Is this anything? (Vanguard Treasury Money Mkt)

Discussion of the Cash portion of the Permanent Portfolio

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dualstow
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Is this anything? (Vanguard Treasury Money Mkt)

Post by dualstow » Fri Mar 12, 2021 11:23 am

Effective immediately, the Vanguard Treasury Money Market Fund (the Fund) may invest in repurchase agreements with the Federal Reserve Bank of New York fully collateralized by U.S. Treasury securities (Fed Repo). In connection with this change, the Board of Trustees for the Fund also approved a revised policy to permit the Fund to invest, under normal circumstances, at least 80% of its assets in U.S. Treasury securities and in repurchase agreements fully collateralized by U.S. Treasury securities (80% policy). The remainder
of the Fund’s assets will also be invested in U.S. Treasury securities and in repurchase agreements fully collateralized by U.S. Treasury securities. The revised 80% policy is expected to become effective in mid-May 2021.

Fed Repo is a highly liquid ...
...
https://www.vanguard.com/pdf/tmsh.pdf
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Vanguard Treasury MM investing in repo agreements

Post by Kevin K. » Fri Mar 12, 2021 11:58 am

{ merged with earlier topic - DS }
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Just received this notice:

"Effective immediately, the Vanguard Treasury Money Market Fund (the Fund) may invest in repurchase agreements with the Federal Reserve Bank of New York fully collateralized by U.S. Treasury securities (Fed Repo). In connection with this change, the Board of Trustees for the Fund also approved a revised policy to permit the Fund to invest, under normal circumstances, at least 80% of its assets in U.S. Treasury securities and in repurchase agreements fully collateralized by U.S. Treasury securities (80% policy). The remainder
of the Fund’s assets will also be invested in U.S. Treasury securities and in repurchase agreements fully collateralized by U.S. Treasury securities. The revised 80% policy is expected to become effective in mid-May 2021.

Fed Repo is a highly liquid investment backed by U.S. Treasury securities that is offered directly by the Federal Reserve Bank of New York. The Fund’s ability to invest in Fed Repo should enhance its ability to seek to provide capital preservation and liquidity during periods of very low interest rates, which Vanguard believes will benefit the Fund and its shareholders. At this time, the only type of repurchase agreement that the Fund will invest in is Fed Repo.

There is no change in the Fund’s investment advisory arrangements or in the Fund’s expense ratio as a result of these changes."

Guess I need to compare this with competing Treasury MM funds though as far as I know no one really competes with Vanguard's .09% ER.

https://www.vanguard.com/pdf/tmsh.pdf
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Re: Vanguard Treasury MM investing in repo agreements

Post by Tortoise » Fri Mar 12, 2021 12:32 pm

Duplicate thread. Merge with this one?
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Re: Vanguard Treasury MM investing in repo agreements

Post by Maddy » Fri Mar 12, 2021 1:00 pm

What does this mean in terms of the fund's suitability as an ultra-safe option for cash?
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Re: Vanguard Treasury MM investing in repo agreements

Post by jhogue » Fri Mar 12, 2021 1:46 pm

@ Maddy:
The risk of using a Treasury money market fund that employs repos is very small. I use FDLXX, Fidelity's Treasury money market fund specifically because it does not invest in Treasury repos. However, kevin K is correct: FDLXX has a 0.29% net expense ration, or slightly more expensive than your Vanguard fund.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Vanguard Treasury MM investing in repo agreements

Post by dualstow » Fri Mar 12, 2021 1:54 pm

Tortoise wrote:
Fri Mar 12, 2021 12:32 pm
Duplicate thread. Merge with this one?
done
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Re: Vanguard Treasury MM investing in repo agreements

Post by sophie » Fri Mar 12, 2021 1:57 pm

jhogue wrote:
Fri Mar 12, 2021 1:46 pm
@ Maddy:
The risk of using a Treasury money market fund that employs repos is very small. I use FDLXX, Fidelity's Treasury money market fund specifically because it does not invest in Treasury repos. However, kevin K is correct: FDLXX has a 0.29% net expense ration, or slightly more expensive than your Vanguard fund.
The risk of using a non-Treasury money market fund could also be described as small also. In other words, the whole reason to invest in VUSXX just disappeared as far as I'm concerned. I read that email as saying the fund could be 80% repos.

That also means that the fund will no longer be considered eligible for state tax exemption on the interest. Yet another reason to get out of it.

Fidelity's fund is still 100% treasuries....at least for now!
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Re: Is this anything? (Vanguard Treasury Money Mkt)

Post by jhogue » Fri Mar 12, 2021 2:13 pm

Just to be clear, the managers of FDLXX have done some tinkering around the edges. I noticed on a couple of FDLXX monthly fact sheets in the past year that they have sometimes invested in short maturing TIPS. I am not sure whether that makes them state taxable too.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Is this anything? (Vanguard Treasury Money Mkt)

Post by Kevin K. » Fri Mar 12, 2021 2:35 pm

If you take the time to read the full prospectus for the Fidelity Treasury MM fund (FDLXX) they are allowed to do repos and aren't always invested only in Treasuries. And the ER is .42%, not .19%. They subsidize it and will probably continue to do so but there's no guarantee. Same thing with Schwab's Treasury MM fund though it has a .34% ER.

From the Fido fund overview:

"Strategy
The Adviser normally invests at least 99.5% of the fund's total assets in cash and U.S. Treasury securities. Potentially entering into reverse repurchase agreements. Normally investing in securities whose interest is exempt from state and local income taxes. Investing in compliance with industry standard regulatory requirements for money market funds for the quality, maturity, liquidity and diversification of investments. The Adviser stresses maintaining a stable $1.00 share price, liquidity, and income. In addition, the Adviser normally invests at least 80% of the fund's assets in U.S. Treasury securities."

Revisiting all of the recommended options in Mssrs. Rowland and Lawson's "The Permanent Portfolio" book only the BIL ETF is pure Treasury - and it has a negative YTD return.

Perhaps of interest to some the Gabelli fund (GABXX) has a .08% ER and the same somewhat dubious mixture of pure Treasuries, general government and repos as Vanguard.

Personally I'm not particularly worried about the changes with the Vanguard fund but iBonds and online bank and/or credit union MM funds paying ~.30-40% and/or short-term CDs from the same institutions (staying well under FDIC and NCUA limits, obviously) are looking better all the time.
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Re: Vanguard Treasury MM investing in repo agreements

Post by Don » Fri Mar 12, 2021 4:57 pm

sophie wrote:
Fri Mar 12, 2021 1:57 pm
jhogue wrote:
Fri Mar 12, 2021 1:46 pm
@ Maddy:
The risk of using a Treasury money market fund that employs repos is very small. I use FDLXX, Fidelity's Treasury money market fund specifically because it does not invest in Treasury repos. However, kevin K is correct: FDLXX has a 0.29% net expense ration, or slightly more expensive than your Vanguard fund.
The risk of using a non-Treasury money market fund could also be described as small also. In other words, the whole reason to invest in VUSXX just disappeared as far as I'm concerned. I read that email as saying the fund could be 80% repos.

That also means that the fund will no longer be considered eligible for state tax exemption on the interest. Yet another reason to get out of it.

Fidelity's fund is still 100% treasuries....at least for now!
Whoa Nellie! Is it confirmed that VUSXX will no longer be tax deductible on state tax returns? If so, what is a good alternative?
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Re: Vanguard Treasury MM investing in repo agreements

Post by mathjak107 » Sat Mar 13, 2021 4:45 am

jhogue wrote:
Fri Mar 12, 2021 1:46 pm
@ Maddy:
The risk of using a Treasury money market fund that employs repos is very small. I use FDLXX, Fidelity's Treasury money market fund specifically because it does not invest in Treasury repos. However, kevin K is correct: FDLXX has a 0.29% net expense ration, or slightly more expensive than your Vanguard fund.
Expenses are waived now in fund families or the returns are negative so they are irrelevant right now
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Re: Vanguard Treasury MM investing in repo agreements

Post by dualstow » Sat Mar 13, 2021 5:40 am

sophie wrote:
Fri Mar 12, 2021 1:57 pm
That also means that the fund will no longer be considered eligible for state tax exemption on the interest. Yet another reason to get out of it.

I had a talk with my father about it yesterday and he didn’t seem concerned.
I might go with an ETF if i could find one that doesn’t mess around. The thought of buying individual notes for cash again...ugh.
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Re: Is this anything? (Vanguard Treasury Money Mkt)

Post by mathjak107 » Sat Mar 13, 2021 7:00 am

Fidelity shows if they were not waiving fees fdlxx would be minus .35%

Yield Yield Additional Information
3/11/2021 2/28/2021
Compound Effective 0.01% 0.01%
7-Day Yield 3 0.01% 0.01%
7-Day Yield Without Reductions -- -0.35%
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Re: Is this anything? (Vanguard Treasury Money Mkt)

Post by Kevin K. » Sat Mar 13, 2021 10:30 am

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Re: Is this anything? (Vanguard Treasury Money Mkt)

Post by sophie » Sat Mar 13, 2021 10:39 am

Regarding state income tax, these are the websites you need to check when you go to file your taxes:

For Vanguard: https://personal.vanguard.com/pdf/USGO_012021.pdf
VUSXX reports 94.19% of income from US government obligations in 2020. They also provide the % of assets invested in USG obligations at year end 2020 - and it's smaller, at 89%.
When you file state taxes, you get to deduct 94.19% of the dividends from VUSXX. NOT all of it. In addition, some states (like NY) require that a fund must have at least 50% of income from that source, in order for you to claim this deduction. (It may be higher, like 60%....would have to look it up.)

For Fidelity, its: https://institutional.fidelity.com/app/ ... 842885.PDF
FDLXX comes in at 100%. So any interest from that fund is fully deductible on state tax returns.

Since both Treasury funds have been paying essentially zero interest in 2021, there's no hurry....but if interest rates start going back up it will be important for those of us in high income tax states to find out what that percentage is going to be. I don't know if repos count as "interest on US government obligations", but I suspect they don't, at least not fully. If 80% of the fund becomes repos, then that will certainly reduce the percentage of interest that can be deducted - and may make it so you can't deduct any of it.

More importantly, a fund that's 80% repos is not exactly what we're looking for in a Treasury MM. FDLXX is - its composition is listed as 100% Treasury bills and coupons, 0% repos or other types of assets. The ER doesn't matter as it's being subsidized. If you want higher returns put part of your funds directly into T bills. Just use the MM for cash you want in a completely liquid state. You're paying the ER for convenience and quick access.
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Re: Is this anything? (Vanguard Treasury Money Mkt)

Post by dualstow » Sat Mar 13, 2021 10:45 am

Reviewing BIL, SHY, SHV...
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Re: Is this anything? (Vanguard Treasury Money Mkt)

Post by Kevin K. » Sat Mar 13, 2021 10:55 am

There's a thread about this on Bogleheads and from the discussion there it seems clear that any interest (if there ever is any ;) ) paid by VUSXX won't be state tax deductible going forward.

Look at the current Treasury yield curve and in particular what T-bills up to a year are yielding (and check out the article I posted the link to above about havoc in the repo market in the past few days that's all-too-reminiscent of what happened in March of last year).

I don't have an account at Fidelity but if I did I could see keeping a little money in their Treasury MM fund but you'd still have to keep an eye on it since there's nothing stopping them from using repos or not continuing to subsidize the fund's sky-high actual ER. Why bother with any of these options when you can get .30-.50% on FDIC/NCUA-insured cash locally (not to mention 1.68% inflation-adjusted on iBonds)? T-bills let alone MM funds comprised of them whose ER's even in the best cases exceed their yield aren't appealing. And as far as Vanguard specifically is concerned, at this point there's no reason to choose their "Treasury" MM fund over Federal.

https://www.treasury.gov/resource-cente ... data=yield
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Re: Is this anything? (Vanguard Treasury Money Mkt)

Post by Kevin K. » Sat Mar 13, 2021 1:43 pm

Just came across this article on depositaccounts.com and the first part of it is especially good at giving a big picture overview of the unprecedented injection of money into the economy that's causing cash to just pile up.

https://www.depositaccounts.com/blog/fe ... edictions/
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