Money Market Monitor

Mutual fund giant Vanguard has closed their Treasury Money Market fund to new investors effective as of Monday January 26, 2009 the company said in an article posted on its website.   The decision was made to protect the interests of current fund share holders due to historically low yields on short-term Treasury securities.

Money Market funds typically invests in 90-day Treasury bills.  In December the yield on these bills fell to 0% and have since risen slightly but are still very low.  In essence investors are willing to accept a negative real return on their money in exchange for the safety of US government.

So what’s the alternative to Treasury money market funds?  The outlook for 90-day T-bills are low for the remainder of 2009.

David Glocke, the portfolio manager at Vanguard in charge of its taxable Money Market funds said:

“For investors looking for current income, a money market fund that invests in a wider selection of securities with higher yields, such as Vanguard Prime Money Market Fund, could be considered in the near term. But if money market yields in general continue to approach or hover near 0%, many investors will likely consider alternatives to money market funds.

Indeed, that’s one apparent objective of the Federal Reserve’s moves to cut short-term rates—the Fed would like to see money flow to longer-term securities. Alternatives to money market funds might include short-term bond funds and bank-issued CDs. As with any investment option, there are pros and cons to consider with each one.”