The December issue of Money Fund Intelligence stated that Goldman Sachs' Financial Square Treasury Obligations and GS Treasury Instruments "became the first money funds ever to pay a negative yield." This is incorrect. While a couple of share classes of these funds have reported negative 7-day yields, their daily 1-day yields, returns and dividends have remained positive. No "negative yields" have been passed through to investors.

A Goldman Sachs spokesperson tells us that the Treasury funds maintain an 'active trading strategy' and that 'short-term capital gains paid through' have assured that investors continued to receive positive dividends from the funds. Note that the 7-day yield formula that money funds are mandated to use by the SEC excludes capital gains and losses. But that investors actual returns and dividends, which are normally credited daily and paid monthly, include any realized gains and losses. (Though rare, gains do occur in money funds, especially Treasury funds.)

While a false alarm this time, the issue of 'negative yields' remains very real for money market funds. Should the Federal Reserve cut interest rates again, especially if they cut beyond another 1/4-point, some funds may indeed find themselves with expenses over and above the interest income they generate. Funds currently are waiving any amounts above their interest income in order to maintain positive yields (or to keep yields at zero). But this may become more difficult should rates decline further.

Money funds have begun discussions on how to handle a negative dividend, should it be needed. Crane Data assumes that it would be handled the exact opposite of a how dividends are currently handled. A daily negative credit would be accrued, and the account would be charged at the end of the month (instead of the dividend accruing then paying). Thus, a "negative dividend" would not involve "breaking the buck". But rather shares would be sold from the account in order to pay fees monthly, which would not be much different from how checking accounts used to charge a monthly fee. We'll undoubtedly be researching more in the coming days, so let us know if you have any comments.

Email This Article




Use a comma or a semicolon to separate

captcha image

Money Market News Archive

2024 2023 2022
March December December
February November November
January October October
September September
August August
July July
June June
May May
April April
March March
February February
January January
2021 2020 2019
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2018 2017 2016
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2015 2014 2013
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2012 2011 2010
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2009 2008 2007
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2006
December
November
October
September