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6.A. - Page 25 of 44 <br />REDWOOD CITY <br />Fixed -Income Sector Outlook - July 2019 <br />For the Quarter Ended June 30, 2019 <br />Market Update <br />Sector <br />Our Investment Preferences <br />Comments <br />COMMERCIAL PAPER <br />• <br />Commercial paper/negotiable CD spreads remain narrow. Short credit <br />/ C D <br />remains higher -yielding than some longer -dated Treasuries. <br />T R E A S U R I E S <br />• Treasury Bill supply increased in March but slowed in April, putting <br />T -Bill <br />downward pressure on rates. <br />• The 3 -month to 10 -year part of the yield curve briefly inverted in the <br />T <br />—♦ <br />past two months, renewing concerns about a possible recession. With <br />-Note <br />a flat -to -inverted yield curve, there is little expected roll -down. <br />FEDERAL AGENCIES <br />Federal agency spreads remain very tight. The only value has been in <br />Bullets <br />certain new issue securities. <br />• With the likelihood of the Federal Reserve rate cuts, callable agencies <br />Callables <br />should be avoided. <br />S U P R A N A T I O N A L S <br />_i <br />USD supply has increased modestly; however, spreads remain near <br />historical tights the We to favor UST GSE. <br />across curve. continue or <br />CORPORATES <br />Corporate yield spreads have narrowed back significantly, settling in <br />Financials <br />■ <br />around longer-term. Spreads are near post -recession tights. While the <br />sector is no longer "cheap," we plan to maintain allocations. <br />Industrials <br />• The corporate spread curve remains positively sloped, offering modest <br />value for extending maturities. <br />SEC U R I T I Z E D <br />• The AAA -rated ABS sector continues to offer attractive incremental <br />Asset -Backed <br />' <br />income versus government alternatives and offers a defensive outlet to <br />credit exposure. <br />• With an improving fundamental landscape, Agency MBS are an <br />Agency Mortgage -Backed <br />• <br />attractive alternative to other government sectors due to their <br />incremental income <br />potential. <br />MUNICIPALS <br />Munis continue to be expensive versus Treasuries amid limited supply. <br />0 Current outlook Outlook one month ago <br />Negative Slightly Neutral Slightly <br />Negative Positive <br />PFM Asset Management LLC 29 <br />