Report to City Council ID#2071 Page 1 TO: Mayor and City Council FROM: Marshall Eyerman, Chief Financial Officer AGENDA DATE: June 7, 2016 TITLE: RECEIPT OF QUARTERLY INVESTMENT REPORT FOR THE QUARTER ENDED MARCH 31, 2016 RECOMMENDED ACTION Recommendation: 1. Receive and file the Quarterly Investment Report for quarter ended March 31, 2016, in compliance with the City’s Investment Policy. SUMMARY The attached Quarterly Investment Report presents the City’s cash and investments for the quarter that ended March 31, 2016. This report is in compliance with California Government Code Section 53646 regarding the reporting of detailed information on all securities, investments, and monies of the City, as well as the reporting of the market value of the investments held. All of the investments contained within the portfolio are in full compliance with the City’s Investment Policy and Government Code Section 53601 as to the types of investments allowed. It is recommended that the City Council receive and file the attached Quarterly Investment Report. DISCUSSION The City maintains a portfolio of investments in order to earn interest on cash balances that are not currently required to fund operations. California Government Code Sections 53601 and 53646 establish the types of investments allowed, the governing restrictions on these investments, the third-party custodian arrangement for certain investments, and the reporting practices related to the portfolios of local agencies. The City has implemented an Investment Policy which was revised and adopted on June 9, 2015 and is in full compliance with the requirements of both of the above-mentioned Code Sections.
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Report to City Council
ID#2071 Page 1
TO: Mayor and City Council FROM: Marshall Eyerman, Chief Financial Officer AGENDA DATE: June 7, 2016 TITLE: RECEIPT OF QUARTERLY INVESTMENT REPORT FOR
THE QUARTER ENDED MARCH 31, 2016 RECOMMENDED ACTION
Recommendation: 1. Receive and file the Quarterly Investment Report for quarter ended March 31,
2016, in compliance with the City’s Investment Policy. SUMMARY The attached Quarterly Investment Report presents the City’s cash and investments for the quarter that ended March 31, 2016. This report is in compliance with California Government Code Section 53646 regarding the reporting of detailed information on all securities, investments, and monies of the City, as well as the reporting of the market value of the investments held. All of the investments contained within the portfolio are in full compliance with the City’s Investment Policy and Government Code Section 53601 as to the types of investments allowed. It is recommended that the City Council receive and file the attached Quarterly Investment Report. DISCUSSION The City maintains a portfolio of investments in order to earn interest on cash balances that are not currently required to fund operations. California Government Code Sections 53601 and 53646 establish the types of investments allowed, the governing restrictions on these investments, the third-party custodian arrangement for certain investments, and the reporting practices related to the portfolios of local agencies. The City has implemented an Investment Policy which was revised and adopted on June 9, 2015 and is in full compliance with the requirements of both of the above-mentioned Code Sections.
Page 2
The attached Quarterly Investment Report presents the City’s cash and investments for the quarter that ended March 31, 2016. The report complies with California Government Code Section 53646 regarding the reporting of detailed information on all securities, investments, and monies of the City, as well as the reporting of the market value of the investments held. All of the investments contained within the portfolio are in full compliance with the City’s Investment Policy and Government Code Section 53601 as to the types of investments allowed. As stated in the attached report, there is more than adequate liquidity within the portfolio for the City to meet its budgeted expenditures over the next six months. The City’s investment policy has set the primary goals of the portfolio management as Safety and Liquidity followed by Yield. The City currently utilizes two investment management firms who use an active investment management approach in which securities are purchased but not necessarily held to maturity, and may be actively traded based on market conditions and the City’s investment goals. The City’s cash flow requirements are evaluated on an ongoing basis, with short-term needs accommodated through the City’s pooled investment funds with the State Local Agency Investment Fund (LAIF). LAIF is a pool of public funds managed by the State Treasurer of California, providing 24-hour liquidity while yielding a rate of return approximately equivalent to a one-year treasury bill. With the combined use of a conservative approach to evaluating cash flow needs and LAIF liquidity, the City will not have to liquidate securities at current market rates that are intended to be held for longer-term investment. The table shows some of the key portfolio measure for the month.
Portfolio Balance
Avg. Yield to Maturity Trends
Mar 2016 Feb 2016 Mar 2015 Chandler $82,721,056 1.46% 1.44% 1.37% Insight $54,499,863 1.08% 1.08% 1.07 LAIF $34,310,627 0.506% 0.467% 0.278%
Bond proceeds are held and invested by a Trustee. The investment of these funds is governed by an investment policy approved by the City Council as a part of the governing documents for each specific bond issue. Deferred Compensation Plan funds are included in the report but these funds are held and invested by the respective plan administrators based on the direction of the participating employees. These funds are placed in a trust separate from City funds. ALTERNATIVES 1. Receive and file the Quarterly Investment Report for March 31, 2016. Staff recommends this alternative as it accomplishes timely investment reporting. 2. Do not accept and file the Quarterly Investment Report and provide staff with additional direction. Staff does not recommend this alternative as it will not accomplish timely investment reporting.
Page 3
FISCAL IMPACT Even following the Fed Funds Rate hike of 25 basis points in December, rates continue to be at or near all-time lows. This directly impacts the ability of the portfolio to generate interest income and the ability to generate additional income through the active management of the portfolio. The budget anticipated investment income for the General Fund of $2,000,000. Through December, investment income has totaled $1,011,217. NOTIFICATION Publication of the agenda PREPARATION OF STAFF REPORT Prepared By: Department Head Approval: Brooke McKinney Marshall Eyerman Treasury Operations Division Manager Chief Financial Officer/City Treasurer
CITY COUNCIL GOALS
Revenue Diversification and Preservation. Develop a variety of City revenue sources and policies to create a stable revenue base and fiscal policies to support essential City services, regardless of economic climate. CITY COUNCIL STRATEGIC PRIORITIES
1. Economic Development 2. Public Safety 3. Library 4. Infrastructure 5. Beautification, Community Engagement, and Quality of Life 6. Youth Programs
ATTACHMENTS
1. March 2016 Investment Report
2. Chandler Asset Management Bond Review - April 2016
12,867,631Principal & Interest Accounts 601,502Debt Service Reserve Funds 2,762,325
8Arbitrage Rebate Accounts 100,437
45,93416,377,837
Market Value as of
Mar 31, 2016
12,524,4175,248,932
17,773,349
Total Investment Portfolio 208,265,807
1. I hereby certify that the investments are in compliance with the investment policy adopted by the City Council. There are no items of non-compliance for this period.
2. The market values for the specific investments in the General Portfolio are provided by the City's investment advisor, Chandler Asset Management.
3. The market value for LAIF is provided by the State Treasurer.
4. The market values for investments held by fiscal agents and the deferred compensation plans are provided by each respective trustee or fiscal agent.
5. The City has the ability to meet its budgeted expenditures for the next six months pending any future action by City Council or any unforeseen catastrophic event.
/S/ Marshall Eyerman
City Treasurer
General Portfolio
CITY OF MORENO VALLEY
Treasurer's Cash and Investments Report
March 2016
Deferred Compensation Funds
Bond Proceeds with Fiscal Agents
Bank AccountsState of California LAIF Pool Investments-Chandler
(5) The portfolio benchmarks are: Chandler-Bank of America-Merrill Lynch 1 to 5 year Government Index and Insight- Bank of America-Merrill Lynch 1 to 3 year Treasury Index
Investment
Portfolio (4)
(1) Total General Portfolio includes all assets that comprise the City's Investment Portfolio which is LAIF as well as assets managed by Chandler and Cutwater.
(2) Yield to Maturity (YTM): The rate of return on an investment or security if it were to be held until maturity. This yield does not reflect changes in the market value of a security
(3) Rate of Return represents the gain or loss on an investment or portfolio of investments over a specified period, expressed as a percentage of increase over the initial investment cost. Gains on
investments are considered to be any income received from the security or portfolio plus any realized capital gain. This measure of return recognizes the changes in market values of a security or portfolio
of securities.
(4) The Rate of Return for the investment portfolio reflects the performance of the portfolio durint the past twelve months.
Rate of Return (3)
(6)As the result of a transition to a new reporting platform Weighted Avg Yield to Maturity and Total Return Yield data is not available. Insight staff are working to rectify this problem.
Weighted
Avg YTM (2)
Rate of Return (3)
PORTFOLIO PERFORMANCE - 36 MONTH TREND
Period
Total General Portfolio (1)
Local Agency
Investment Fund (LAIF)
Chandler Insight
Weighted
Avg YTM
(2)
Page 2 of 28
CITY OF MORENO VALLEY
Treasurer's Cash and Investments Report
PORTFOLIO PERFORMANCE - 36 MONTH TREND
Period
Total General Portfolio (1)
Local Agency
Investment Fund (LAIF)
Chandler Insight
The portfolio invested in LAIF represents the City's immediate cash liquidity needs and is managed by City staff in a manner to fund the day to day operations of the City.
The portfolio managed by Insight is comprised of idle cash balances related to funds that generally expect to expend cash within the next 36 months. (Example: Gen Fund, Zone A, Measure A, NSP etc.)
The portfolio managed by Chandler is comprise of idle cash balances related to funds that generally expect to expend cash with the next 24 to 60 months. (Example: Facility & Equip Replacement, Endowments etc.)
PORTFOLIO CHARACTERISTICS
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
$130
$140
$150
$160
$170
$180
$190
$200
$210
$220
$230M
illi
on
s
Portfolio Balances Trend Total Portfolio LAIF Chandler Insight
-0.1%
0.2%
0.5%
0.7%
1.0%
1.2%
1.5%
1.7%
2.0%
2.2%Avg Yield to Maturity Trend
LAIF Chandler Insight
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%Insight Rate of Return
Insight BAML Gov 1-3 yr Bench
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%Chandler Rate of Return
Chandler Portfolio BAML Gov 1-5 Yr Bench
Page 3 of 28
CITY OF MORENO VALLEY
Treasurer's Cash and Investments Report
Account Name
Account
Number Investment Issuer
Purchase
Date
Maturity
Date Market Value
Stated
Rate Yield Price
% of of
Portfolio
Wells Fargo 2007 Taxable Lease Revenue Bonds - Electric Utility
bond fund 22277600 money mkt fund WF Govt Fund 03/31/16 04/01/16 3 0.01% 0.01% 1.00000 0.000%
interest fund 22277601 money mkt fund WF Govt Fund 03/31/16 04/01/16 1 0.01% 0.01% 1.00000 0.000%
principal fund 22277602 money mkt fund WF Govt Fund 03/31/16 04/01/16 1 0.01% 0.01% 1.00000 0.000%
5
Wells Fargo
Series B Revenue 22333500 money mkt fund WF Govt Fund 03/31/16 04/01/16 44,675 0.01% 0.01% 1.00000 0.273%
Series A Principal 22333501 money mkt fund WF Govt Fund 03/31/16 04/01/16 1 0.01% 2.71% 1.00000 0.000%
Series B reserve 22333503 money mkt fund WF Govt Fund 03/31/16 04/01/16 546,032 0.01% 0.01% 1.00000 3.334%
Series B admin fund 22333504 money mkt fund WF Govt Fund 03/31/16 04/01/16 87 0.01% 0.01% 1.00000 0.001%
590,795
Wells Fargo 2007 Redevelopment Agency Tax Allocation Bonds Sereis A
debt service fund 22631700 money mkt fund WF Govt Fund 03/31/16 04/01/16 1 0.01% 0.01% 1.00000 0.000%
interest fund 22631701 money mkt fund WF Govt Fund 03/31/16 04/01/16 6 0.01% 0.01% 1.00000 0.000%
principal fund 22631702 money mkt fund WF Govt Fund 03/31/16 04/01/16 1 0.01% 0.01% 1.00000 0.000%
8
Wells Fargo Community Facilities Disctrict 87-1 (IA-1)
special tax funds 22631800 money market fund WF Govt Fund 03/31/16 04/01/16 696,940 0.01% 0.01% 1.00000 4.255%
interest acct 22631801 money market fund WF Govt Fund 03/31/16 04/01/16 53 0.01% 0.01% 1.00000 0.000%
reserve fund 22631802 money market fund WF Govt Fund 03/31/16 04/01/16 2 0.01% 0.01% 1.00000 0.000%
reserve fund 22631804 money market fund WF Govt Fund 03/31/16 04/01/16 1,028,715 0.01% 0.01% 1.00000 6.281%
admin exp acct 22631805 money market fund WF Govt Fund 03/31/16 04/01/16 377 0.01% 0.01% 1.00000 0.002%
debt service acct 22631809 money market fund WF Govt Fund 03/31/16 04/01/16 536,147 0.01% 0.01% 1.00000 3.274%
surplus acct 22631810 money market fund WF Govt Fund 03/31/16 04/01/16 0 0.01% 0.01% 1.00000 0.000%
special tax funds 22631900 money market fund WF Govt Fund 03/31/16 04/01/16 125,285 0.01% 0.01% 1.00000 0.765%
interest acct 22631901 money market fund WF Govt Fund 03/31/16 04/01/16 55,319 0.01% 0.01% 1.00000 0.338%
principal fund 22631902 money market fund WF Govt Fund 03/31/16 04/01/16 1 0.01% 0.01% 1.00000 0.000%
reserve fund 22631904 money market fund WF Govt Fund 03/31/16 04/01/16 365,351 0.01% 0.01% 1.00000 2.231%
admin exp acct 22631905 money market fund WF Govt Fund 03/31/16 04/01/16 795 0.01% 0.01% 1.00000 0.005%
surplus acct 22631907 money market fund WF Govt Fund 03/31/16 04/01/16 100,437 0.01% 0.01% 1.00000 0.613%
2,909,422
Wells Fargo 2013 Total Road Improvement COPs
revenue fund 46612400 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 2 0.01% 0.01% 1.00000 0.000%
interest fund 46612401 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 2 0.01% 0.01% 1.00000 0.000%
principal fund 46612402 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 0 0.01% 0.01% 1.00000 0.000%
reserve fund 46612403 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 0 0.01% 0.01% 1.00000 0.000%
admin fund 46612404 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 734 0.01% 0.01% 1.00000 0.004%
acquisition fund 46612407 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 3,079,611 0.01% 0.01% 1.00000 18.804%
3,080,349
Wells Fargo 2013 Partial Refunding of the 2005 Lease Revenue Bonds
revenue fund 48360700 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 6 0.01% 0.01% 1.00000 0.000%
interest fund 48360701 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 0 0.01% 0.01% 1.00000 0.000%
principal fund 48360702 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 1 0.01% 0.01% 1.00000 0.000%
cost of issuance 48360705 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 0 0.01% 0.01% 1.00000 0.000%
7
Wells Fargo 2014 Partial Refunding of the 2005 Lease Revenue Bonds
revenue fund 83478300 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 2 0.01% 0.01% 1.00000 0.000%
interest fund 83478301 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 1 0.01% 0.01% 1.00000 0.000%
principal fund 83478302 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 0 0.01% 0.01% 1.00000 0.000%
redemption fund 83478303 money mkt fund WF Muni Cash Mgmt Fund 03/31/16 04/01/16 0 0.01% 0.01% 1.00000 0.000%
Information contained herein is confidential. We urge you to compare this statement to the one you receive from your qualified custodian. Prices are provided by IDC, an independent pricing source.
6225 Lusk Boulevard | San Diego, CA 92121 | Phone 800.317.4747 | Fax 858.546.3741 | www.chandlerasset.com
Page 6 of 28
brookem
Typewritten Text
Section 2
ACCOUNT SUMMARY
Beg. Valuesas of 2/29/16
End Valuesas of 3/31/16
Market Value 83,143,745 83,493,011Accrued Interest 265,552 255,435Total Market Value 83,409,298 83,748,446
Income Earned 97,180 100,303Cont/WD 0
Par 82,617,177 82,721,056Book Value 82,323,248 82,440,942Cost Value 82,257,298 82,353,402
Category Standard CommentTreasury Issues No Limitation CompliesAgency Issues No Limitation CompliesSupranationals 30% max; 5% max per issuer; "AA" rated by a NRSRO;
Issued by IBRD, IFC or IADB only;Complies
Municipal Securities (Local Agency/State) No Limitation CompliesBanker’s Acceptances 40% maximum; 5% max issuer; 180 days max maturity Complies Commercial Paper 25% maximum; 5% max issuer; 270 days max maturity; "A-
1/P-1/F-1" minimum ratings; "A" rated issuer or higher, if long term debt
Complies
Negotiable Certificates of Deposit 30% maximum; 5% max issuer Complies Medium Term Notes 30% maximum; 5% max issuer; "A" rated or better by a
NRSROComplies
Money Market Mutual Funds 20% maximum; AAA/Aaa or Highest rating CompliesCollateralized Certificates of Deposit (CD)/ Time Deposit (TD)
5% max issuer Complies
FDIC Insured Certificates of Deposit (CD)/Time Deposit (TD)
5% max issuer Complies
Asset-Backed (ABS), Mortgage Backed (MBS) and Collateralized Mortgage Obligations (CMO)
20% maximum; 5% max issuer; "AA" rated or better by a NRSRO; "A" rated issuer
Complies
Repurchase Agreements No limitation; 1-year max maturity Complies Local Agency Investment Fund - L.A.I.F. Maximum program limitation CompliesProhibited Securities Inverse floaters; Ranges notes, Interest only
strips from mortgages; Reverse repurchase agreeements; Futures/Option contracts
Complies
Issuer Maximum 5% per issuer for all non-government issuers and agencies CompliesMaximum maturity 5 years Complies
Weighted Average Maturity 3 years Complies
City of Moreno ValleyMarch 31, 2016
COMPLIANCE WITH INVESTMENT POLICY Assets managed by Chandler Asset Management are in full compliance with State law and with the City's investment policy.
Page 8 of 28
Holdings ReportAs of 3/31/16
City of Moreno Valley
CUSIP Security Description Par Value/UnitsPurchase Date
Book YieldCost Value
Book ValueMkt PriceMkt YTM
Market ValueAccrued Int.
% of Port.Gain/Loss
Moody/S&P Fitch
MaturityDuration
ABS
477879AC4 John Deere Owner Trust 2013-B A30.87% Due 8/15/2017
156,512.32 08/27/20130.88 %
156,490.99156,504.90
100.000.89 %
156,508.7260.52
0.19 %3.82
Aaa / NRAAA
1.380.20
89231MAC9 Toyota Auto Receivables Owner 2014-A0.67% Due 12/15/2017
762,463.82 03/11/20140.69 %
762,322.92762,424.20
99.871.00 %
761,458.13227.04
0.91 %(966.07)
Aaa / AAANR
1.710.40
43814GAC4 Honda Auto Receivables 2014-2 A30.77% Due 3/19/2018
891,297.02 05/13/20140.78 %
891,189.89891,256.64
99.841.04 %
889,892.34247.83
1.06 %(1,364.30)
Aaa / AAANR
1.970.58
47787VAC5 John Deere Owner Trust 2014-A A30.92% Due 4/16/2018
1,165,237.11 04/02/20140.93 %
1,165,050.441,165,172.91
99.961.01 %
1,164,719.74476.45
1.39 %(453.17)
Aaa / NRAAA
2.040.53
43814HAC2 Honda Auto Receivables 2014-3 A30.88% Due 6/15/2018
1,059,054.30 08/12/20140.89 %
1,058,850.011,058,963.72
99.930.99 %
1,058,348.97414.21
1.26 %(614.75)
NR / AAAAAA
2.210.62
477877AD6 John Deere Owner Trust 2014-B A31.07% Due 11/15/2018
620,000.00 08/26/20141.08 %
619,864.59619,931.31
99.961.13 %
619,729.68294.84
0.74 %(201.63)
Aaa / NRAAA
2.630.79
47788MAC4 John Deere Owner Trust 2016-A A31.36% Due 4/15/2020
635,000.00 02/23/20161.37 %
634,900.05634,902.04
99.911.41 %
634,448.82383.82
0.76 %(453.22)
Aaa / NRAAA
4.042.09
Total ABS 5,289,564.57 0.93 %5,288,668.895,289,155.72 1.07 %
Charts sourced from Bloomberg Finance LP February 29, 2016, March 31, 2016.Past performance is no assurance of future returns.Please refer to the important disclosures at the back of this presentation.
Economic Indicators & Monetary Policy: The final estimate of 2015 fourth quarter GrossDomestic Product (GDP) was revised upward to 1.4 percent from 1.0 percent. Strongconsumer spending helped support the increase in GDP. Manufacturing showed signs ofgrowth in February as the Institute for Supply Management’s (ISM) manufacturing index valueincreased to 49.5 from 48.2. While the index value remains below 50 indicating economiccontraction, the February increase was the largest since April 2015. The ISM non-manufacturing index value fell slightly, but remains strong at 53.4 (See Chart 1).
242,000 jobs were added to the work force in February, as the labor market continues itsstrong momentum. The unemployment rate remained at 4.9 percent, but theunderemployment rate dropped to 9.7 percent from 9.9 percent. The underemployment rateonce again reached a post-recession low. Further strength in employment was reported inFebruary as the labor force participation rate increased to 62.9 percent from 62.7 percent.Wages fell slightly on a month-over-month basis, but grew at a 2.2 percent rate on an annualbasis.
Inflation indices were mixed in February. The Producer Price Index (PPI) including food andenergy decreased to negative 0.2 percent on a month-over-month basis. Core PPI decreasedas well, falling to 0.1 percent from 0.2 percent. On an annual basis, however, the headline PPIincreased to 1.2 percent from 0.6 percent and the core PPI increased to 0.9 percent from 0.8percent. On the consumer side, the headline Consumer Price Index (CPI) fell to negative 0.2percent while the core CPI remained unchanged at 0.3 percent on a month-over-month basis.The year-over-year headline CPI was 1.0 percent while the core CPI was 2.3 percent. Inflationindicators may get a boost in March as oil prices have increased to roughly $40 dollars abarrel from $30 dollars a barrel in February.
Housing starts bounced back in February, growing 5.2 percent to an annualized rate of 1.1million. Existing home sales however, decreased 7.1 percent to an annualized rate of 5.08million.
The Federal Open Market Committee (FOMC) voted to maintain the Fed funds target rate at0.25 percent to 0.50 percent during the March 16th meeting. The FOMC also revised its 2016outlook, and now expects to raise the Fed funds target rate twice this year. Following theDecember meeting, the Committee projected three to four interest rate movements in 2016.
Yield Curve & Spreads: At the end of March, the 3-month Treasury bill yielded 0.20 percent,the 6-month Treasury bill yielded 0.38 percent, the 2-year Treasury note yielded 0.72percent, the 5-year Treasury note yielded 1.21 percent, and the 10-year Treasury noteyielded 1.77 percent (See Chart 2).
30.0
40.0
50.0
60.0
70.0
Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16
Month
ly index (
poin
ts)
Non-Manufacturing Manufacturing
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3 m 6 m 1 yr 2 yr 3 yr 4 yr 5 yr 6 yr 7 yr 8 yr 9 yr 10 yr
Perc
enta
ge
3/31/2016
2/29/2016
Page 19 of 28
RECAP OF SECURITIES HELD
As of March 31, 2016
CITY OF MORENO VALLEY
Weighted
average
final
maturity (days)
Weighted
average
effective
duration (years)
Percent
of
portfolio
Amortized
cost
Historical
cost
Fair value Unrealized
gain (loss)
Cash and Cash Equivalents 319,863.03 319,863.03 319,863.03 0.00 0.59 0.001
Income3135G0YM9 Government Agencies FANNIE MAE 1.875% 09/18/2018 2,000,000.00 0.00 18,750.000.00
6,826.7503/21/2016
03/21/2016
Income3133EAY28 Government Agencies FEDERAL FARM CREDIT BANK 09/21/2017 1,645,000.00 0.00 6,826.750.00
5,735.0003/22/2016
03/22/2016
Income0258M0DR7 Corporate Bonds AMERICAN EXPRESS CREDIT 09/22/2017 740,000.00 0.00 5,735.000.00
(562.50)03/28/2016
03/30/2016
Bought3137EADZ9 Government Agencies FREDDIE MAC 1.125% 04/15/2019 2,000,000.00 (2,000,040.00) (2,000,602.50)0.00
26,337.5003/30/2016
03/30/2016
Income313372YS7 Government Agencies FEDERAL HOME LOAN BANK 03/30/2016 2,150,000.00 0.00 26,337.500.00
0.0003/30/2016
03/30/2016
Capital Change313372YS7 Government Agencies FEDERAL HOME LOAN BANK 03/30/2016 (2,150,000.00) 2,150,000.00 2,150,000.000.00
8,984.3803/31/2016
03/31/2016
Income912828TS9 Government Bonds USA TREASURY 0.625% 09/30/2017 2,875,000.00 0.00 8,984.380.00
3,750.0003/31/2016
03/31/2016
Income912828UU2 Government Bonds USA TREASURY 0.75% 03/31/2018 1,000,000.00 0.00 3,750.000.00
47.90Income Cash and Cash Equivalents Cash 47.900.00 0.000.0003/31/2016
Page 28 of 28
0.00%
1.00%
2.00%
3.00%
4.00%
MAR 2015 FEB 2016 MAR 2016
CHANDLER ASSET MANAGEMENT
BOND MARKET REVIEW
Since 1988, Chandler Asset
Management has specialized
in the management of fixed
income portfolios. Chandler's
mission is to provide fully
customizable, client-centered
portfolio management that
preserves principal, manages
risk and generates income in
our clients’ portfolios.
A MONTHLY REVIEW OF
FIXED INCOME MARKETS
WHAT’S INSIDE
Market Summary . . . . . . . . . . . 1
Yield Curve
Current Yields
Economic Round-Up. . . . . . . . 2
Credit Spreads
Economic Indicators
April 2016
Market Summary The Federal Open Market Committee (FOMC) left policy rates unchanged in March, as expected. The tone of the FOMC policy statement was largely dovish and the Committee’s consensus forecast for the year-end target federal funds rate was revised down to a level more closely aligned with market expectations. The FOMC’s median forecast now implies two rate hikes in 2016 versus the previous forecast of four rate hikes. Fed funds futures prices currently imply just one more rate hike this year. The FOMC also adjusted some of their longer term forecasts, with the pace of rate hikes in 2017 and 2018 moving modestly lower. Esther George, the President of the Federal Reserve Bank of Kansas City was the lone dissenter at the March meeting, preferring to see the target fed funds rate increase by 0.25%. We believe monetary policy continues to be data dependent and we will be watching developments in currency market valuations, in particular the direction of the US Dollar, to help ascertain the future direction of the FOMC. A stable or weaker dollar will likely give the FOMC more latitude to continue the normalization process specific to the federal funds target rate; a stronger dollar would have the opposite impact.
Domestic economic data is generally favorable. Labor market trends continue to improve, consumer confidence is strong, and housing trends remain healthy. In addition, manufacturing trends seem to be improving. Payrolls have increased by an average of 209,000 per month over the past three months. Meanwhile inflation pressures remain contained. Fourth quarter 2015 GDP grew at a stronger than expected annualized pace of 1.4%, following growth of 2.0% in the third quarter. Market participants have been forecasting GDP growth of about 2.0% in the first quarter of 2016, but some economists recently reduced their forecast.
In March, the Treasury yield curve steepened slightly, with the 2-year Treasury yield down five basis points and the 10-year Treasury yield up three basis points. We believe the modest decline in shorter-term yields was influenced by largely dovish comments made by members of the FOMC during the month. Even though inflation remains contained for now, which gives the Fed more leeway to remain highly accommodative, we believe strong labor market trends leave the door open for the Fed to continue normalizing monetary policy this year. We believe two more 25 basis point fed funds rate hikes before year-end are possible. Ongoing uncertainty about monetary policy and how the Fed communicates its economic projections will likely continue to fuel financial market volatility.
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In March, the Treasury yield curve steepened slightly. However, over the past three month the yield curve has flattened with the 2-year Treasury yield down about 33 basis points and the 10-year Treasury yield down about 50 basis points. We believe the modest curve steepening during March was influenced by dovish comments made by members of the FOMC in the month.
TREASURY YIELDS 3/31/2016 2/29/2016 CHANGE
3 Month 0.20 0.32 (0.12)
2 Year 0.72 0.78 (0.06)
3 Year 0.85 0.89 (0.04)
5 Year 1.21 1.21 0.00
7 Year 1.53 1.52 0.01
10 Year 1.77 1.74 0.03
30 Year 2.61 2.62 (0.01)
Source: Bloomberg
Source: Bloomberg
THE TREASURY YIELD STEEPENED SLIGHTLY
Economic Roundup
Consumer Prices Inflation pressures remain contained for now. The Consumer Price Index (CPI) was up just 1.0% year-over-year in February, vs. 1.4% in January. Core CPI (CPI less food and energy) was up 2.3% in February, vs. 2.2% in January. The Personal Consumption Expenditures (PCE) index was up 1.0% year-over-year in February, vs. up 1.3% in January. Core PCE (excluding food and energy) was up 1.7% year-over-year in February, unchanged from January. PCE remains below the Fed’s 2.0% target.
Retail Sales Consumer spending trends have underwhelmed but we are hopeful the impact of lower commodity prices will begin to provide a tailwind. On a year-over-year basis, retail sales were up 3.1% in February, vs. up 3.0% in January. On a month-over-month basis, retail sales, excluding autos and gas, were in line with expectations in February, up 0.3%. However, retail sales in January were revised down to a decline of 0.1% from a gain of 0.4%. Overall retail sales, including autos and gas, were down 0.1% in February, following a disappointing 0.4% decline in January.
Labor Market The March employment report was stronger than expected. Nonfarm payrolls rose by 215,000 in March, exceeding the consensus forecast of 205,000. January and February payrolls were revised down slightly by a net total of 1,000. The unemployment rate inched up to 5.0% from 4.9%, as the participation rate increased to 63.0% from 62.9%. A broader measure of unemployment called the U-6, which includes those whom are marginally attached to the labor force and employed part time for economic reasons, also ticked up to 9.8% from 9.7%. Wages rose 0.3% in March, exceeding expectations. During the first quarter of 2016, payrolls increased by an average of 209,000 per month, compared to the trailing six-month average of 246,000. Overall, the March jobs report points to ongoing strength in the labor market.
Housing Starts Total housing starts rose 5.2% on a month-over-month basis in February, exceeding expectations. Single-family housing starts grew 7.2% while multi-family starts rose 0.8%. Housing starts tend to be volatile on a month-to-month basis, but the underlying trend is solid with total housing starts up 30.9% on a year-over-year basis. Overall, we believe housing market trends remain healthy.
CREDIT SPREADS Spread to Treasuries (%) One Month Ago (%) Change (%)
3-month top-rated commercial paper 0.29 0.18 0.11
2-year A corporate note 0.57 0.69 (0.12)
5-year A corporate note 0.85 1.05 (0.20)
5-year Agency note 0.19 0.23 (0.04)
Source: Bloomberg Data as of 3/31/2016
Credit Spreads Tightened in March
ECONOMIC INDICATOR Current Release Prior Release One Year Ago
Trade Balance (47.1) $Bln FEB 16 (45.9) $Bln JAN 16 (38.6) $Bln FEB 15
GDP 1.4% DEC 15 2.0% SEP 15 2.1% DEC 14
Unemployment Rate 5.0% MAR 16 4.9% FEB 16 5.5% MAR 15
Prime Rate 3.5% MAR 16 3.5% FEB 16 3.25% MAR 15
CRB Index 170.52 MAR 16 163.21 FEB 16 211.86 MAR 15
Oil (West Texas Int.) $38.34 MAR 16 $33.75 FEB 16 $47.60 MAR 15
Consumer Price Index (y/o/y) 1.0% FEB 16 1.4% JAN 15 (0.0)% FEB 15
Producer Price Index (y/o/y) (1.9%) FEB 16 (1.2%) JAN 16 (3.2)% FEB 15
PLEASE SEE THE REVERSE SIDE FOR IMPORTANT DISCLOSURES AND ADDITIONAL INFORMATION
WEEKLY ECONOMIC UPDATE Apr 11, 2016
ISM INDICES INCREASE, INITIAL JOBLESS CLAIMS FALL
Institute for Supply Management Indices
3/2011 – 3/2016
Source: Institute for Supply Management
Selected current economic data
Data Period (%)
GDP QoQ Q4 15 1.4%
GDP YoY Q4 15 2.0%
PPI YoY Feb-16 0.0%
CPI YoY Feb-16 1.0%
Jobless Rate Mar-16 5.0%
Fed Funds Target Apr-16 0.25 - 0.50%
Source: Bloomberg Finance LP.
Agency Yields
Term 04/07/16 03/31/16 Change
3 month 0.30% 0.29% 0.01%
6 month 0.44% 0.49% -0.05%
2 year 0.79% 0.76% 0.03%
5 year 1.29% 1.33% -0.04%
10 Year 1.81% 1.88% -0.07%
Source: Bloomberg Finance LP.
Treasury yield curve 4/7/2016
Source: Bloomberg Finance LP.
Treasury yields
Term 04/07/16 03/31/16 Change
3 month 0.23% 0.20% 0.03%
6 month 0.34% 0.38% -0.04%
1 year 0.52% 0.58% -0.06%
2 year 0.69% 0.72% -0.03%
5 year 1.14% 1.21% -0.07%
10 year 1.69% 1.77% -0.08%
30 year 2.52% 2.61% -0.09%
Source: Bloomberg Finance LP.
Commercial Paper Yields (A-1/P-1 dealers)
Term 04/07/16 03/31/16 Change
1 month 0.47% 0.54% -0.07%
3 month 0.61% 0.67% -0.06%
6 month 0.86% 0.89% -0.03%
9 month 0.97% 0.98% -0.01%
Source: Bloomberg Finance LP.
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The March Institute for Supply Management (ISM) report showed growth in manufacturing for the first time in 5 months. The ISM non-manufacturing index increased as well, rising to 54.5 in March, compared to 53.4 in February. The non-manufacturing index had been steadily declining since reaching a ten-year high in July, 2015. The strong ISM reports may be a sign of economic strength for the first quarter of 2016. Initial jobless claims continue to run well below 300,000, as 267,000 new claims were filed during the week ending April 1st. Continuing jobless claims increased slightly to 2.19 million from
2.17 million.
UPCOMING KEY ECONOMIC DATA April 13: Retail Sales
April 13: Producer Price Index April 14: Consumer Price Index
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