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Re: SPAXX vs FZDXX

Malick, a Treasury MM should be just as safe as SPAXX, the FDIC cash account, or you just buying 3 mo. T Bills at auction, another option I just remembered. They are all basically ultra short Treasuries holdings. SPRXX is no doubt very safe too, but comes with the potential of the gate and redemption fees.

I think they are all going to 0% to 0.10% yield like in 2009, which I believe is when Fido started offering the FDIC insured option. 

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Re: SPAXX vs FZDXX

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Re: SPAXX vs FZDXX

A repost from @GLI2019  on possible financial crisis era m-mkt fund federal insurance program.   https://community.morningstar.com/t5/forums/forumtopicprintpage/board-id/market/message-id/3114/prin...

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Re: SPAXX vs FZDXX

Here is M* link for possible federal insurance for m-mkt funds,   https://www.morningstar.com/news/dow-jones/2020031814864/treasury-department-asks-congress-to-let-it...

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Re: SPAXX vs FZDXX

More on this as I don't have other market distractions.

I am stunned by this possibility.

We have been hearing of m-mkt repo problems since September 2019 [come on, been 6 months already]. And last week there was a lot of chatter about problems or defaults in the commercial paper market [used by prime m-mkt funds]. Scott Black [Delphi] mentioned in Barron's to use only Treasury m-mkt funds.

So, when the Treasury hints about backstopping m-mkt funds with federal insurance, this is a huge indication of a systemic problem.

This was a very controversial move during the financial crisis when the feds offered unlimited insurance for m-mkt funds for 10 bps. Initially, big players like Fido, Vanguard, etc didn't want to play. But then the feds said that m-mkt funds would have to disclose if they have federal insurance or not. And then big boys got into the camp like lambs. 

Now we are post 2016 m-mkt reforms. There are 3 categories of m-mkt funds: Government m-mkt funds [safest under present regulations], retail prime m-mkt funds [these can have sudden redemption gates and/or fees based on auto-triggers], institutional prime m-mkt funds [these must have floating NAV and for big boys only]. So, it is unclear which m-mkt funds would be covered by this potential federal insurance.

Frankly, this is very disconcerting.

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Re: SPAXX vs FZDXX

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Re: SPAXX vs FZDXX

@yogibearbull @FD1001 

At Schwab, is cash covered by FDIC insurance? I read that in the small print at the bottom upon selling a fund to cash.

Do you know the limits of insurance for individual and joint accounts?

Is it the same as banks, $250.000/500.000 ?

 

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Re: SPAXX vs FZDXX


@Sheryldell wrote:

@yogibearbull @FD1001 

At Schwab, is cash covered by FDIC insurance? I read that in the small print at the bottom upon selling a fund to cash.

Do you know the limits of insurance for individual and joint accounts?

Is it the same as banks, $250.000/500.000 ?


Schwab uses its Schwab Bank to scoop [oops, sweep] brokerage cash, so normal FDIC rules/limits apply.   https://www.schwab.com/public/file/P-713588

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Re: SPAXX vs FZDXX

Thanks Yogi. I knew you would know why the cash was FDIC insured.

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Re: SPAXX vs FZDXX

The Fed is also supporting muni m-mkt funds,   https://www.federalreserve.gov/newsevents/pressreleases/monetary20200320b.htm

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Re: SPAXX vs FZDXX


@yogibearbull wrote:

The Fed is also supporting muni m-mkt funds,   https://www.federalreserve.gov/newsevents/pressreleases/monetary20200320b.htm


Yogi,

Thanks for the link.

It seems reassuring for VMSXX, but I am concerned with what appears to be an unfavorable trend in the Daily Market Value.

https://investor.vanguard.com/mutual-funds/profile/portfolio/vmsxx

I would appreciate your thoughts.

Hootz

 

 

 

 

 

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Re: SPAXX vs FZDXX

Goldman Sachs propped up 2 of its prime m-mkt funds by injecting $1 billion into them - it didn't have to but GS is among big boys. They suffered sudden withdrawals of $8.1 billion over 4 days to Thursday before 30% liquidity rule could kick in. BK/Dreyfus propped up its prime m-mkt funds with $2.1 billion before 30% liquidity rule could kick in. These were 2 SEC filings on Friday. There may be more next week.   https://www.reuters.com/article/us-health-coronavirus-goldman-mny-mkt-ex/exclusive-goldman-injects-1...

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Re: SPAXX vs FZDXX

Fidelity has closed 3 of its Treasury m-mkt funds due to heavy inflows.   https://finance.yahoo.com/news/fidelity-shuts-three-money-market-205320236.html

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Fido Institutional Prime M-Mkt Closing

https://cranedata.com/archives/all-articles/8277/

"Fidelity Investments, the largest manager of money market funds, sent an e-mail to clients Friday with the Subject, "Fidelity Institutional Prime Money Market Funds Liquidation." They write, "We have decided to liquidate our two institutional prime money market funds: Fidelity Investments Money Market (FIMM) Prime Money Market Portfolio and Fidelity Investments Money Market (FIMM) Prime Reserves Portfolio. Both funds will remain fully accessible to investors until their liquidation on or about August 14, 2020. There are no restrictions on investments in or redemptions from the funds until, as part of the liquidation process, the funds close to new investments as of the close of business on August 12, 2020. It is important to note that this decision does not affect any of our other money market funds -- institutional or retail -- and there is no need to take immediate action. We are committed to working with our institutional clients to determine alternative liquidity investment products that best suit their needs by August 12.".....Shareholders of FIMM Prime Money Market Portfolio and FIMM Prime Reserves Portfolio will be allowed to exchange into comparable classes of the FIMM Portfolios and the Institutional Class of Fidelity Conservative Income Bond Fund,...."

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Re: Fido Institutional Prime M-Mkt Closing

From Fidelity FZDXX 'Additional Disclosures'

"Fidelity is voluntarily reimbursing a portion of the fund's expenses. If Fidelity had not, the returns would have been lower."

Lower than the current 7-day yield of .17%?

The yield on FZDXX has taken a nose dive of late. I've held FZDXX for many years with a constant amount (number of shares). Going back to Jan 2019, here is my calculated monthly yield

FZDXX.jpg

I'd imagine this is a result of the Federal Reserve lowering the Fed Funds Rate so dramatically. From The Balance

fed funds rate history.JPG

Not sure exactly how national interest rate dynamics work, but this expansive credit is putting a lot of borrowed money into circulation and I'd think at some point this is going to become inflationary, particularly when much of the $604B individual 'stimulus' payments go to everyone whether they need it or not. This doesn't feel very good.

BruceM

 

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