AgdaPkt 2020-04-13 Joint SA PFA - Laserfiche WebLink

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5.13. - Page 14 of 59 For the Quarter Ended December 31, 2019 REDWOOD CITY Outlook Investment Strategy Outlook • We expect the Fed to remain on hold for an extended period and rates to remain mostly range -bound in the near term. As a result, we plan to continue a duration -neutral strategy relative to benchmarks. • Our outlook for the major investment-grade fixed income sectors is as follows: • Federal agency yield spreads remain very tight after trading in a close range for most of 2019. We do not expect this to change. We continue to favor further reductions in agency holdings as their benefit and upside are limited. • In the supranational sector, we are positioned to take advantage of any seasonal uptick in new issuance, if yield spreads represent fair value relative to other government sector alternatives. But we plan to remain on the sidelines until such opportunities are available. • In the IG corporate sector, we may modestly reduce allocations and target a modestly higher average credit quality. Although the credit markets are benefiting from stable fundamentals, positive earnings growth, and strong demand, yield spreads have recently approached post -recession lows, making them less attractive. • Yield spreads on AAA -rated asset backed securities (ABS) gradually ascended off multi-year lows to close 2019. In some instances, ABS spreads are now wider than those on some high-grade corporate bonds. As a result, we view the ABS sector as a strong alternative to corporates. • We expect the recent surge of municipal issuance to continue in the near term, albeit at more moderate levels assuming the Fed maintains their patient stance and the interest rate environment remains steady. We plan to monitor the sector for instances where yield concessions offer attractive value relative to other government securities. • In the money market space, a positively sloped yield curve and wide spreads have created opportunities in negotiable CDs and commercial paper for incremental earnings potential. PFM Asset Management LLC 23