At Fidelity, 7-day effective yields of a few money market funds are
2.55% Fidelity Cash Reserves (FDRXX)
5.17% Fidelity Municipal Money Market Fund (FTEXX)
4.35% Fidelity AMT Tax-Free Money Fund (FIMXX)
Only the first is eligible for recent Federal plan to insure money market funds, but Fidelity has deep pockets, and I think it would regard ?breaking the buck? by one of its money market funds as a disaster. It would probably subsidize an endangered money market fund if it could. Unless I am missing something, municipal money market funds run by large fund families look like a good investment right now.
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For about the last five years, by my recollection FTEXX has yielded far less than FDRXX, so the above is truly an anomaly.
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since all of the graphing websites I've seen only handle the price/NAV, which for a money market fund is the usual $1.00, how would you go about comparing the yield on these over 5 yrs on a graph ?? OR any other graphical representation of the return over some period (1, 3,
5) ??
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I regularly shift money between FTEXX (which is the default money market yada fund for one of my Fidelity accounts) and FDRXX (which normally has a better yield and which I must place an order to buy). I check the yields of the two often and am working from anecdotal memory. If you want exact history, call Fidelity.
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I'm not an expert on this subject, but I can offer some logical deductions.
The "real-world explanation" (whatever that means, these days) is probably the mechanics of the size of the markets and the size of institutions. The total (liquid) US Treasury market is probably four times the size of the $2.5 trillion total municipal market. I.e. The liquid muni market is probably too small - and I do not know how much of the muni's are already wholly owned (illiquid for the next five years or more).
To my sarcastic mind, the real reason is probably within the question: "How do you spell institutional money manager?" :-] Also, article on MSN stated "Hedge funds hoard $600 billion cash." Those 'hedgies' will pay a premium for the liquidity of Treasuries.
The only economic rationale for the spreads would be the scenario that municipalities' sources of revenue dry up. (The counter-measure to that torpedo is to only take munis directly linked to the State (e.g. GOB, or General Obligation Bonds, backed by tax revenues), and do research on individual counties before buying their paper. Less credit- worthy are project or revenue bonds, whose ratings are often secured by letters of credit to a bank, and whose financial statements are much harder to get a copy of.)
This is more market projection than analysis, but interest rates are still very low, so there may be better opportunities for munis one to two years from now, depending on the state of the economy. Also, the muni market is pretty well owned by institutions - it's harder and harder for an individual to get a toe in. Some issues are gobbled up ($50 or $500 million) in one bite before even going to 'market'. Usually, the individual ends up with scraps the institutions leave behind, so one must be demanding, and patient, to get good munis, and may end up with the better quality bonds being called in by the municipality, as happened with many variable rate munis earlier this year. Ask for the financials, prospectus, and look for "times interest covered" as good indicators for a good muni - that will enable you to assign it your own "rating" and by-pass the rating agenies and "insured" ratings.
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