Information #2 10-17-2022Information
City of
Elk '
Pjveoro**�
To: Mayor and City Council
From: Lori Ziemer, Finance Director
Date: October 17, 2022
Subject: Quarterly Investment Report Ouly — September 2022)
Memorandum
Introduction
The purpose of this report is to update the City Council on the status of the various investments the
city maintains as of September 30, 2022.
Background
The investment policy complies with state statutes and generally follows the Government Finance
Officers Association (GFOA) model.
The investment goals for the City of Elk River are passive in nature due to the allowable
investments permitted under state statutes. The city has four objectives for investing, in order of
importance, they are: 1) safety of principal, 2) liquidity, 3) return on investment, and 4) maintaining
the public trust. This means we are focused on not losing on the original investment, having
sufficient funds on hand to meet ongoing operating cash needs, getting a market rate of return, and
not purchasing speculative investments.
State statutes limit the city's ability to invest in many risky types of investments. The city is generally
limited to federal and state government obligations or agencies backed by them, rated debt of local
governments, short-term highly rated commercial paper, certificates of deposit, and money market
accounts (with collateralization if in excess of FDIC insurance amounts).
The city intends to hold investments until maturity, which means we will get the rate of return for
which we invest our funds. The finance staff makes sure the city is sufficiently liquid by continually
updating our forecast on the anticipated cash flow needs over the next five-year time horizon. We
anticipate two large tax settlements each year along with the regularly scheduled debt service
payments. We also build in a reserve balance maintained in money market accounts in case of
unexpected expenditures.
The Federal Reserve is raising interest rates swiftly to slow inflation. This is creating concern for
some economists that rates may rise too high, too fast resulting in a deep economic downturn.
Treasury yields have increased across the board with the 1-year to 5-year terms seeing rates over 4%.
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Treasury Yield Curve
1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
6/30/22
9/30/22
Cities generally use a short -horizon benchmark such as the two-year Treasury Bill or some similar
measure, as of 9/30/22 the two-year T-bill was at 3.20%, up from 2.92% at 6/30/22. Our current
portfolio yield is roughly 4.68%.
Our primary reserve account is our 4M Fund which is a money market account where many cities
pool their funds. It currently yields 2.23% with daily withdrawal privileges. It is important the city
maintains a strong diversified portfolio prioritizing safety, liquidity, and flexibility in this market
environment.
Attachments
Investment summary
4a UBS
Bond summary
as of September 30, 2022
Bond overview
Total quantity
45,387,000
Total market value
$40,299,424.30
Total accrued interest
$258,043.09
Total market value plus accrued interest
$40,557,467.39
Total estimated annual bond interest
$963,878.70
Average coupon
2.20%
Average current yield
2.39%
Average yield to maturity
4.68%
Average yield to worst
4.68%
Average modified duration
3.91
Average effective maturity
4.29
Credit quality of bond holdings
Value on
% of
Effective credit rating Issues 09/30/2022 ($)
port.
A Aaa/AAA/AAA 17 5,849,391.87
14.42
B Aa/AA/AA 73 29,990,432.17
73.93
C A/A/A 1 244,231.97 0.60
D Baa/BBB/BBB 1 255,624.15 0.63
E Non -investment grade
0
0.00
0.00
F Certificate of deposit
19
4,217,787.23
10.42
G Not rated
0
0.00
0.00
Total
111
$40,557,467.39
100%
D
'A
C
6
RX XX694 • City of Elk River • Business Service Account
Prepared for City of Elk River
Risk profile: Conservative
Return Objective: Current Income
Investment type allocation
Investment type
Taxable ($)
Tax-exempt /
deferred ($)
Total ($)
% of
bond
port.
Certificates of deposit
4,217,787.23
0.00
4,217,787.23
10.40
Municipals
35,750,004.17
100,905.99
35,850,910.16
88.40
U.S. federal agencies
488,770.00
0.00
488,770.00
1.21
Total
$40,456,561.40
$100,905.99
$40,557,467.39
100%
Bond maturity schedule
$ Millions
7
6 13.7 %
12.3
5 10.9%
4
7.9
3
2 3.4
1 —
0
Effective maturity schedule
Cash, mutual funds and some preferred securities are not included.
2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2033 + Other
Includes all fixed income securities in the selected porfolio. Average yields and durations exclude Structured Product, Pass -Through, Perpetual Preferred, and Foreign securities.
Report created on: October 02, 2022 Page 3 of 25