That the City Council receive and file the Treasurer’s Investment Report for the Quarter ending September 30, 2021.

The Finance Department invests City funds in compliance with the California Government Code, Section 53600 et seq., and the City’s Investment Policy.  As of September 30, 2021, these funds had a market value of $68,063,752, with $34,244,407 (50.31 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.

Compliance
All investment transactions have been executed in conformance 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 September 30, 2021:
 

Investment Environment (provided by Chandler Asset Management):
The ongoing health crisis and related supply chain bottlenecks associated with the COVID-19 pandemic continue to have a meaningful impact on economic data, but we believe the underlying momentum of the economy remains strong.  Economic growth is expected to continue at an above-trend pace, fueled in part by ongoing tailwinds from fiscal support, accommodative monetary policy, and continued progress on vaccinations.  COVID infection rates in the US and on a global basis are now declining, but supply chains remain dislocated and inflation readings continue to run hot.  We expect supply chain bottlenecks will continue to put upward pressure on prices over the near- to intermediate-term but should improve next year.

Monetary policy remains highly accommodative, but the Fed is inching toward a path of policy normalization.  The Federal Open Market Committee (FOMC) kept monetary policy unchanged at its September meeting but indicated that they are preparing to reduce the magnitude of their asset purchases.  The Fed funds target rate remains in the range of 0.0% to 0.25%.  For now, the Fed continues to purchase $80 billion of Treasuries per month, as well as $40 billion of agency mortgage-backed securities per month.  However, the Fed is widely expected to make the official announcement about tapering asset purchases at the next FOMC meeting in early November.  Nevertheless, the Fed remains patient with their outlook for rate hikes, and Fed Chair Powell has indicated that policymakers would not consider a rate hike until sometime after the tapering process is complete in mid-2022.  The median estimate among Fed policymakers calls for one (1) 25 basis point (0.25) rate hike in 2022.  We believe the Fed’s slow and steady withdrawal of monetary policy accommodation will remain supportive of an improving labor market and growing economy.

The Treasury yield curve continued to steepen in September.  The 10-year Treasury yield rose nearly 18 basis points in September to 1.49%, while the 2-year Treasury yield rose about seven basis points to 0.28%.  We believe some of the factors that put downward pressure on longer-term rates over the summer including concerns about the Delta COVID-19 variant, market technicals, and uneven global vaccination rates, have started to ease.

The Treasury yield curve is steeper on a year-over-year basis.  At the end of September, the 2-year Treasury yield was about 15 basis points higher, and the 10-Year Treasury yield was about 80 basis points higher, year-over-year.  We believe the curve remains poised for further steepening, amid a growing economy and improving labor market, while the Fed is expected to slowly normalize monetary policy.


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 irrevocable Section 115 Trusts 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.  Some benefits of Section 115 Trust include the following:

The following table summarizes the performance of the City’s CalPERS Retiree Medical Trust (OPEB) as of September 30, 2021:
 

The following table summarizes the performance of the City’s PARS Post-Employment Benefits Trust (pension obligations) as of September 30, 2021:
 

 

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