Is there any meaningful difference between MMFs?

aroominyork

Yes, like TR25. If in a tax wrapper (SIPP/ISA) then the higher coupon/higher price seem to give a slightly higher YTM. If not tax wrapped, lower coupons are good. https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

Yes, you can sell anytime.

aroominyork

GeoffTF said:

Hoenir said:

GeoffTF said:

There are $trillions invested in MMFs. If the yield curve reverts to normal, i.e. higher interest for locking up your money for longer period, that money could be pulled out rapidly. That would give a problem for the banks that are borrowing this money. Holding short term debt does not help much if the banks cannot pay. 

Investors hold the debt not the banks.  Those exiting the funds would suffer. As liquidatating the investments quickly  in the open market would be the challenge. Takes two parties to conduct a trade. 

Perhaps I have not been clear. The banks have borrowed $trillions from MMFs. This is short dated debt. The banks have come to rely on it. They have come to rely on rolling over that debt when it matures. If a lot of investors want to sell their holdings in the MMFs, the MMFs will not renew the short term debt (they do not have to sell it). That gives the banks a big problem, and they could become insolvent. That gives the MMFs a problem because the banks would soon be unable to pay back any more of the short term debt. So, as I have said, it is a risk for MMFs, as well as the banking system (which is borrowing short term and lending long term). How big a risk is it? Some say it is very big risk. Others disagree. Either way, as I have said, MMFs are not as safe as bank deposits protected by the FSCS.

https://www.youtube.com/watch?v=kx0TRgluVPw

A cautionary warning? Or publicity seeking scare mongering?

Pensioncraft thinks MMF risk is very low https://www.youtube.com/watch?v=Okv7EZL0dhc

hallmark

aroominyork said:

Yes, like TR25. If in a tax wrapper (SIPP/ISA) then the higher coupon/higher price seem to give a slightly higher YTM. If not tax wrapped, lower coupons are good. https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

Yes, you can sell anytime.

So to see if I'm following correctly, taking Treasury 6% 07/12/2028 TR28 | GB0002404191 |, Maturity date 7th December 2028, Coupon 6%, Price 108.74 is this correct:

Cost is 108.74
Coupon/Dividend is 6% per year paid as 3% each on 7th June / 7th Dec
Hold until 7th December 2028 to receive 100.00 back
(I presume there's no coupon on 7th December 2028?)

Meaning over the course of 3 years 10 months your £108.74 would net 27.00 in coupons (9x3.00) giving a total return of 127.00 per 108.74 invested, a net profit of 18.26 and an effective interest rate of approx 4.75%

Thanks again

aroominyork

Not quite.

1) A final coupon is paid on the maturity date.

2) You make a capital loss since you invest £108.74 but get back £100.

Hence the yield is lower than you calculated: 3.988% according to https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

hallmark

Thanks again, I need to play around with examples a bit to sort my maths.  I hadn't realised gilts could be bought online at AJ Bell, far more appealing than having to phone with II.

GeoffTF

hallmark said:

Newb question, is it possible to sell early if for any reason you want to?

Yes you can sell gilts before maturity.

wmb194

A new option via Freetrade is one month Treasury Bills, c.5% annualised. You're locked in for the month though, no selling early. As it's classed as a deeply discounted security capital gains on these are considered to be interest.

https://freetrade.io/treasury

aroominyork

hallmark said:

Thanks again, I need to play around with examples a bit to sort my maths.  I hadn't realised gilts could be bought online at AJ Bell, far more appealing than having to phone with II.

Why bother with the maths when there are websites that tell you the yield? Anorak curiosity?
I buy gilts online with ii.

hallmark

aroominyork said:

hallmark said:

Thanks again, I need to play around with examples a bit to sort my maths.  I hadn't realised gilts could be bought online at AJ Bell, far more appealing than having to phone with II.

Why bother with the maths when there are websites that tell you the yield? Anorak curiosity?
I buy gilts online with ii.

Mainly just to check if I'm understanding how they work at least reasonably well

Interestingly ChatGPT can't work it out and suggests I use a website too!

Hoenir

GeoffTF said:

Hoenir said:

GeoffTF said:

There are $trillions invested in MMFs. If the yield curve reverts to normal, i.e. higher interest for locking up your money for longer period, that money could be pulled out rapidly. That would give a problem for the banks that are borrowing this money. Holding short term debt does not help much if the banks cannot pay. 

Investors hold the debt not the banks.  Those exiting the funds would suffer. As liquidatating the investments quickly  in the open market would be the challenge. Takes two parties to conduct a trade. 

Perhaps I have not been clear. The banks have borrowed $trillions from MMFs. This is short dated debt. The banks have come to rely on it. 

Which UK based MMF's are you referring too?  I'm not interested in the US as their banking system is regulated in a very different manner. 

The video conflates a number of different aspects to paint a misleading picture to those with a limited understanding. Pretty worthless.