Reminder about Vanguard Treasury Money Market Fund

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vnatale
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Reminder about Vanguard Treasury Money Market Fund

Post by vnatale » Tue Jan 03, 2023 8:20 am

I assume others received this email from Vanguard who are also investing in their Treasury Money Market Fund?

This raises the question of how safe really are these "Federal Reserve repurchase agreements (Fed Repo)" comparted to the actual U.S. Treasury debt obligations (aside from their less favorable tax treatment).

Just one more prod for me to FINALLY get out of the fund and directly purchase the Treasuries.




Reminder about Vanguard Treasury Money Market Fund
Dear Shareholder,

Vanguard Treasury Money Market Fund invests a portion of its portfolio in Federal Reserve repurchase agreements (Fed Repo). These agreements are 100% backed by U.S. Treasury debt obligations held by the Federal Reserve. Portfolio managers generally invest in Fed Repos to maintain liquidity, promote stability, and generate income in the fund, and their use of Fed Repo in the Treasury Money Market Fund varies depending on market conditions.

How this could impact you
Based on current market conditions, you should expect a portion of the fund's 2023 income to come from Fed Repo. Income generated by investing in Fed Repo is generally taxable at both the state and local levels.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Reminder about Vanguard Treasury Money Market Fund

Post by welderwannabe » Tue Jan 03, 2023 9:09 am

Yes, I like Fidelity's treasury-only MM better. No Repos.

Obviously buying short term treasurys directly pays the best though, but not quite as flexible (at least for me).
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Re: Reminder about Vanguard Treasury Money Market Fund

Post by welderwannabe » Tue Jan 03, 2023 11:58 am

I'll also add that its very frustrating that these money market houses, like vanguard, basically have 3 funds that do the same things.

Their cash reserves and federal MM do a ton of repos, and so does their Treasury MM now apparently. Why even have the 3 funds if they are mostly the same? They should keep something like a "treasury money market" pure and only do treasurys.

Fidelity is no better, with Fidelity Cash Reserves, Fidelity Govt MM, and Fidelity Treasury MM all doing similar stuff.

The pure-play is their Treasury Only MM, but why even have one called "Treasury Moneymarket" that doesnt just do Treasurys when you already have a government money market and a cash reserves money market?

AARGGH.
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Re: Reminder about Vanguard Treasury Money Market Fund

Post by boglerdude » Wed Jan 04, 2023 12:55 am

Is the repo stuff so everyone can get a piece of the "interest on excess reserves" that used to be free money just for banks?
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Re: Reminder about Vanguard Treasury Money Market Fund

Post by ochotona » Thu Jan 05, 2023 11:26 am

I use the SGOV ETF, or I just buy T-Bills, however I hate TreasuryDirect. I buy my Bills at Fidelity and Schwab.

Repo frightens me - only invest in what you understand - I don't understand all of the ramifications, how it might break. Recall we had repo problems in late 2019. Therefore I stay away from repo, except for loose change the MMFs are ok.
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Re: Reminder about Vanguard Treasury Money Market Fund

Post by welderwannabe » Thu Jan 05, 2023 11:51 am

A repo is basically a short term collateralized loan. I like to think of it as going to a pawn shop, except you pawn a US Treasury instead of Grandpa's old guitar.

If I wanted to borrow $10,000 I could sell you a $10,000 Treasury for $9000 and promise to buy it back from you the next day for $9010. The $10 difference is effectively the interest. Its all inked in contracts so you arent allowed to turn around and sell that Treasury to someone else for $10,000 (which is more than the $9,000 I temporarily sold it to you for) unless I refuse to buy it back from you as promised. The value of the Treasury exchanged is almost always more than the loan amount, so that the person loaning the money and accepting the Treasury is protected if you don't buy it back as promised and interest rates go up making the Treasury suddenly worth less on the secondary market.

Thats really all a repo is, as I understand it.

The interest from these isn't state tax free, because the only involvement with a Treasury in the process is it happens to be used for collateral. The 'interest' itself doesn't come from the govt.

Its a loan like any other, but its got collateral, and that collateral is the safest and most liquid instrument in the world, so its considered far safer than an average loan. My understanding of a lot of the risk of these is that often the ownership of the Treasury doesn't actually change hands as its too much work to change the book entry for the treasury used as collateral for all of these loans. Often the loans are just overnight or a few days...so sometimes the 'collateral' is never actually placed in the lendor's hands, but just a promise to hand it over if they default. Therefore there can be some counterparty risk.

Im far from an expert though.
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Re: Reminder about Vanguard Treasury Money Market Fund

Post by Maddy » Thu Jan 05, 2023 2:58 pm

welderwannabe wrote:
Tue Jan 03, 2023 11:58 am
The pure-play is their Treasury Only MM. . .
That would be FDLXX?

Just switched to Fidelity from Vanguard. FWIW, the customer service at Fidelity is superlative. Vanguard, by contrast, has begun offshoring its customer service, a fact that has not done much for my already waning opinion of the firm. I have come to expect the sound of roosters in the background when I call Amazon. . . but Vanguard?
Last edited by Maddy on Thu Jan 05, 2023 3:03 pm, edited 3 times in total.
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Re: Reminder about Vanguard Treasury Money Market Fund

Post by welderwannabe » Thu Jan 05, 2023 2:59 pm

Maddy wrote:
Thu Jan 05, 2023 2:58 pm
welderwannabe wrote:
Tue Jan 03, 2023 11:58 am
The pure-play is their Treasury Only MM. . .
That would be FDLXX?
Yes, thats the one.
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Re: Reminder about Vanguard Treasury Money Market Fund

Post by vnatale » Thu Jan 05, 2023 3:11 pm

Maddy wrote:
Thu Jan 05, 2023 2:58 pm

welderwannabe wrote:
Tue Jan 03, 2023 11:58 am

The pure-play is their Treasury Only MM. . .

That would be FDLXX?

Just switched to Fidelity from Vanguard. FWIW, the customer service at Fidelity is superlative. Vanguard, by contrast, has begun offshoring its customer service, a fact that has not done much for my already waning opinion of the firm. I have come to expect the sound of roosters in the background when I call Amazon. . . but Vanguard?


For the last year or two I've seen a significant decline in Vanguard's customer service. For several years because I had to much invested in them I was considered being a certain type Vanguard person and was assigned my own customer service person. I am still that type of person but sometime in the last year having my own assigned person went away.

A week ago Monday I was attempting to make all my necessary end of the year transactions. For the first phone call with them I was on the phone with them for four straight hours, talking to I think five different people so as to get the variety of things done that I needed to get that. That was all basically okay except for one of them who complained that we'd been on the phone for 1/2 hour and other people also needed her. I told that that I thought having the level of investment I have with Vanguard I was entitled to whatever time was necessary to complete the transaction.

But then when I called them later to my special phone number because of the amount of money I have invested with them .... I had to wait over 2+ hours for someone to answer the phone! That was completely unacceptable!
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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