Vanguard Prime Money Market Fund (VMMXX) vs SHV (treasury only)

[murphy_p_t]

Vanguard Prime MM current yield is 0.03%

Expense ratio
as of 08/31/2010 0.23%


SHV yield is Yield: 0.10%
Annual Report Expense Ratio (net) 0.15%


i'm curious why the Vanguard MM fund yields less than the ?safer? SHV.

what am i missing? why isn't vanguard paying at least the same interest as SHV?

[AdamA]

That's a good question.

My best guess is that it's because SHV is subject to slightly more interest rate risk than VMMXX, because it holds bonds with maturities of up to 12 months.  I think VMMXX holds bonds with shorter maturities. 

I'm not 100% sure on this though.

[Drewskers]

If you look into the guts of VMMXX (e.g. the actual holdings) you will find that there are a bunch of corporate bond holdings at 0% coupon.

In other words, the holder of VMMXX is paying Vanguard a .23% expense ratio to lend some of their money out for free.

Nice work if you can get it, hey?

[AdamA]

If you look into the guts of VMMXX (e.g. the actual holdings) you will find that there are a bunch of corporate bond holdings at 0% coupon.

In other words, the holder of VMMXX is paying Vanguard a .23% expense ratio to lend some of their money out for free.

Nice work if you can get it, hey?

Zero coupon doesn't mean zero percent, it just means that you get all of your interest at bond maturity.