AgdaPkt 2018-02-26 Joint SA PFA - Laserfiche WebLink

Browse Search

6.1.C. - Page 2 benchmark, as of December 31, 2017. Total Effective Yield at Average Portfolio/Benchmark Retur Duration Market Maturity Redwood City (0.32%) 2.54 2.05% 2.67 years BofA ML 1-5 year U.S. Treasury (0.38%) 2.59 1.61% 2.79 years Economic data in the fourth quarter was generally favorable: the unemployment rate hovered near a 15 -year low, inflation remained controlled, and the Federal Reserve raised interest rates for the third time in 2017. Additionally, market reaction to the Congressional tax bill reflected expectations for at least a near-term positive economic impact, causing both interest rates and the U.S. Equity markets to rise. As a result, fixed-income returns were mixed for the quarter, with shorter indexes generating negative returns. This quarter, the City's total return was negative due to the market value declines; this decline was below the benchmark, and there is a net -zero effect to investments on this unrealized, or paper, loss. Looking ahead, the Federal Reserve has indicated an expectation for three more interest rate hikes in 2018. This month, Jerome Powell replaced Janet Yellen as Chair of the Federal Reserve. At this time, Mr. Powell is expected to follow closely in Ms. Yellen's footsteps on monetary policy. On the policy front, the dynamics of the municipal bond market may shift because of policy reform; municipal bond issuance is likely to fall sharply creating a potential supply shortage, and the impact of lower individual tax rates could be negative. PFM will continue to favor Treasuries over Agencies except in government -only accounts where current holdings will be maintained. Short-term credit instruments like commercial paper and negotiable certificates of deposit (CDs) with their current yields should compensate for at least three interest rate hikes in 2018. We expect that a high supply of negotiable CDs and supranationals will become available in the first quarter of 2018, and PFM will be evaluating and investing in these asset classes, in particular. PFM will continue to monitor incoming economic data, federal policy, and sector relationships to identify market opportunities. PFM has provided an in-depth market summary and discussion on their investment strategy and outlook in the attached investment report. ALTERNATIVES The Council can ask staff to provide the investment report in a different format, or to include different information. Staff could return at a future Council meeting with an updated report.