The Finance Department invests City funds in compliance with California Government Code Section 53600 et seq., and the City’s Investment Policy.  As of March 31, 2021, these funds had a market value of $63,458,950, with $30,200,103 (47.59 percent of the portfolio) maturing within 180 days, ensuring that sufficient funds are available to meet the City's budgeted expenditure requirements for the next six months.
 
All investment transactions have been executed in compliance with the City's 2021 Investment Policy and the California Government Code.  The term of maturity for all investments is limited to a maximum of five years unless the City Council gives prior approval to exceed this limitation.  The average weighted maturity of the City’s portfolio did not exceed three years.
 
Investment Performance
The City’s portfolio is generally invested in four types of fixed-income investments:  U.S. Agency obligations, U.S. Treasury obligations, highly rated corporate bonds, and the State of California Local Agency Investment Fund (LAIF).  In general, Treasury, Agency and corporate securities held by the City have maturities ranging from eight months to five years, as authorized by the City’s Investment Policy and the State of California Government Code.  City funds invested in LAIF are considered to be available overnight and, therefore, are assigned a one-day maturity.
 
The following table summarizes the performance of the City’s general government investment portfolio as of March 31, 2021:  
 

 
 
Investment Environment (provided by Chandler Asset Management)
Economic growth is poised to accelerate meaningfully in the current quarter as vaccine distribution becomes more widespread in the US amid an ongoing backdrop of robust fiscal support, low interest rates, and accommodative monetary policy.  The vaccine rollout has been faster than expected and roughly 20% of the US population is now fully vaccinated, and more than one third has received at least one dose.  Meanwhile, robust fiscal spending along with the Federal Reserve’s highly accommodative monetary policy continues to provide support for the economy and financial markets.  President Biden recently signed a $1.9 trillion fiscal relief plan (bringing the total amount of pandemic-related fiscal relief legislation in the last year to approximately $5.5 trillion) and at the end of March he unveiled a $2.3 trillion infrastructure spending proposal.  We expect some version of an infrastructure spending bill to come to fruition later this year.  Estimates for US gross domestic product (GDP) growth this year continue to migrate higher.  The current Bloomberg consensus estimate for 2021 US GDP growth is now 6.2%.
 
The Federal Open Market Committee kept monetary policy unchanged at their March meeting as expected, with the fed funds target rate in a range of 0.0% to 0.25%.  The Fed also continues to purchase $80 billion of Treasuries per month, and $40 billion of agency mortgage-backed securities per month.  The Fed intends to remain highly accommodative until the labor market has made a strong recovery and inflation is sustainably on track to achieve their 2.0% longer-run target.  The Fed has signaled a willingness to let the economy run hot, in order to reach their goals.  Most Fed policymakers still expect to keep the fed funds rate unchanged through 2023.  Though inflation rates are likely to increase in the coming months, the Fed believes the increase is likely to be transient and the Fed intends to remain on the sidelines.
 
The yield curve is steeper on a year-over-year and year-to-date basis.  At the end of March, the yield on 2-year Treasuries was about four basis points higher while the yield on 10-year Treasuries was nearly 83 basis points higher, on a year-to-date basis.  In April, we have seen a modest retreat in longer-term Treasury yields. Nevertheless, we believe the Treasury yield curve is poised to modestly steepen further as the year progresses, which would be consistent with an improving economic outlook, more widespread vaccine distribution, the anticipation of ongoing fiscal spending, and a moderate pick-up in inflation.
 
The treasury yield curve is much steeper relative to this time last year.  The 3-month T-bill yield is about five basis points lower, and the 2-year Treasury yield is about nine basis points lower, while the 10-Year Treasury yield is about 107 basis points higher, year-over-year, as of March month-end.  Yields declined precipitously in March 2020, with the Fed cutting rates by a total of 150 basis points and a flight to safe-haven assets driving down yields across the curve.  The Fed has signaled plans to keep the front end of the Treasury yield curve anchored near zero until at least 2023.
 
Cash Management Goals
The City's general government portfolio investment goals are to maintain and preserve the safety of funds in custody and provide liquidity for anticipated expenditure needs.
 
Trust Funds
The City also has investments in an irrevocable Section 115 Trust for the purpose of prefunding retiree health care costs, also known as other post-employment benefits (OPEB), as well as retiree pension obligations.  In March 2016, the City Council approved the establishment of Section 115 OPEB Trust with CalPERS California Employers’ Retiree Benefit Trust (CERBT).  Subsequently, in June 2018, the City Council approved the establishment of a Pension Rate Stabilization Trust Fund administered by the Public Agency Retirement Services (PARS).  The goal of investing funds in the Section 115 Trusts is to provide a reasonable level of return and growth that can create additional resources to help partially offset future OPEB and pension obligation payments. 

Benefits of the Section 115 Trust include:
 
The City maintains oversight of investment management and control over the risk tolerance level of the portfolios through the investments it authorizes.

The following table summarizes the performance of the City’s CalPERS Retiree Medical Trust (OPEB) as of March 31, 2021:

 
The following table summarizes the performance of the City’s PARS Post-Employment Benefits Trust (pension obligations) as of March 31, 2021:
 

There is no fiscal impact related to receiving and filing this report.

D 9 Fiscal Strength-Stability