Barron's on Vanguard Muni Retreat
Barron's writes "Vanguard’s Actions Show Why Muni Money Market Funds Are an ‘Endangered Species’." They tell us, "Say goodbye to your single-state municipal bond money-market fund. That could be the upshot of the announcement last Friday by Vanguard Group, which said it was liquidating its Pennsylvania and New Jersey muni money-market funds.... The truth is, yields are so low for the ultra-short-term, high-quality municipal debt that money markets buy, particularly in high-tax states, that they can't cover their costs." (See Crane Data's Sept. 28 News, "SEC's Blass on Push for More MMF Reforms; Vanguard Liquidating PA, NJ.") They quote our Peter Crane, "Tax exempt money-market funds and particularly state specific ones are on the endangered species list.... The assets are few and far between, and they are going to be hurt most from another zero-yield environment because [muni] tax exemptions don't help you if there's no income." The Barron's piece says, "He notes that there are only 71 single-state money markets today with $34 billion in assets, down from $152 billion in 2008, when interest rates previously dropped to zero because of the financial crisis. Rates have remained low ever since.... Crane said that municipal funds are the most-expensive money markets to manage. 'Unlike, Treasury or even prime [corporate money market] funds, where you have 50 to 100 investments all either issued by the government or giant multinational banks whose balance sheets are relatively open and clear, in the municipal world, you have thousands upon thousands of little line items and tiny municipalities. It takes a lot of work to do your due diligence and make sure they're credit worthy.' That's why he thinks many single-state muni money markets will become extinct. Waiving their fees is the costliest for managers." The piece adds, "One hope is that Vanguard's departure could make the remaining single state-funds more viable. In addition to Vanguard, Crane said there are four main competitors in the muni money market space -- Federated Investors, Fidelity, Charles Schwab and Dreyfus/BNY Mellon. Less demand for state munis from Vanguard means more and cheaper supply for them."
