02 Staff Report - Investment Report 3rd Quarter 19-20
PREPARED BY: Stephen Conway
Finance Director
Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● 406-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 5/19/2020
ITEM NO: 2
DATE: May 14, 2020
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive the Third Quarter Investment Report (January through March 2020)
for Fiscal Year 2019/20.
RECOMMENDATION:
Receive the Third Quarter Investment Report (January through March 2020) for Fiscal Year
2019/20.
DISCUSSION:
As of March 31, 2020, the Town’s weighted portfolio yield was 1.90% which trended above the
Local Agency Investment Fund (LAIF) yield of 1.79%. This favorable yield differential was
primarily due to the LAIF portfolio’s weighted average maturity (WAM) of 208 days and the
Town’s longer WAM of 656 days. In recent months prior to the COVID-19 outbreak, staff in
consultation with the Town’s investment advisor had been extending maturities to capture
higher yields currently associated with longer dated securities. Staff continues to replace
matured or called investments with similar investments with respect to maturity and credit
quality. For the third quarter, the Town’s weighted average rate of return decreased by 3 basis
points (0.03%) from 1.93% to 1.90%.
During the quarter ending March 31, 2020 the coronavirus crisis escalated and significantly
impacted the United States. Shelter-in-place measures implemented nationally and
internationally significantly restricted commerce resulting in mass business closures and layoffs.
United States jobless claims surged to unprecedented levels approaching that of the Great
Depression. In response, the Federal Reserve (the Fed) enacted an emergency 50 basis point
rate cut early in March, and later followed with a 100 basis point cut, bringing the Federal
Funds rate to a range of (0 to minus .025%). In addition to lowering the Fed Funds rate, the Fed
also initiated reductions in reserve requirements and quantitative easing through asset
purchases. As of the month ending March 31. 2020, interest rates on the ten-year US Treasury
bond investments had fallen to a yield of 0.67%.
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SUBJECT: Receive the Third Quarter Investment Report (January through March 2020) for
Fiscal Year 2019/20
DATE: May 19, 2020
DISCUSSION(continued):
In light of the COVID-19 crisis and its impact on the markets and interest rates, staff’s strategy is
to extend maturity lengths on new purchases of securities to take advantage of higher yielding
securities in the two to three year maturity range, capturing medium term rates until further
impacts to the national economy become known.
CONCLUSION:
Staff recommends that the Town Council receive the Third Quarter Investment Report (January
through March 2020) for Fiscal Year 2019/20.
Attachment:
1. Third Quarter Investment Report for FY 2019/20 (January through March 2020)