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

[bmcgonig]

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

Agreed, but he did say it had a ticker symbol. Either Blackrock or Morgan.

 

[Free bird]

Money markets

Fund Description
The Fund invests primarily in high-quality, short-term money market instruments. Under normal circumstances, at least 80% of the Fund’s assets are invested in securities issued by the U.S. government and its agencies and instrumentalities, including repurchase agreements that are collateralized solely by U.S. government securities or cash. Although these securities are high-quality, some of the securities held by the Fund are neither guaranteed by the U.S. Treasury nor supported by the full faith and credit of the U.S. government. To be considered high quality, a security must be determined by Vanguard to present minimal credit risk based in part on a consideration of maturity, portfolio diversification, portfolio liquidity, and credit quality. The Fund invests more than 25% of its assets in securities issued by companies in the financial services industry, which includes, without limitation, securities issued by certain government-sponsored enterprises. The Fund maintains a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 days or less.Government money market funds are required to invest at least 99.5% of their total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). The Fund generally invests 100% of its assets in U.S. government securities and therefore will satisfy the 99.5% requirement for designation as a government money market fund. Does this description of Vanguards money market fund contradict its self? It says it’s generally 100% government securities but it also says more than 25% is invested in financial services industry.

 

[pb4uski]

Treasuries are backed by the USG with no upper limit. ...

Yup, I knew that, but the topic was FDIC insurance.

 

[pb4uski]

Fund Description
The Fund invests primarily in high-quality, short-term money market instruments. Under normal circumstances, at least 80% of the Fund’s assets are invested in securities issued by the U.S. government and its agencies and instrumentalities, including repurchase agreements that are collateralized solely by U.S. government securities or cash. Although these securities are high-quality, some of the securities held by the Fund are neither guaranteed by the U.S. Treasury nor supported by the full faith and credit of the U.S. government. To be considered high quality, a security must be determined by Vanguard to present minimal credit risk based in part on a consideration of maturity, portfolio diversification, portfolio liquidity, and credit quality. The Fund invests more than 25% of its assets in securities issued by companies in the financial services industry, which includes, without limitation, securities issued by certain government-sponsored enterprises. The Fund maintains a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 days or less.Government money market funds are required to invest at least 99.5% of their total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). The Fund generally invests 100% of its assets in U.S. government securities and therefore will satisfy the 99.5% requirement for designation as a government money market fund. Does this description of Vanguards money market fund contradict its self? It says it’s generally 100% government securities but it also says more than 25% is invested in financial services industry.

No, it doesn't contradict itself. The first part... through 120 days or less is for money market funds and the sceond part ... after 120 days or less is for Government money market funds.

 

[Car-Guy]

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

Now that's a concern from my POV... I just hope enough of them are not that STUPID to let it happen! Yes the debt is a problem and needs to be fixed but let's not cut off our collective noses to spite our collective faces and default.

 

[Freedom56]

If you see yields on treasuries with 1 month duration remaining spiking around the debt ceiling deadline, that would be an indication that investors are concerned about a default. I can't see that happening.

 

[Free bird]

No, it doesn't contradict itself. The first part... through 120 days or less is for money market funds and the sceond part ... after 120 days or less is for Government money market funds.

Product summary

Vanguard Cash Reserves Federal Money Market Fund’s investment objective is to seek to provide current income while maintaining liquidity and a stable share price of $1. The fund invests at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). The fund invests more than 25% of its assets in securities issued by companies in the financial services industry, which includes securities issued by certain government-sponsored enterprises. The fund is considered one of the most conservative investment options offered by Vanguard. Although the fund invests in short-term U.S. government securities, the amount of income that a shareholder may receive will be largely dependent on the current interest rate environment. Investors who have a short-term savings goal and are interested in a fund that invests in securities issued by the U.S. government or its agencies may wish to consider this option. So this is from the Vanguard site. It doesn’t mention 60 or 120 days. It says it’s a federal fund but it also says it holds the securities issued by financial by companies in the financial industry. So does that mean the fund could hold failed bank assets?

 

[mikes425]

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.

And bonds went up!

 

[Spock]

Product summary

Vanguard Cash Reserves Federal Money Market Fund’s investment objective is to seek to provide current income while maintaining liquidity and a stable share price of $1. The fund invests at least 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). The fund invests more than 25% of its assets in securities issued by companies in the financial services industry, which includes securities issued by certain government-sponsored enterprises. The fund is considered one of the most conservative investment options offered by Vanguard. Although the fund invests in short-term U.S. government securities, the amount of income that a shareholder may receive will be largely dependent on the current interest rate environment. Investors who have a short-term savings goal and are interested in a fund that invests in securities issued by the U.S. government or its agencies may wish to consider this option. So this is from the Vanguard site. It doesn’t mention 60 or 120 days. It says it’s a federal fund but it also says it holds the securities issued by financial by companies in the financial industry. So does that mean the fund could hold failed bank assets?

Instead of reading the summary open the prospectus and look at the holdings.

 

[Gumby]

The prospectus for VMFXX, which is the standard settlement account at Vanguard, says this

The Fund invests solely in high-quality, short-term money market instruments whose interest and principal payments are backed by the full faith and credit of the U.S. government. Under normal circumstances, at least 80% of the Fund’s assets will be invested in U.S. Treasury securities and in repurchase agreements fully collateralized by U.S. Treasury securities; the remainder of the assets will also be invested in U.S. Treasury securities and in repurchase agreements fully collateralized by U.S. Treasury securities. The only repurchase agreements that the Fund will invest in are those with the Federal Reserve Bank of New York that are fully collateralized by U.S. Treasury securities. The Fund maintains a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 days or less.

Government money market funds are required to invest at least 99.5% of their total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). The Fund generally invests 100% of its assets in U.S. Treasury securities and in repurchase agreements fully collateralized by U.S. Treasury securities and therefore satisfies the 99.5% requirement for designation as a government money market fund.

(emphasis mine)


The "fully collateralized" language is also important. I am not worried about my Vanguard settlement account.

PS - here's a link where you can get their last annual report, so you can see for yourself what they hold.
https://investor.vanguard.com/investment-products/mutual-funds/profile/vmfxx#fund-management

 

[Free bird]

Okay. Thank you. Seems like one day things are quality & the next day they’re worthless. Bonds are the topic here but really it’s about trust. I was trying to hold out buying too many bonds or CDs as rates rise. Thinking a Vanguard Federal money market fund would be risk free but these banks in the US seem to have very few rules to keep bad decisions from affecting bystanders. Thanks for your response.

 

[COcheesehead]

And bonds went up!

Flight to safety.

 

[DAYDREAMER]

With recent fiasco of SVB, how would anybody buy a brokered CD from a Bank named
"Bank of Bird in hand"? There really is a brokered cd being sold on vanguard website with this name.

 

[Montecfo]

With recent fiasco of SVB, how would anybody buy a brokered CD from a Bank named
"Bank of Bird in hand"? There really is a brokered cd being sold on vanguard website with this name.

It is the name of the Pennsylvania town where the bank is headquartered.

You may be reading a bit much into the name. They also have a branch in Intercourse.

 

[jazz4cash]

With recent fiasco of SVB, how would anybody buy a brokered CD from a Bank named
"Bank of Bird in hand"? There really is a brokered cd being sold on vanguard website with this name.

They’d have to have really great rates. I generally don’t care if it’s FDIC but that would be a stretch for me otherwise.

 

[Gumby]

Sadly, the Blue Ball National Bank (also named for a town in Pennsylvania) merged out of existence 10 years ago.

 

[MRG]

It is the name of the Pennsylvania town where the bank is headquartered.

You may be reading a bit much into the name. They also have a branch in Intercourse.

That's just down the road from Paradise.

 

[COcheesehead]

Hope you all snapped up your 5%+ treasuries while you could.

 

[Freedom56]

The only thing the Treasury and FDIC intervention has done is give uninsured depositors some time to move their money out of regional banks to the large banks. Regional banks are cratering in pre-market trading. As mentioned in the news yesterday, venture capitalist have been issuing emails over the weekend advising companies to move their banking and payroll processing to the large banks.

 

[11522914]

Still can get 4.80% 5 year non-callable CDs. Anyone interested? Still waiting for higher rates? 10 year treasury plummeting, oil plummeting. Everyone saying the fed will pause now. The pivot crowd is back.

Or are you waiting to see what happens with the CPI report tomorrow?

 

[COcheesehead]

Still can get 4.80% 5 year non-callable CDs. Anyone interested? Still waiting for higher rates? 10 year treasury plummeting, oil plummeting. Everyone saying the fed will pause now. The pivot crowd is back.

Or are you waiting to see what happens with the CPI report tomorrow?

I am just about fully invested in my ladders. I may look for opportunities to sell a few now.

 

[Born2Fish]

[Turn Sarcasm ON] I guess "the bank formerly known as SVB" put an end to the celebration...

I just searched Fidelity "New Issues" for corporate bonds. Nothing listed.

I wonder if the CD orders I placed last Friday will get cancelled.

I wonder if the "Golden Period" has become the "Bronze Period"? or maybe "Brass Period"? [Turn Sarcasm Off]

 

[Freedom56]

Hope you all snapped up your 5%+ treasuries while you could.

Just about every high grade corporate note worth buying has sold out on TDA and Fidelity. I placed a lot of orders yesterday for 12, 18,24, and 36 month CDs with coupons from 5-5.4%. and the RBC 5.85% notes and I'm waiting for my orders to fill. Some have started to fill. I still have a lot of dry powder sitting in FZDXX.

Investors are selling equities and buying treasuries, CDs, and high grade corporates.

I think the next leg down in the market is coming. The intervention by Treasury and the FDIC only bought some time for uninsured depositors to move their money from smaller banks to the large ones.

 

[Free bird]

Rates

I suppose it will all reverse tomorrow with higher than expected inflation

 

[Freedom56]

I guess "the bank formerly known as SVB" put an end to the celebration...

I just searched Fidelity "New Issues" for corporate bonds. Nothing listed.

I wonder if the CD orders I placed last Friday will get cancelled.

I wonder if the "Golden Period" has become the "Bronze Period"? or maybe "Brass Period"?

We are not going back to zero interest rates. Money is moving out of smaller banks to the large money center banks. SVB and SBNY just put a temporary pause. You can still buy 2 year non-callable CDs at 5.25% and 3 year at 5%.