INFORMATION #1 07-16-2012 - Laserfiche WebLink

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INFORMATION The city makes sure we are sufticientl~ liquid b~ continuaIlp updating our forecast on the anticipated cash flow needs o~Ter the nett fl~-e-dear time horizon. ire also build in a reser~-e balance in case of unexpected expenditures, these funds are maintained in moneir market accounts. l~'e anticipate we will ha~re two large t~~~ settlements each ~~ear, along with the regularh scheduled debt sei-~Tice payments. O~rer the past couple of ~ ears, the search for qualit<r has been the goal. l~'e ha~re a~ oided commercial paper for close to t<vo wears due to concerns o~-er the credit quality issues. In addition, for high quality commerci~~l paper, the Meld is several basis points below ashort- term CD. The Meld cui~re has remained relati~-e1~ flat in the 30-dam to 2-wear range, but the longer side has decreased slighd~T from March 30, 2012. This mar also indicate that in~-estors still prefer liquidity and will take a lower Meld for short-term and secure in~Testments. The city has to weigh the opporn~nity cost to in~Test in longer term in~restments or ride the Meld curse and rein~Test at shorter matui7ty intervals. Most recent purchases ha~Te been agencies with callable pro~-isions as interest rates step up, these are somewhat predictable as to when theme will be called and are aligned with our cashflow model Investing in shorter- term in~-estments has presented tar fewer options since the decline in the commercial paper market. Treasury Melds are still around historical lows. Three-month notes are Melding O.09°'o and the 10-wear notes are 1.67"'0. See graphical illustration below: Treasury Yield Curve 4.00% ~ 3.00% 2.00% 1.00% 0.00% , 03/30/2012 06/30/2012 Cities generalhT use ashort-horizon benchmark such as the t<yo-wear Treasut~- Bill (6/30 - .33°%o the same as of 330) or some similar measure. Our current portfolio eield is roughl~~ .9:i"~o which is several basis points over the treasury ~rield benchmark. This is calculated b~ taking the ~rield times the current ~Talue for each in~-estment and di~-iding the resulting amount b~ the total portfolio ~Talue. ~s in~-estments purchased in earlier gears mature, we will be able to replace them and lock into some longer term interest rates, but thei ma~~ hati e to be rein rested at lower interest rates as market conditions change. It is t5rpical to lag the market as interest rates change. This will lead to more predictability in our interest eanungs. Our primary resei-~ e account is our -ICI Fund which is a money market account where mangy cities pool their funds. It currently Melds .O2°jo «-ith daihrwithdrawal pri~rileges. ~'e are currently maintaining a higher liquidity position as we just received 7O"'o of our first halt t~L~ settlement This will position the cit<~ well when interest rates start to rise. The city strives to maintain a strong di~Tersification portfolio so liquidity and e_~posure risk are reduced. ~owEeEO er ~-u~~ Imo. 3mo. 6mo. 1yr. 2yr. Syr. Syr. Tyr. 10yr. 30yr.