NFT: BBI Financial Gurus: New York Muni Money Markets

There have been tremendous outflows from munis

DanFromNY : 3/26/2020 8:56 am : link

This has led to an extreme increase in short term yields that you are seeing and to a steep loss for longer term muni bond funds. With the Fed's intervention, you can expect the muni money market yields to decrease pretty quickly.

Also, keep in mind that muni money market fund yields are cyclical with a spike at quarter end due to rich people withdrawing money to pay taxes. Here is a chart of the after tax yield of the vanguard ny muni and prime money market funds over the past year where I used your estimate of 40% tax rate.

RE: There have been tremendous outflows from munis

M.S. : 3/26/2020 9:04 am : link

In comment 14850093 DanFromNY said:

Quote:

This has led to an extreme increase in short term yields that you are seeing and to a steep loss for longer term muni bond funds. With the Fed's intervention, you can expect the muni money market yields to decrease pretty quickly.

Also, keep in mind that muni money market fund yields are cyclical with a spike at quarter end due to rich people withdrawing money to pay taxes. Here is a chart of the after tax yield of the vanguard ny muni and prime money market funds over the past year where I used your estimate of 40% tax rate.

DanFromNY -- you da' best, thanks so much for your insights! And thanks as well for that great chart you created which illustrates quite nicely how the two markets had been hovering in equilibrium until just now!

Forgot to also say...

M.S. : 3/26/2020 9:41 am : link

...your chart definitely illustrates the spikes you were referring to at the end of each quarter. Thanks!

Also

DanFromNY : 3/26/2020 10:18 am : link

If you are looking for a place to park your cash, in normal times also consider the Treasury money market which is state and city tax free. For my tax brackets, I had been switching back and forth from the NY muni and treasury funds based on the quarterly cycle. That being said we are certainly not in normal times now and I'd expect money market yields will all coalesce to around zero as was the case right after the financial crisis. Might be best to grab the best CD rates you can find now before rates go even lower.

RE: Also

M.S. : 3/26/2020 10:40 am : link

In comment 14850201 DanFromNY said:

Quote:

If you are looking for a place to park your cash, in normal times also consider the Treasury money market which is state and city tax free. For my tax brackets, I had been switching back and forth from the NY muni and treasury funds based on the quarterly cycle. That being said we are certainly not in normal times now and I'd expect money market yields will all coalesce to around zero as was the case right after the financial crisis. Might be best to grab the best CD rates you can find now before rates go even lower.

Good advice! In the back of my mind, I was wondering if any of the muni money market funds out there may have to drop below the sacred $1.00 per share price point?

Personally, I don't think the Fed would let these break the buck.

DanFromNY : 3/27/2020 9:19 am : link

So I am sticking with it until the yield goes down past a bank CD. Also, I can compute the daily yields from looking at the daily accrued dividends of my vanguard NY money market holdings (the published SEC yield is an average over the previous 7 days). We can see it has already started to come down.

You need

JonC : 3/27/2020 9:20 am : link

manh george to answer your bat signal.

RE: Personally, I don't think the Fed would let these break the buck.

M.S. : 3/27/2020 9:52 am : link

In comment 14851139 DanFromNY said:

Quote:

So I am sticking with it until the yield goes down past a bank CD. Also, I can compute the daily yields from looking at the daily accrued dividends of my vanguard NY money market holdings (the published SEC yield is an average over the previous 7 days). We can see it has already started to come down.

Thanks again -- very insightful!

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NFT: BBI Financial Gurus: New York Muni Money Markets