INFORMATION 10-17-2011 - Laserfiche WebLink

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INFORMATION The City makes sure we are sufficiently liquid by continually updating our forecast on the anticipated cash flow needs over the next five year time horizon. We also build in a reserve balance incase of unexpected expenditures, these funds are maintained in money market accounts. We anticipate the fact that we will have two large tax settlements each year, along with the regularly scheduled debt service payments that occur each year. Over the past couple of years the search for quality has been the goal, thus we have avoided commercial paper for close to two years due to concerns over the credit quality issues that have existed. In addition, for high quality commercial paper the yield is several basis points below ashort-term CD. The yield curve has remained relatively flat in the 30 day to year range, but the longer side has also decreased from June 30, 2011. This may also indicate that investors still prefer liquidity and will take a lower yield for short-term and secure investments. The City has to weigh the opportunity cost to invest in longer term investments or ride the yield curve and reinvest at shorter maturity intervals. Most recent purchases have been agencies with callable provisions as interest rates step-up, these are somewhat predictable of when they will be called and are aligned with our cash flow model. Investing in shorter-term investments has presented far fewer options since the decline in the commercial paper market. Treasury yields are still around historical lows. Three month notes are yielding 0.02% and the ten year notes are 1.92%. See graphical illustration below: http: / /www. ustreas.gov/offices/domestic-finance /debt-management/interest- rate/y ield_historical.shtml Treasury Yield Curve 5.00 4.00 3.00 2.00 1.00% 0.00% 106/30/2011 -X09/30/2011 Cities generally use a short horizon benchmark such as the two year Treasury Bill (9/30 - .25% down from .45% at 6/30) or some similar measure. Our current portfolio yield is roughly 1.17% which is several basis points over the treasury yield benchmark. This is calculated by taking the yield times the current value for each investment and dividing the resulting amount by the total portfolio value. r~s investments purchased in earlier years mature we will be able to replace them and lock into some longer term interest rates, but they may have to be reinvested at lower interest rates as market conditions change. It is very typical to lag the market as interest rates change. This will lead to more predictability in our interest earnings. Our primary reserve account is our 4M Fund which is a money market account that various cities pool their funds into. It currently yields .02% with daily withdrawal privileges. We are currently maintaining a higher liquidity position as several bonds were called at the end of Imo. 3mo. 6mo. 1yr. 2yr. Syr. Syr. Tyr. l0yr. 30yr.