Lots In SPAXX And VMFXX... Should I Worry About Default?

punchie | May 5, 2023 | 29 posts since 2019

What shoud I do before the end of June? Should I consider moving funds to banks? I've read about 2008 and "breaking the buck" things but I'm clueless. I only wound up in these funds because I had a CD mature and I already had establised relationships with Fidelity and Vanguard. Of course I supposed that a default would impact FDIC-insured accounts as well.

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MAKNYC | May 5, 2023 | 323 posts since 2015

The funds you mention are both government funds and are therefore at the higher levels of the safety spectrum. The only liquidity risks would be with held repurchase agreements, which while collateralized by the safe paper, could be tied up in litigation in event of a counterparty default. This is a theoretical risk, but a very insignificant one. In the Fidelity case at least, you could invest in a safer all treasury fund FZFXX which would even exclude investing in government agency paper. The yield differential is currently negligible. Where people will get caught in an extreme event is in other non-government money funds, such as Schwab Value Advantage which hold all types of other paper. That’s where breaking the buck becomes a risk.

Moving to a bank would seem unnecessary unless you might have an immediate cash (literal) need.

Ltssharon | May 6, 2023 | 471 posts since 2020

I found this website which states what spaxx holds:
https://fundresearch.fidelity.com/mutual-funds/summary/31617H102
then I found this site which explains what fzfxx holds:
https://fundresearch.fidelity.com/mutual-funds/summary/316341304#!
the fzfxx description Repurchase Agreements
93.51percent, which means nothing to me. Repurchase of what? I was expecting the description to say it held 100 percent in US treasury bills and notes.
THE MORE I KNOW the LESS I KNOW.

RichardW | May 6, 2023 | 810 posts since 2019

Ltssharon, your observations are correct. Although FZFXX has been given the name of “Fidelity Treasury Money Market Fund” the fund’s most recent composition data from 4/30/2023 indicates that FZFXX contains a very large allocation of repurchase agreements (93.51%) and a very small allocation of treasuries (5.97%). The repurchase agreements are most likely fully collateralized by treasury securities. Check out: https://fundresearch.fidelity.com/mutual-funds/composition/316341304

betaguy | May 5, 2023 | 180 posts since 2022

what are: "2008 and "breaking the buck" things"?

txFish1 | May 5, 2023 | 476 posts since 2023

2008 was the Financial Crisis and breaking the buck refers to money market funds like the 2 mentioned in the above post that can not hold the $1 a share price (the buck) that they usually maintain

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