Schwab cancels T bill rollovers due to negative rate fears

Discussion of the Cash portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
mathjak107
Executive Member
Executive Member
Posts: 3011
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by mathjak107 » Sun Mar 22, 2020 11:51 am

what are the ramifications with negative rates when it come to treasury money markets at the major brokerages vs say BIL
User avatar
ochotona
Executive Member
Executive Member
Posts: 3177
Joined: Fri Jan 30, 2015 5:54 am

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by ochotona » Sun Mar 22, 2020 12:27 pm

mathjak107 wrote:
Sun Mar 22, 2020 11:51 am
what are the ramifications with negative rates when it come to treasury money markets at the major brokerages vs say BIL
The 2, 3, and 6 month yield 0.05%. The BIL expense ratio is 0.1359%. So that's -0.0859% right there. Use a bank!
User avatar
jhogue
Executive Member
Executive Member
Posts: 542
Joined: Wed Jun 28, 2017 10:47 am

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by jhogue » Sun Mar 22, 2020 12:29 pm

sophie wrote:
Sun Mar 22, 2020 11:23 am
The last thing I would do with T bill money is put it in a bank! Are you serious???? If we slide into a depression and banks start failing with the federal government already having spent trillions on stimulus packages, I'm not sure the FDIC guarantee is going to mean much.

I had in mind watching this page for negative T bill rates:

https://www.treasury.gov/resource-cente ... data=yield

If I spot them I'll just cancel the next rollover and move the money into a Treasury MM fund. Fidelity and Vanguard won't put those into negative interest territory. They will instead close the funds to new investors and/or set a high account minimum just like they did in 2008-2009.
I could not agree more!

The last thing that I want to do with my cash in the face of a deflationary recession and possible depression is to dump Treasurys and buy something that has any more risk.
“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!"
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3011
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by mathjak107 » Sun Mar 22, 2020 2:07 pm

ochotona wrote:
Sun Mar 22, 2020 12:27 pm
mathjak107 wrote:
Sun Mar 22, 2020 11:51 am
what are the ramifications with negative rates when it come to treasury money markets at the major brokerages vs say BIL
The 2, 3, and 6 month yield 0.05%. The BIL expense ratio is 0.1359%. So that's -0.0859% right there. Use a bank!
fdlxx shows a much higher expense .
User avatar
Tortoise
Executive Member
Executive Member
Posts: 2187
Joined: Sat Nov 06, 2010 2:35 am

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by Tortoise » Sun Mar 22, 2020 3:12 pm

If Craig were still around, I suspect he would call it "yield-chasing" to transition T-bills to bank accounts to avoid negative yield.

Safety has a cost. And in a low or zero interest rate environment, that cost might be negative yield. How is that qualitatively different than T-bill investors settling for slightly lower yield than bank accounts in a positive interest rate environment?
Kevin K.
Executive Member
Executive Member
Posts: 270
Joined: Mon Apr 26, 2010 2:37 pm

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by Kevin K. » Sun Mar 22, 2020 4:07 pm

sophie wrote:
Sun Mar 22, 2020 11:23 am
The last thing I would do with T bill money is put it in a bank! Are you serious???? If we slide into a depression and banks start failing with the federal government already having spent trillions on stimulus packages, I'm not sure the FDIC guarantee is going to mean much.

I had in mind watching this page for negative T bill rates:

https://www.treasury.gov/resource-cente ... data=yield

If I spot them I'll just cancel the next rollover and move the money into a Treasury MM fund. Fidelity and Vanguard won't put those into negative interest territory. They will instead close the funds to new investors and/or set a high account minimum just like they did in 2008-2009.
From the PP book:

"Ultimately, whether to use a CD or other bank account for the cash in a Permanent Portfolio is a decision that each investor must make for himself. In practice, many people use a hybrid approach where the bulk of their cash is in a solid and safe T-Bills [MM account] and a portion is in a bank to handle immediate expenses and emergencies."

That seems to me to be a very reasonable "both/and" approach. I also think it's pretty unrealistic to think that "full faith and credit" of the U.S. government is going to mean a whole lot if things get bad enough for FDIC and NCUA insurance to fail. If we get to that point it'll be time to head to the bunker full of MRE's, ammo and gold bullion so many Bogleheads think we PP'ers already live in. ;)

I do think it's realistic to expect Vanguard's Treasury MM account to close again soon. I well remember that itg was closed for years right at the time the PP book came out. It's the only such fund I've found that has a low ER (.09%). Schwab's by comparison is .35%. Guess whose returns will go negative first.

Personally I'm keeping about a year's worth of cash earning ~1.30% in my excellent local credit union and the rest in STT funds divided between two brokerages. Mnuchin has already threatened to limit trading hours or perhaps even close the markets from time to time so diversification of cash makes more sense than ever IMHO.
User avatar
vnatale
Executive Member
Executive Member
Posts: 4667
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by vnatale » Sun Mar 22, 2020 5:18 pm

Tortoise wrote:
Sun Mar 22, 2020 3:12 pm
If Craig were still around, I suspect he would call it "yield-chasing" to transition T-bills to bank accounts to avoid negative yield.

Safety has a cost. And in a low or zero interest rate environment, that cost might be negative yield. How is that qualitatively different than T-bill investors settling for slightly lower yield than bank accounts in a positive interest rate environment?
I'm with your logic 100%!

Vinny
"I only regret that I have but one lap to give to my cats."
User avatar
vnatale
Executive Member
Executive Member
Posts: 4667
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by vnatale » Sun Mar 22, 2020 5:23 pm

Kevin K. wrote:
Sun Mar 22, 2020 4:07 pm
sophie wrote:
Sun Mar 22, 2020 11:23 am
The last thing I would do with T bill money is put it in a bank! Are you serious???? If we slide into a depression and banks start failing with the federal government already having spent trillions on stimulus packages, I'm not sure the FDIC guarantee is going to mean much.

I had in mind watching this page for negative T bill rates:

https://www.treasury.gov/resource-cente ... data=yield

If I spot them I'll just cancel the next rollover and move the money into a Treasury MM fund. Fidelity and Vanguard won't put those into negative interest territory. They will instead close the funds to new investors and/or set a high account minimum just like they did in 2008-2009.
From the PP book:

"Ultimately, whether to use a CD or other bank account for the cash in a Permanent Portfolio is a decision that each investor must make for himself. In practice, many people use a hybrid approach where the bulk of their cash is in a solid and safe T-Bills [MM account] and a portion is in a bank to handle immediate expenses and emergencies."

That seems to me to be a very reasonable "both/and" approach. I also think it's pretty unrealistic to think that "full faith and credit" of the U.S. government is going to mean a whole lot if things get bad enough for FDIC and NCUA insurance to fail. If we get to that point it'll be time to head to the bunker full of MRE's, ammo and gold bullion so many Bogleheads think we PP'ers already live in. ;)

I do think it's realistic to expect Vanguard's Treasury MM account to close again soon. I well remember that itg was closed for years right at the time the PP book came out. It's the only such fund I've found that has a low ER (.09%). Schwab's by comparison is .35%. Guess whose returns will go negative first.

Personally I'm keeping about a year's worth of cash earning ~1.30% in my excellent local credit union and the rest in STT funds divided between two brokerages. Mnuchin has already threatened to limit trading hours or perhaps even close the markets from time to time so diversification of cash makes more sense than ever IMHO.
So, you are telling me my FIRST priorities for tomorrow (one of which I can put into motion tonight) is to fix the mistake I made last week when I attempted to move my Prime money to the Treasury but, instead, put it in Federal. That was my last move after 8 or so that day so I'm excusing myself for that. The next will be to collapse as many of my nine accounts as possible with Vanguard into as few as similar tax treatment possible so that I can pool the various Federal investments and have the necessary $50,000 to move to Treasury. It could take me three whole days of being on it to accomplish all of that as with Vanguard I think I have to do one step a day and wait for that step to be accomplished before I do the next step the next day. Unless I could get someone one the phone (gave up after 27 minutes on hold last week) who could shortcut some of these steps.

Vinny
"I only regret that I have but one lap to give to my cats."
pmward
Executive Member
Executive Member
Posts: 1593
Joined: Thu Jan 24, 2019 4:39 pm

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by pmward » Sun Mar 22, 2020 6:34 pm

I'm personally selling my SHV tomorrow and letting that sit in the treasury money market instead. Not that I think SHV is less safe, it's just that I would rather keep the cash a little closer to home with the crisis. It takes 3 days to clear selling SHV before I could transfer to my bank if needed. I only have a few grand in SHV as I use it mostly to DCA between treasury bill purchases. Mainly, I'm just valuing liquidity a bit more than a couple bps at the moment.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3011
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by mathjak107 » Sun Mar 22, 2020 6:43 pm

I beefed up two local banks to 6 figures in each ...I will move back after the crisis ...we have it so bad here nyc
Kevin K.
Executive Member
Executive Member
Posts: 270
Joined: Mon Apr 26, 2010 2:37 pm

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by Kevin K. » Sun Mar 22, 2020 8:06 pm

vnatale wrote:
Sun Mar 22, 2020 5:23 pm
Kevin K. wrote:
Sun Mar 22, 2020 4:07 pm
sophie wrote:
Sun Mar 22, 2020 11:23 am
The last thing I would do with T bill money is put it in a bank! Are you serious???? If we slide into a depression and banks start failing with the federal government already having spent trillions on stimulus packages, I'm not sure the FDIC guarantee is going to mean much.

I had in mind watching this page for negative T bill rates:

https://www.treasury.gov/resource-cente ... data=yield

If I spot them I'll just cancel the next rollover and move the money into a Treasury MM fund. Fidelity and Vanguard won't put those into negative interest territory. They will instead close the funds to new investors and/or set a high account minimum just like they did in 2008-2009.
From the PP book:

"Ultimately, whether to use a CD or other bank account for the cash in a Permanent Portfolio is a decision that each investor must make for himself. In practice, many people use a hybrid approach where the bulk of their cash is in a solid and safe T-Bills [MM account] and a portion is in a bank to handle immediate expenses and emergencies."

That seems to me to be a very reasonable "both/and" approach. I also think it's pretty unrealistic to think that "full faith and credit" of the U.S. government is going to mean a whole lot if things get bad enough for FDIC and NCUA insurance to fail. If we get to that point it'll be time to head to the bunker full of MRE's, ammo and gold bullion so many Bogleheads think we PP'ers already live in. ;)

I do think it's realistic to expect Vanguard's Treasury MM account to close again soon. I well remember that itg was closed for years right at the time the PP book came out. It's the only such fund I've found that has a low ER (.09%). Schwab's by comparison is .35%. Guess whose returns will go negative first.

Personally I'm keeping about a year's worth of cash earning ~1.30% in my excellent local credit union and the rest in STT funds divided between two brokerages. Mnuchin has already threatened to limit trading hours or perhaps even close the markets from time to time so diversification of cash makes more sense than ever IMHO.
So, you are telling me my FIRST priorities for tomorrow (one of which I can put into motion tonight) is to fix the mistake I made last week when I attempted to move my Prime money to the Treasury but, instead, put it in Federal. That was my last move after 8 or so that day so I'm excusing myself for that. The next will be to collapse as many of my nine accounts as possible with Vanguard into as few as similar tax treatment possible so that I can pool the various Federal investments and have the necessary $50,000 to move to Treasury. It could take me three whole days of being on it to accomplish all of that as with Vanguard I think I have to do one step a day and wait for that step to be accomplished before I do the next step the next day. Unless I could get someone one the phone (gave up after 27 minutes on hold last week) who could shortcut some of these steps.

Vinny
Take a good hard look under the hood of all of these MM accounts. Prime is the riskiest and completely inappropriate for the PP, their Federal MM fund, which is the settlement fund, has a lot of T-Bills but is far from being a pure Treasury play. VUSXX, the best of their offerings, is also not a pure Treasury fund which is why the PP book cautions against it. From Vanguard:

"The fund invests solely in high-quality, short-term money market securities 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; the remainder of the assets may be invested in securities issued by U.S. governmental agencies."

So it's an excellent Treasury-ish MM fund overall IF keeping 50K in it at all time is no sweat for you. Otherwise you have plenty of as good or better options, assuming you have a brokerage account with Vanguard and not just mutual funds. You could buy the SHV ETF which is pure Treasury MM in its composition with super-short (less than 1 year) maturiries and a .15 ER. That's the top fund recomendation in the PP book for this asset class, followed in order by Fidelity's FDLXX, Spider's BIL and the Gabelli fund GABXX with Vanguard's VUSXX dead last because of the aforementioned inclusion of agency bonds.

You could also throw in a few 6-12 month FDIC backed CDs bought through Vanguard or held at a local bank or credit union if you're OK with some portion of your cash being held outside of Treasuries.

Others here will doubtless have more suggestions. Best of luck with your decision.
User avatar
vnatale
Executive Member
Executive Member
Posts: 4667
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Schwab cancels T bill rollovers due to negative rate fears

Post by vnatale » Sun Mar 22, 2020 8:38 pm

Kevin K. wrote:
Sun Mar 22, 2020 8:06 pm
vnatale wrote:
Sun Mar 22, 2020 5:23 pm
Kevin K. wrote:
Sun Mar 22, 2020 4:07 pm
sophie wrote:
Sun Mar 22, 2020 11:23 am
The last thing I would do with T bill money is put it in a bank! Are you serious???? If we slide into a depression and banks start failing with the federal government already having spent trillions on stimulus packages, I'm not sure the FDIC guarantee is going to mean much.

I had in mind watching this page for negative T bill rates:

https://www.treasury.gov/resource-cente ... data=yield

If I spot them I'll just cancel the next rollover and move the money into a Treasury MM fund. Fidelity and Vanguard won't put those into negative interest territory. They will instead close the funds to new investors and/or set a high account minimum just like they did in 2008-2009.
From the PP book:

"Ultimately, whether to use a CD or other bank account for the cash in a Permanent Portfolio is a decision that each investor must make for himself. In practice, many people use a hybrid approach where the bulk of their cash is in a solid and safe T-Bills [MM account] and a portion is in a bank to handle immediate expenses and emergencies."

That seems to me to be a very reasonable "both/and" approach. I also think it's pretty unrealistic to think that "full faith and credit" of the U.S. government is going to mean a whole lot if things get bad enough for FDIC and NCUA insurance to fail. If we get to that point it'll be time to head to the bunker full of MRE's, ammo and gold bullion so many Bogleheads think we PP'ers already live in. ;)

I do think it's realistic to expect Vanguard's Treasury MM account to close again soon. I well remember that itg was closed for years right at the time the PP book came out. It's the only such fund I've found that has a low ER (.09%). Schwab's by comparison is .35%. Guess whose returns will go negative first.

Personally I'm keeping about a year's worth of cash earning ~1.30% in my excellent local credit union and the rest in STT funds divided between two brokerages. Mnuchin has already threatened to limit trading hours or perhaps even close the markets from time to time so diversification of cash makes more sense than ever IMHO.
So, you are telling me my FIRST priorities for tomorrow (one of which I can put into motion tonight) is to fix the mistake I made last week when I attempted to move my Prime money to the Treasury but, instead, put it in Federal. That was my last move after 8 or so that day so I'm excusing myself for that. The next will be to collapse as many of my nine accounts as possible with Vanguard into as few as similar tax treatment possible so that I can pool the various Federal investments and have the necessary $50,000 to move to Treasury. It could take me three whole days of being on it to accomplish all of that as with Vanguard I think I have to do one step a day and wait for that step to be accomplished before I do the next step the next day. Unless I could get someone one the phone (gave up after 27 minutes on hold last week) who could shortcut some of these steps.

Vinny
Take a good hard look under the hood of all of these MM accounts. Prime is the riskiest and completely inappropriate for the PP, their Federal MM fund, which is the settlement fund, has a lot of T-Bills but is far from being a pure Treasury play. VUSXX, the best of their offerings, is also not a pure Treasury fund which is why the PP book cautions against it. From Vanguard:

"The fund invests solely in high-quality, short-term money market securities 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; the remainder of the assets may be invested in securities issued by U.S. governmental agencies."

So it's an excellent Treasury-ish MM fund overall IF keeping 50K in it at all time is no sweat for you. Otherwise you have plenty of as good or better options, assuming you have a brokerage account with Vanguard and not just mutual funds. You could buy the SHV ETF which is pure Treasury MM in its composition with super-short (less than 1 year) maturiries and a .15 ER. That's the top fund recomendation in the PP book for this asset class, followed in order by Fidelity's FDLXX, Spider's BIL and the Gabelli fund GABXX with Vanguard's VUSXX dead last because of the aforementioned inclusion of agency bonds.

You could also throw in a few 6-12 month FDIC backed CDs bought through Vanguard or held at a local bank or credit union if you're OK with some portion of your cash being held outside of Treasuries.

Others here will doubtless have more suggestions. Best of luck with your decision.
Thanks for the quick response.

My first priority which I actually followed up on LAST Monday was getting all money fund investments into either Federal or Treasury.

Then because I had investigated that neither fund was 100% T Bills. My next move was going to use all the money in both to buy one week T-Bills.

I all set to do that when I got slowed down for two reasons. 1) No one here seemed to believe it was an urgency to do so. 2) The government announced it was back stopping all money market funds.

I do only want to own Treasury Bills. Or, as close as possible. Keeping $50,000 in is not an issue for where I had at least $50,000. Keeping in mind that I have about 8 retirement accounts not all of them had at least $50,000 in the money market funds. I'm moving towards having all Treasuries for my cash so no CDs!

This is the topic wherein I participated and disclosed my step by step actions and questions:

viewtopic.php?f=4&t=10475

And, this one I started, questioning the purity of VUSXX:

viewtopic.php?f=4&t=10277


Vinny
"I only regret that I have but one lap to give to my cats."
Post Reply