they are covered up to $500K SIPC and cash is covered up to $250K. Fidelity provides excess SIPC protection with no limit of securities and up to 1.9M in cash balances. I don't know what type of account they had at SVB holding MM funds from Blackrock. But they would be considered securities.

By the way those guys seem a little too dramatic on that podcast. The reality is people may be moving their large stashes of money above FDIC limits to the largest banks in the country. There are only 12 banks that are still subject to the strict oversight and capital requirements of Dodd-Frank. SVB Financial isn't one of them.

 

[bmcgonig]

Money market funds are not covered by FDIC. In a brokerage account they are covered up to $500K SIPC and cash is covered up to $250K. Fidelity provides excess SIPC protection with no limit of securities and up to 1.9M in cash balances. I don't know what type of account they had at SVB holding MM funds from Blackrock. But they would be considered securities.

By the way those guys seem a little too dramatic on that podcast. The reality is people may be moving their large stashes of money above FDIC limits to the largest banks in the country. There are only 12 banks that are still subject to the strict oversight and capital requirements of Dodd-Frank. SVB Financial isn't one of them.

“don't know what type of account they had at SVB holding MM funds from Blackrock. But they would be considered securities.”

So therefore in your opinion they should be accessible by the client?

 

[Freedom56]

“don't know what type of account they had at SVB holding MM funds from Blackrock. But they would be considered securities.”

So therefore in your opinion they should be accessible by the client?

Money market funds are mutual funds which are considered securities. At brokerage firms you are the registered owner of the security. The broker is a custodian. I don't know how accounts are structured at SVB.

There is supposed to be a briefing tomorrow by Treasury and the FDIC to California Lawmakers at 1:00 PM ET. There is also an emergency FED meeting regarding SVB on Monday.

What I can see happen is large deposits are going to flee regional banks and head for the largest banks in this country. Which is fine with me. I like the large banks and have a lot of exposure to them. The problem will be, that these these banks will be gushing with cash and will have no reason to issue more new bonds.

 

[pb4uski]

In addition to the money market funds that are SEC registered securities available through brokers, there are also bank money market accounts, which are not securities but do have FDIC coverage up to $250,000 per institution.

 

[audreyh1]

People do get mixed up between money market (mutual) funds available via brokerages and money market accounts offered by banks and FDIC insured. Unfortunate naming convention. But some banks also have brokerage arms which offer securities and are not FDIC insured which is also confusing to many customers.

 

[jldavid47]

Money market funds are not covered by FDIC. In a brokerage account they are covered up to $500K SIPC and cash is covered up to $250K. Fidelity provides excess SIPC protection with no limit of securities and up to 1.9M in cash balances.

Schwab also provides excess SIPC coverage up to $150 million total and $1.15 million in cash.

I assume both Schwab and Fidelity carry outside insurance to cover the SIPC overage.

 

[jldavid47]

What I can see happen is large deposits are going to flee regional banks and head for the largest banks in this country. Which is fine with me. I like the large banks and have a lot of exposure to them. The problem will be, that these these banks will be gushing with cash and will have no reason to issue more new bonds.

The problems would be bigger than that. Concentration of assets means concentration of risk. Having healthy, smaller regional banks competing for depositors with the large money center banks is a good thing. So, what you are suggesting will happen is not fine with me at all.

 

[Freedom56]

The problems would be bigger than that. Concentration of assets means concentration of risk. Having healthy, smaller regional banks competing for depositors with the large money center banks is a good thing. So, what you are suggesting will happen is not fine with me at all.

A small concentration of highly regulated banks would be better in the long run. Canada has been operating that way for decades. None of the Canadian banks required bailouts in 2008 and are among the safest in the world.

 

[bmcgonig]

We are entering a "Golden Period" for fixed income investing

In addition to the money market funds that are SEC registered securities available through brokers, there are also bank money market accounts, which are not securities but do have FDIC coverage up to $250,000 per institution.

That might be my confusion. But would they have a ticker symbol? I’m trying to make sense of what the VC guy said about his money market fund, not being accessible.

Of course he could be misinformed.

 

[wallygator69]

Howdy,


If I have $500k in my Roth Vanguard federal money market VFMMX does buying $250 k in individual treasuries buy me anything in ref to FDIC SIPC coverages. My wife is the beneficiary does that give me $500K FDIC SIPC?



DO I need to put an order in before tomorrow for Treasury Auction.


Thanks want to get it right.


Thx


Wally

 

[pb4uski]

That might be my confusion. But would they have a ticker symbol? I’m trying to make sense of what the VC guy said about his money market fund, not being accessible.

Of course he could be misinformed.

I think he may have meant a money market account and not a money market fund.

 

[pb4uski]

Howdy,


If I have $500k in my Roth Vanguard federal money market VFMMX does buying $250 k in individual treasuries buy me anything in ref to FDIC SIPC coverages. My wife is the beneficiary does that give me $500K FDIC SIPC?



DO I need to put an order in before tomorrow for Treasury Auction.


Thanks want to get it right.


Thx


Wally

Neither money market funds like VFMXX nor US Treasury securities are covered by FDIC insurance.

 

[Freedom56]

Neither money market funds like VFMXX nor US Treasury securities are covered by FDIC insurance.

Treasuries are backed by the USG with no upper limit.

People are freaking out on Reddit over MM funds.