HomeMy WebLinkAboutFS 2010-03-02 Item 2A - Report - City InvestmentTO:
FROM: Peggy McCarthy, Deputy Finance Director
DATE: February 22, 2010
SUBJECT: City Investment Report as of December 31, 2009
ISSUE
BACKGROUND
DISCUSSION
City of Tukwila
INFORMATIONAL MEMORANDUM
Mayor Haggerton
Finance and Safety Committee
Jim Haggerton, Mayor
Finance Policy and Procedure 03 -17, Investment Policy, calls for quarterly investment reports to
the Council Finance and Safety Committee. The report is to contain an inventory of investments
on hand and a summary of performance. The last report covered investments held on August
31, 2009 and was presented at the September 22, 2009 Finance and Safety Committee
meeting.
The City's investments have undergone a substantial change over the last two years. In the
summer of 2007, an average U.S. government agency investment, such as Fannie Mae or
Freddie Mac, could be purchased with a 5.25% yield. Currently such investments earn less than
1%, depending on the maturity. The intent of this memo is to provide some background on the
changes in the City's investment portfolio, and a review of the current holdings.
The current mix of City investments includes cash equivalents, certificates of deposits, and a
federal agency note. Cash equivalents are highly liquid, very safe investments which can be
easily converted into cash or have a maturity date of 3 months or less at the date of purchase.
The City's largest cash equivalent holding is in the Local Government Investment Pool (LGIP).
The City's investment in the LGIP totaled about $28 million at December 31, 2009. The LGIP is
an investment pool operated by the Washington State Treasurer. Every county, and all cities
over 10,000 in population, participate in the LGIP. It provides a measure of security, liquidity and
return that most cities find convenient to utilize. An attempt has been made to move more
money out of the LGIP given the return on that investment. The LGIP earned 5.3% in August
2007. As of December 2009, money in the LGIP was earning 0.20
Some of the money moved out of the LGIP was invested in certificates of deposit to earn a
better return. These deposits are insured by the Washington State Treasurer's Public Deposit
Protection Commission (PDPC). In early 2009, the PDPC changed their rules to require 100%
collateralization by participating banks and credit unions. This level of collateralization insures
100% recovery of public funds on deposit or invested with participating institutions.
The current portfolio also includes a government agency investment, a Federal Home Loan
Bank note with a yield of 2.3 The government agency investment is in bonds, rather than
equity. Equity investment in government agencies has seen a dramatic decline in value over the
last year or two, but agency debt carries the implicit guarantee of the U.S. government. The
INFORMATIONAL MEMO
Page 2
investment rating of these bonds (AAA) is a signal of the security offered by a government
backed guarantee.
A year ago, the City's portfolio included several investments yielding over 3.0 Since that time
all the higher interest rate investments either matured or were called. At December 31, 2009,
the weighted average interest rate on long -term investments ranged from 1.45% to 2.50% with a
weighted average yield on the entire portfolio of .65 Although this rate is low, it measures
favorably against the City's benchmark for performance, the 90 day Treasury bill rate, which
was .06% on December 31, 2009. Reinvesting the money has been a challenge due to the low
interest rates now being offered. The general consensus is that we are close to, if not at, the
bottom of the investment yield curve, meaning interest rates have more than likely dropped to
their lowest level and experts are now predicting a recovery sometime within the next year or
two.
An update to the City's investment policy is in the works. In addition to other changes, the new
policy will use additional yield benchmarks, such as the 6 month T -bill rate, LIBOR and other
indices to measure the City's investment performance. The policy will also contain a provision
for investing in instruments with a longer maturity of five to ten years for a small portion, less
than 20 of the investment portfolio. When the market turns down, having a portfolio with
some longer -term investments provides a better return than a portfolio with mostly shorter -term
investments. It can be shown over the long -run that the City's cash position never falls below a
certain dollar amount. A portion of this long -term cash balance should be invested longer term
to maximize return on the City's money. Security and liquidity are two cornerstones of public
investing, but the third characteristic, return, should be maximized to the extent possible within
the security and liquidity constraints.
RECOMMENDATION
No recommendation, for Committee information only.
ATTACHMENTS
Investment Portfolio Summary
Yield Curve graph at February 9, 2010
Agency New Issues listing at February 9, 2010
W: \2010 InfoMemos \Investment Review 12- 31- 09.docx
Agency Issuer
CASH EQUIVALENTS
Washington State Local
Government investment Pool
Money market
Sound Community Bank
LONG INVESTMENTS
US Bank
First Savings Bank
Sound Community Bank
Charter Bank
Sound Community Bank
Federal Home Loan Bank
TOTAL
(a)
Term
Investment Type (months)
Investment Pool
Certificate of Deposit
compensating balance
Certificate of Deposit
Certificate of Deposit
Certificate of Deposit
Certificate of Deposit
US agency
(b)
Investment Mix
State Investment Pool
Money market
US Agency
Certificate of Deposit
Purchase
Date
Various
24 5/1/2009
23 5/20/2009
24 5/26/2009
12 6/15/2009
6 8/25/20
City of Tukwila
Investment Portfolio Summary
As of December 31, 2009
Maturity Call
Date
(b) Various (b)
12 1/31/2009 1/31/2010
511/201
of Total
73.6
1.3%
2.6%
22.4%
100.0%
4/20/20
5/26/2
6/15/20
2/25/2010
Purchase
Price Balance
(b) 27,911,605
500,000
Interest
Credited to Interest
Account Accrued
2,168
Fair Market
Value
Adjustment
2,500,000 2.50%
2,000,000 30,860 2,030,860 2.22%
1,500,000 19,633 1,519,633
1,500,0 17' 1 980!0
1,517,6
F 1.68%
1,000,000 8,453 1,008,453 2.30%
8,060 3,200 1,010,560
999,300 9,587 ,183 1.97%
60 3,200 76,001,914 0.65% 37,910,905 78,791 8,0
Blended Tukwila gate
At 12 -31 -09 At 2 -3 -10
Benchmarks p.06 °!0 0.10 °!0
90 -day treasury rate
6 -month treasury rate 0.20% p.17%
0.25%
State Pool rate 0.33%
(a) To maturity or call date, whichever rthdr occurs
at par at any
time. 2/23/2010 8:44 AM
A. No maturity; funds may
N/A. ise \InfoMemo Investment Review 12 -31 -09 Attachment Portfolio.xlsx 2/23
(b) C: \temp \XPGrp
Ba
at
Market
Yield to
Maturity
27,911,605 0.20%
502,168 0.33%
28,413,773 0.20%
2,500,000 1.44%
0
AC"
Today's Yield
Agency New Issues
"It is better to know some of the questions than all of the answers."
James Thurber
Treasury Mkt. 2y, 3y, 5y, 10y 0.88 1.47 2.45 3.79 2/22/10
Issuer Coupon Maturity Call Date Type Stepup cpn Settlement
FFCB 1.2 3/1/2012 3/1/2011 Anytime 3/1/2010
FHLB 1.1 3/16/2012 3/16/2011 Onetime 3/16/2010
FHLB 1.6 9/17/2012 9/17/2010 Anytime 3/17/2010
FHLB 1.625 12/17/2012 3/17/2011 Onetime 3/17/2010
FHLMC 1.875 3/15/2013 9/15/2010 Onetime 3/15/2010
FHLB 2 3/18/2013 6/18/2010 Anytime 3/18/2010
FHLB 1 3/18/2013 6/18/2010 Quarterly 1.5 3/18/2010
FNMA 2 6/10/2013 3/10/2011 Onetime 3/10/2010
FHLMC 2 6/10/2013 6/10/2010 Onetime 3/10/2010
FHLB 2.2 9/10/2013 12/10/2010 Anytime 3/10/2010
FHLB 1.375 9/17/2013 6/17/2010 Quarterly 2 3/17/2010
FHLB 2.125 9/17/2013 3/17/2011 Onetime 3/17/2010
FFCB 2.5 3/3/2014 6/3/2010 Anytime 3/3/2010
FHLB 2 3/17/2015 6/17/2010 Quarterly 5 3/17/2010
FHLB 3.75 3/17/2017 3/17/2011 Anytime 3/17/2010
FHLB 3 8/24/2018 5/24/2010 Quarterly 5 2/24/2010
FHLB 4.25 3/18/2020 3/18/2013 Anytime 3/18/2010
FHLMC 4.25 2/25/2025 8/25/2010 Quarterly 5.5 2/25/2010
FHLMC 5 3/17/2025 3/17/2011 3/17/2010
Keith R Peterson 800-357-0252 206- 443 -7252
Kelly M Devlin 800- 357 -0247 206- 443 -7247