AgdaPkt 2018-05-21 Joint SA PFA - Laserfiche WebLink

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PFM Asset Management LLC REDWOOD CITY For the Quarter Ended March 31, 2018 Outlook The economic themes of the previous quarter have carried over into 2018: healthy job production, consistent GDP growth, posit ive corporate guidance, and heightened consumer confidence. However, where complacency had characterized the global markets quarter after quarter, volatility roared back in the first quarter. While rising volatility increases some market risks, it c an also create investment opportunities. Our outlook for each of the major investment-grade fixed income sectors are as follows : •In the corporate sector, our view is that recent yield spread widening represents a modest normalization of spreads off of po st- recession lows as opposed to a weakening in fundamentals. As such, wider spreads present an opportunity to selectively add to allocations at higher yields. •Negotiable CDs and asset-backed securities remain attractively priced credit sectors, and we will continue to look for new opportunities. •Federal agency securities remain expensive, as spreads are in the low single digits across much of the yield curve; however, by quarter end, specific agency maturities were more attractively priced, representing an opportunity to potentially increase allocations . •The expected spike in supranational issuance is approaching its seasonal slowdown. Over the next few months, this supply dynamic may nudge spreads temporarily wider and offer additional investment opportunities. Our current strategy calls for continuing to add to allocations of supranationals as an attractive alternative to Treasuries and agencies . •With municipal market issuance down significantly year-to-date, opportunities to add to the sector remain limited. However, municipals provide positive diversification prospects to portfolios, and we will continue to seek out attractive issues in bo th the secondary and new issue markets . •The increasing pace of Fed balance sheet run-off in the MBS sector, coupled with an anticipated increase in seasonal supply, warrants a cautious approach to the sector. Portfolio additions will be based on specific collateral, coupon, and overall sen sitivity to rising rates. •The short-term credit curve (under one year) steepened noticeably heading into the March Fed meeting and remained elevated through quarter end. With 6-month prime commercial paper and negotiable certificates of deposit spreads at 50 to 60 basis points over comparable Treasury securities, the sector appears very attractive and compensates investors for at least two mor e fed rate hikes in 2018. Investment Strategy Outlook 10 6.1.B. - Page 16