INFORMATION #2 01-22-2008 - 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 through the 4M Fund. 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 year the yield curve has maintained an inverted shape which meant short-term securities exceed returns on long-term instruments. Our current portfolio has anticipated a shift to more intermediate maturity range to attract higher interest rates. As the chart indicates below the yields have decreased in every time horizon in the past 3 months. This current yield curve provides very little yield for the additional market risk inherent in longer term maturities within our time horizon. Therefore, we will continue to monitor the yield curve and, if market dictates, start shifting more from short-term/intermediate into longer term investments. See graphical illustration below: http://www.ustreas.gov/offices/domestic- finance /debt-management/ interest-rate /yield_historical.shtml Treasury Yield Curve 4.75% ~ 4.50% _i~~ 4.25% ~ ~+Y~ 4.00% /~ --- t-"- ~-~-~~ 3.75% _ -- 3.25% -~-12/31 /2007 3.00% - -- - -- - ~- 9/30/2007 _ 2.75% i 2.50% -- ------- 2.25% ___ _ -- 2.00% -- - --LL---._.. 1.75% 1.50% ~~ ~ - Imo 3mo 6mo 1yr 2yr Syr Syr Tyr 10yr Cities generally use a short horizon benchmark such as the 90 day Treasury Bill (12/31/2007 - 3.36%) or some similar measure. Our current portfolio yield is roughly 4.68%. This is calculated by taking the yield times the current value for each investment and dividing the resulting amount by the total portfolio value. As 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. Liquidity has been easy to maintain for the past year because of the inverted yield curve. This means that short-term investments are receiving a greater return than long-term investments within the City's investment time horizon. As the curve shifts over the next couple of months or even becomes upward sloping we will monitor the rates and invest accordingly. Our primary reserve account is our 4M Fund which is a money market account that various cities pool their funds into. It currently yields 4.51% with daily withdrawal privileges. This compares extremely well with 2.99% yields that are available when two year non-callable agencies investment options are considered.