Vanguard says that, as of September 30, it has yet to decide whether it will participate in the U.S. Department of the Treasury's program to temporarily guarantee the account values of money market funds (taxable and tax-exempt) as of the close of business September 19.
The recent bankruptcy filing by Lehman Brothers Holdings Inc. and widespread turbulence in the financial markets have prompted a number of questions about the impact on Vanguard funds, including money market funds, the company explains. "Vanguard is confident in the stability of its money market funds, all of which are managed with the objective of maintaining a stable net asset value of $1 a share," it says.
The company issued the following comments about the rapidly changing market conditions: "In a reversal of the usual relationship between yields of municipal and taxable money market funds, the yields of Vanguard Tax-Exempt Money Market Fund and similar state-specific funds have risen far above those of taxable funds, including Vanguard Prime, Federal, and Treasury Money Market Funds.
"These unusually high yields are simply a function of how the money market arena is reacting to events in the credit markets right now," says Pamela Wisehaupt Tynan, who oversees Vanguard's municipal money market funds. "These yields are not coming from lower-quality securities, nor are they related to problems with the creditworthiness of municipalities."
Tynan explains that it is difficult to predict how long the current unusual money market conditions will last. "In fact, agencies that rate municipal bonds are currently reviewing thousands of municipal issuers for possible ratings upgrades, in recognition of their relative safety compared to other issuers of short-term debt," she adds.
"We're confident in the credit quality of our money market funds," Tynan concludes. "They have ample liquidity given their considerable holdings in high-quality municipal issues."
Janet Levaux, MBA/MA, is the managing editor of Research; reach her at email@example.com.