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Vanguard makes changes to three money market funds

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Vanguard plans to merge the USD6.7bn Vanguard Treasury Money Market Fund into the lower-cost USD21.8bn Vanguard Admiral Treasury Money Market Fund in early August.

Vanguard plans to merge the USD6.7bn Vanguard Treasury Money Market Fund into the lower-cost USD21.8bn Vanguard Admiral Treasury Money Market Fund in early August.

In addition, Vanguard has closed the Vanguard Federal Money Market Fund to all new accounts and to additional purchases from current institutional accounts. A USD10,000 daily investment limit has been placed on current retail accounts.

‘Taking these preventative measures will protect fund shareholders and will help ensure that the yields of the funds remain competitive,’ says Bill McNabb, Vanguard chief executive. ‘It is quite possible that yields on government-backed securities, and consequently the Vanguard Admiral Treasury Money Market and Vanguard Federal Money Market Funds, will remain quite low for the foreseeable future. Shareholders may wish to consider switching to alternative Vanguard fund options that are consistent with their goals and risk tolerance.’

The merger of the Vanguard Treasury Money Market Fund, which has an expense ratio of 0.28 per cent, into the Admiral Treasury Money Market Fund, with its lower expense ratio of 0.15 per cent, will reduce expenses for Treasury Fund shareholders. After the merger, the fund is expected to maintain its expense ratio of 0.15 per cent. Additionally, reducing new cash flow into the Vanguard Federal Money Market Fund may slow the decline of that fund’s yield.

Vanguard’s actions come amid continuing strong demand for government-backed securities, which have served as a safe-haven during the global financial crisis. This increased demand, coupled with cuts to prevailing interest rates by the Federal Reserve, has driven yields of government-backed securities to record lows, with current one- and three-month Treasury bills yielding less than 0.20 per cent. As securities in Vanguard money market funds mature, the reinvestment of assets into new, lower-yielding securities decreases the funds’ yields.

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