Staff Report
PREPARED BY: STEPHEN CONWAY
Finance Director
Reviewed by: Town Manager, 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: 02/19/2019
ITEM NO: 3
DATE: FEBRUARY 13, 2019
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: RECEIVE THE SECOND QUARTER INVESTMENT REPORT (OCTOBER
THROUGH DECEMBER) FOR FISCAL YEAR 2018/19.
RECOMMENDATION:
Receive the Second Quarter Investment Report (October through December 2018) for Fiscal
Year 2018/19.
DISCUSSION:
As of December 31, 2018, the Town’s weighted portfolio yield of 1.94% is trending slightly
below the Local Agency Investment Fund (LAIF) yield of 2.29%. This difference is because the
LAIF portfolio’s weighted average maturity (WAM) of 193 days is significantly below the Town’s
WAM of 300 days. During periods of rising interest rates, it is not unusual in the short run for
the LAIF’s shorter WAM to outperform portfolios that have a longer average maturity. With
market participants currently expecting the potential for at least two calendar year 2019
interest rate increases by the Federal Open Market Committee (FOMC), 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 10 basis
points (0.10%) from 1.84% to 01.94%.
During the second quarter, the decline in the equities market due to a perception of a slowing
economy contributed to a decline in bond yields leading to a flattening of the yield curve. Bond
yields fell as a result of the market’s decreased expectations regarding the number of future
interest rate hikes. In December 2018, the FOMC downgraded its forecasts to expect two
interest rate hikes, rather than three. Because of mixed signals emanating out of the FOMC and
the continuation of strength in much of the economy, the Town’s investment strategy
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SUBJECT: SECOND QUARTER INVESTMENT REPORT (OCTOBER THROUGH DECEMBER)
FOR FISCAL YEAR 2018/19
DATE: FEBRUARY 13, 2019
S:\COUNCIL REPORTS\2019\02-19-19 Interviews\03 Investment Report\Staff Report.docx 2/13/2019 11:12 AM SLL
DISCUSSION (continued):
continues 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 2018) for Fiscal Year 2018/19.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachment:
1. Second Quarter Investment Report for FY 2018/19 (October through December 2018)