United States Treasury Money Mutual Funds

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United States Treasury Money Mutual Funds

What they are

United States Treasury money mutual funds pool investor cash to buy short‑term, low‑risk U.S. government securities—primarily Treasury bills and repurchase agreements backed by Treasuries. These funds are designed to preserve principal, provide liquidity, and serve as a cash-management vehicle.

How they work

  • Portfolio composition: Invest almost exclusively in U.S. government debt (Treasury bills, repurchase agreements collateralized by Treasuries).
  • Net asset value (NAV): Most Treasury money market funds use amortized-cost accounting to maintain a stable $1.00 NAV per share.
  • Use cases: Cash parking, emergency reserves, brokerage cash sweep options, and short-term liquidity needs.

Regulatory framework

Treasury money funds are regulated under SEC rules for money market funds (Rule 2a‑7 of the Investment Company Act). Key provisions include:
– Credit quality: Funds may only hold very high‑quality debt.
– Maturity limits: Average dollar‑weighted maturity cannot exceed 60 days.
– Liquidity requirements:
– At least 10% of assets must be convertible to cash within one business day.
– At least 30% within five business days.
– No more than 5% may be invested in securities that take longer than seven days to convert to cash.
These rules were strengthened after the 2008 financial crisis to improve stability and investor protection.

Types and alternatives

  • Money market (Treasury) funds: Focus on ultra‑short maturities and liquidity; aim to preserve $1 NAV.
  • U.S. government mutual funds (non‑money‑market): May hold short-, intermediate-, or long‑term Treasuries and can offer higher yields but come with greater interest‑rate and price volatility.

Benefits

  • Very low credit/default risk (backed by the U.S. government).
  • High liquidity and capital preservation (when held in money market form).
  • Useful for short-term cash management and as a conservative core of a cash allocation.

Risks and tradeoffs

  • Low yields compared with longer‑term or higher‑risk fixed‑income investments.
  • Interest‑rate/price risk for government bond funds with longer durations (not money market funds).
  • Inflation risk: returns may not keep pace with inflation.
  • Although rare, money funds can experience stress in extreme market conditions.

Examples (popular funds)

Money market (Treasury-focused)
– Vanguard Treasury Money Market Fund (VUSXX)
– Fidelity Treasury Only Money Market Fund (FDLXX)
– American Century Capital Preservation Fund (CPFXX)

U.S. government mutual funds (short to long duration)
– Eaton Vance Short Duration Government Income Fund (EALDX)
– Commerce Short Term Government Fund (CFSTX)
– Federated Hermes Total Return Government Bond Fund (FTRGX)
– Fidelity Intermediate Treasury Bond Index Fund (FUAMX)
– Vanguard Extended Duration Treasury Index Fund (VEDTX)
– Fidelity Long‑Term Treasury Bond Index Fund (FNBGX)

Who should consider them

  • Investors seeking principal preservation and high liquidity.
  • Individuals or institutions needing a cash-management vehicle.
  • Conservative investors who prefer government-backed short-term instruments.

Key takeaways

  • Treasury money mutual funds invest in ultra‑safe, highly liquid U.S. government securities.
  • SEC rules (Rule 2a‑7) limit maturity and require liquidity to protect investors.
  • They offer capital preservation and convenience at the cost of relatively low yields; longer‑duration government funds can provide higher returns but carry more interest‑rate risk.