Anybody (jyl?) know money market funds & Rule 2a-7?

[dtw]

I've been charged with the task of finding a money market fund that is into GNMAs. I've looked at many funds and none of them are into GNMA bonds. Some of their repos are collateralized by GNMA securities, but that's not what they want. From what I'm reading of rule 2a-7, this may not even be possible. Bond funds, yes, all day long, but not necessarily money funds.

Can anyone speak authoritatively on this?

[trj911]

There is no such thing. A fund might contain GNMA collateral but because of the long duration (15-30 yrs) of GNMA's, it would hard if not impossible to have a money market fund of just such.
By the way, the SEC is looking into re-writing rule 2a-7.
What are you trying to do? Find one that only contains government guaranteed items?

[dtw]

Originally Posted by trj911

There is no such thing. A fund might contain GNMA collateral but because of the long duration (15-30 yrs) of GNMA's, it would hard if not impossible to have a money market fund of just such.
By the way, the SEC is looking into re-writing rule 2a-7.
What are you trying to do? Find one that only contains government guaranteed items?

This is consistent with the common-sense conclusions I am taking away from what I've been reading, including 2a-7 itself. Seems as though GNMAs being comprised of mortgages, they'd have a hard time meeting the 397 day criterion in 2a-7.

Right now there's a substantial portion of cash in a Treasury-only fund. Ultra-conservative but yield at 90bp; safety costs yield. We were well over 2% prior to jumping in that fund when the industry really started spasming.

One of the powers that be said "90 bp?? We can do better and stay secure, there's this GNMA fund over at Vanguard pulling over 3%. Guaranteed funds". So I check into that and I do find an excellent GNMA bond fund over there, but NOT a money fund. The points I raised were:
-The mortgages underlying the bonds are guaranteed against default, but not fluctuations in value. The NAV can and will fluctuate
-As of yesterday, federal funds are at 150bp - those with good credit are going to refinance, which is going to dampen the values of existing GNMAs. See prior point - the NAV may take a hit.

Possibly moot, as I am not sure we are even able, according to policy, invest liquid cash in any instruments other than CDs and money markets. So then I was told, ok, go find some money funds with GNMAs. After rifling through the holdings of a dozen or two government/agency/Treasury funds, without seeing a lick of GNMA (consistent with my research), I am not sure I am getting anywhere. Can't have our cake and eat it too.

[trj911]

You are correct a GNMA fund will definalely have NAV fluctuation and is NOT appropriate for short term funds. Most MM funds are applying for participation in the Treasury Dept's Temporary Guarantee Program so why not go for the highest yielding MM fund that is participating? The Fed is going to gurarantee the fund will maintain a 1.00 NAV.

[jyl]

I'm sorry, but I don't have anything to add to Tom's posts.

+90bp is better than -90bp.

[dtw]

Originally Posted by trj911

You are correct a GNMA fund will definalely have NAV fluctuation and is NOT appropriate for short term funds. Most MM funds are applying for participation in the Treasury Dept's Temporary Guarantee Program so why not go for the highest yielding MM fund that is participating? The Fed is going to gurarantee the fund will maintain a 1.00 NAV.

You and John, thanks for posting, you are confirming my research and thoughts.

The Treasury 3-month program is only effective for funds you had on deposit with an enrolled fund as of 9.19.08. More than 50% of our short-term funds are in one of those, and are enjoying a yield over 3% (it is a really good fund). The remaining 50% is in a Treasury-only fund. We would not qualify for coverage under that fund, and the fund isn't enrolling anyway (logic being, why purchase a federal guarantee on funds that are already federally guaranteed??).

Anyway, I think someone just got it in their head that we could get guaranteed funds AND 3%+ yield AND short term liquidity/$1 NAV in a GNMA type fund. Not gonna happen.

Thanks guys. S'posed to meet w/big guy again tomorrow, will let you know what happens.

[dtw]

Long story short, we're staying put, the GNMA hunt is concluded. Thank goodness...