"Weighted Average Life" Money Markets

[Deleted]

That's a new term for me. Does anyone know what it means? Wasn't the previously used term "Weighted Average Duration"? Is Weighted Average Life the same thing?

Gracias.

[yogibearbull]

Weighted average maturity (WAM) takes into account call provisions, rate resets, etc that can shorten effective maturity. For example, a security with 10-yr maturity and weekly rate resets is considered to have effective 7-day maturity. This may confuse casual observers scanning through fund holdings.

If for some reason the rate reset mechanism is disrupted, that would be bad news on maturity. During the GFC, some floating rate securities had no bids at reset times and sponsors refused to be the bidders of last resorts, and those securities collapsed in prices as what used to be something with short-maturity suddenly had long-maturity.

Weighted average life (WAL) also takes into account call provisions, but NOT rate resets. So, a 3-yr security with 1-yr call provision would be considered to have 1-yr maturity. But floating-rate securities would be ignored.

So, WAM << WAL.

There are separate specifications for them. A typical m-mkt fund may have WAM < 60 and WAL < 120.

www.westernasset.com/us/en/research/blog/money-market-funds-2019-08-23.cfm
www.gsam.com/content/dam/gsam/pdfs/us/en/miscellaneous/GLM/money-market-yield-return-defs.pdf?sa=n&rd=n
www.sec.gov/divisions/investment/guidance/mmfreform-imqa.htm

[Deleted]

Real life situation: I'm making a decision on Monday between VMRXX, SPAAX, and the 3 month T-Bill auction.
VMRXX: 4.55% 7 Day yield, 13 Day Average Maturity, 41 Day Weighted Average Life.
SPAAX: 4.24% 7 Day yield, 8 Day Weighted Average Maturity, 72 Day Weighted Average Life
3 Month T-Bill: 4.241 Projected Yield, 90 Day maturity.

From the info presented, which investment has the greatest probability of the highest return over 3 months? My guess is the Vanguard Money Market Reserve Fund. Other opinions? If so, why?

[yogibearbull]

For better T-Bill rate info, rely on the Treasury site (as of Friday, 3-mo was 4.52%), not on brokerage website projections.

M-mkt funds will lag but will catchup with 3-mo T-Bills eventually.

home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202303

[marquay]

How about VUSXX. ER .09%. 7 day yield  4.58%, 43 days weighted average life

[Deleted]

Mar 19, 2023 14:23:10 GMT marquay said:

How about VUSXX. ER .09%. 7 day yield  4.58%, 43 days weighted average life

VUSXX seems like very good option. Thanks for bringing it up.