Staff Report
PREPARED BY: STEPHEN CONWAY
FINANCE DIRECTOR
Reviewed by: Town Manager, Interim Assistant Town Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 02/07/2017
ITEM NO: 8
DATE: JANUARY 31, 2017
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: RECEIVE THE SECOND QUARTER INVESTMENT REPORT (OCTOBER
THROUGH DECEMBER 2016) FOR FISCAL YEAR 2016/17.
RECOMMENDATION:
Receive the Second Quarter Investment Report (October through December 2016) for Fiscal
Year 2016/17.
DISCUSSION:
As of December 31, 2016 the Town’s weighted portfolio yield of 0.88% continues to outperform
the Local Agency Investment Fund (LAIF) yield of 0.72% (difference of 16 basis points). As a
result, staff continues to replace matured or called investments with similar investments with
respect to maturity and credit quality. For the quarter, the Town’s weighted average rate of
return increased 4 basis points (0.04%) from 0.84% to 0.88%.
Interest rates increased across the yield curve in December 2016, supported by positive
economic releases and action by the Federal Reserve. In addition, the market continues to
anticipate future stimulus from changes in policies related to spending, trade and taxes. The
Federal Open Market Committee (FOMC) delivered the first change in the Fed eral funds target
rate in 2016 at its December 14th meeting. The target for the overnight rate was increased to a
range of 0.50% to 0.75% from the prior range of 0.25% to 0.50%. The FOMC statement
referenced an expanding labor market and strengthening economic activity as a rationale for its
change. The Federal Reserve Bank also surprised investors by forecasting possibly three more
rate increases in calendar year 2017. Any further rise in interest rates may cause some
disruption to businesses and consumers who have grown used to near zero interest rate for the
past eight years.
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SUBJECT: RECEIVE SECOND QUARTER INVESTMENT REPORT (OCTOBER THROUGH
DECEMBER 2016) FOR FISCAL YEAR 2016/17
DATE: JANUARY 31, 2016
S:\COUNCIL REPORTS\2017\02-07-17\Investment Report 2nd Qtr\Investment Staff Report FINAL.docx 2/2/2017 9:08 AM SLL
DISCUSSION (cont’d):
Other indicators of a continued strength in the economy included a drop in the national
unemployment rate from 4.9% to 4.6%. The November payroll data reflected 178,000 jobs
were added, slightly lower than the 180,000 forecasted by economists.
Because of the rising interest rate forecast, staff is continuing to focus on the purchase of new
short-term (two years or less in maturity) investments as the rewards for longer term
investments in the three to five year maturity do not have adequate spreads to justify the risk
of holding longer term maturities.
CONCLUSION:
Staff recommends that the Town Council receive the Second Quarter Investment Report
(October through December 2016) for Fiscal Year 2016/17.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. Second Quarter Investment Report for FY 2016/17 (October through December 2016)