AgdaPkt 2019-06-24 Joint SA PFA - Laserfiche WebLink

Browse Search

6.A. - Page 2 of 37 The portion of the City's portfolio that is managed by PFM has a total market value at quarter end of $144,384,946. As of March 31, the portfolio was earning an annual yield at cost of 2.39 percent, and the yield at market was 2.4 percent. The average maturity of the portfolio was 2.78 years. The market benchmark, selected with consultation from the Council Finance/Audit Subcommittee, is the Bank of America Merrill Lynch (BofA ML) 1-5 year U.S. Treasury Index. Below is a table summarizing the City's portfolio performance compared to the benchmark, for the period ending March 31, 2019. For the past several quarters, PFM positioned the portfolio with a duration less than that of the benchmark to insulate market values in a rising interest rate environment. However, because of the current business cycle and because the Fed stated it had no plans for further rate hikes in 2019, they are now targeting a duration that is in line with the benchmark. In the first quarter, Treasury yields with maturities beyond one year fell 20-30 basis points. Notably, in the last week of the quarter, the 3 -month to 10 -year part of the yield curve inverted temporarily. An inverted yield curve (where long-term yield rates are lower than short-term rates) is considered a predictor of an economic recession. Whereas in the previous quarter Treasuries were the best performing sector (due to wide -spread market de -risking), the first quarter's rebound generated strong excess returns in most of the other income sectors, compared to similar duration Treasuries. PFM found value in the Federal agency sector, primarily in new issues that offered wider than average yield spreads. Asset-backed securities generated positive returns for the quarter and typically experience less volatility than corporates during periods of stress. Looking ahead, PFM will seek to maintain the portfolio duration to be in line with the benchmark. Because of the outlook for slower economic growth, they will continue to maintain diversification among investment grade sectors and favor higher -grade fixed-income sectors including callable agencies for their incremental yield, AAA—rated asset backed securities for their incremental income compared to similar duration government securities, and short-term, high quality credit through negotiable certificates of deposit. Although the treasury yield curve is flat, corporate spread curve remains positively sloped, offering value for longer maturities. However, given international growth concerns, PFM will remain diligent in issuer and security selection in the corporate sector. 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. City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 11