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Portfolio/Benchmark Total <br />Return <br />Effective <br />Duration <br />Yield at <br />Market <br />Average <br />Maturity <br />Redwood City 0.43% 2.21 1.49% 2.36 years <br />BofA ML 1-5 year U.S. Treasury Index 0.37% 2.63 1.48% 2.80 years <br /> <br />Key drivers of market conditions in the first quarter of 2017 included the Federal fund <br />rate change, early rollout of various polices from the new presidential administration, <br />continued improvement of consumer confidence, and further stock market appreciation. <br />PFM’s primary strategy this quarter was to maintain “neutral” durations through January <br />and February, as market conditions were consistent with an economic outlook for <br />moderate growth. They shifted to a more defensive posture in late February as the <br />March rate hike became imminent and rates rose quickly. Yield spreads between U.S. <br />Treasuries and Agencies remained historically tight during the quarter; PFM worked to <br />swap out of the expensive Agency holdings into U.S. Treasuries at similar yields, and <br />purchase new issues mostly in the 2-3 ear maturity range. The corporate sector <br />outperformed comparable-maturity Treasuries for the sixth straight quarter. <br /> <br />Looking ahead, PFM anticipates the Federal fund rate will be increased at least two <br />more times in 2017. PFM will continue to favor Treasuries over Agencies. Rising <br />interest rates ultimately result in higher earnings potential, but also negatively affect the <br />market value of current holdings. This may result in short-term losses. Corporate <br />securities remain near multi-year lows; however, improving corporate profits as well as <br />pro-business measures from the presidential administration should improve yields. PFM <br />will continue to monitor carefully opportunities in various sectors, including corporate <br />securities, negotiable bank CDs, and asset-backed securities. <br /> <br />PFM has provided an in-depth market summary and discussion on their investment <br />strategy and outlook in the attached investment report. <br /> <br />ALTERNATIVES <br />The Council can ask staff to provide the investment report in a different format or <br />include different information; staff could return at a future Council meeting with an <br />updated report. <br /> <br />FISCAL IMPACT <br />The City’s portfolio received $577,772 in interest earnings over the last quarter. All <br />interest earnings are allocated monthly through a preset methodology that spreads <br />earnings to the appropriate funds. Fees for PFM’s services during this period are <br />$22,291. <br /> <br /> <br />ENVIRONMENTAL REVIEW <br />6.1.A. - Page 2