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Vanguard said there is a short supply of certain types of municipal securities available in Pennsylvania and New Jersey.


Say goodbye to your single-state municipal bond money-market fund. That could be the upshot of the announcement last Friday by Vanguard Group, which said it was liquidating its Pennsylvania and New Jersey muni money-market funds.

“Due to the short supply of certain types of municipal securities available in Pennsylvania and New Jersey, we believe these specific municipal money markets no longer offer the market depth needed to prudently provide these state-specific products in all market conditions,” Vanguard said in a news release.

The truth is, yields are so low for the ultra-short-term, high-quality municipal debt that money markets buy, particularly in high-tax states, that they can’t cover their costs.

“Tax exempt money-market funds and particularly state specific ones are on the endangered species list,” Peter Crane, president of Crane Data, a company that tracks money markets, said. “The assets are few and far between, and they are going to be hurt most from another zero-yield environment because [muni] tax exemptions don’t help you if there’s no income.” He notes that there are only 71 single-state money markets today with $34 billion in assets, down from $152 billion in 2008, when interest rates previously dropped to zero because of the financial crisis. Rates have remained low ever since.

Nor are muni funds the only ones suffering from a lack of yield. This month, Vanguard converted its Prime money-market fund to Vanguard Cash Reserves Federal Money Market, which invests only in government bonds, for similar reasons.

In the case of the $1.8 billion Vanguard Pennsylvania Municipal Money Market Fund (ticker: VPTXX), its SEC yield as of Sept. 24 was 0.01%, while the yield on the $1.2 billion Vanguard New Jersey