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Investment Strategy OutlookFor the Quarter Ended June 30, 2017Fixed Income ManagementOur outlook for the third quarter is for continued modest growth in the U.S. economy. But, the future path of Fed tightening is less certain as recent economic data has been disappointing, fiscal policy initiatives have stalled, and inflation remains below the Fed’s 2% target.With rates priced for the current level of uncertainty, we are once again positioning the portfolio’s duration to match the benchmark. We will continue to assess our duration positioning during the quarter as we gain more clarity surrounding Fed policy and trajectory of the U.S. and global economy. Agency yield spreads remain at or near historically tight levels as demand remains strong while supply is minimal. Unless we find an issue with appropriate yield spread, our strategy will generally favor U.S. Treasuries over agencies except in government-only accounts where current holdings will be maintained. Supranational issues may offer alternatives, but yield spreads in that sector have tightened since the start of the year. Corporate yield spreads are near the tightest levels since the post-recession of 2014. Although we remain constructive on the fundamental strength of the sector, we plan to be more selective with regard to our choice of industry, issuer, and maturity while maintaining broad issuer diversification. Given the flatness of the yield curve, we may favor somewhat shorter maturities. Our strategy continues to favor broad allocation to various credit sectors, including corporate notes, and commercial paper.In the money market space, yield spreads on commercial paper have narrowed significantly from the wide levels driven by money market reform in late 2016. Given low short-term Treasury and agency yields, CP spreads still offer modest incremental yield, but supply is somewhat constrained. Agency discount notes offer little value relative to Treasuries except in the shortest maturities.We will continue to monitor incoming economic data, Fed policy, and sector relationships to identify market opportunities. This will include assessing the impact of any additional policies put forth by the Trump administration.PFM Asset Management LLCREDWOOD CITY116.1.C. - Page 21