Special Board Meeting Packet - Three Valleys Municipal Water District

anticipation of this mortgage rates have moved lower. This suggests that the Fed’s
goal is to force the banking system to lend money; however this is contraindicated
in that the government is forcing banks to keep reserves on hand to offset any
potential bad loans that may exist. A good indicator to determine whether
quantitative easing is working is the consumer credit report issued each Thursday
by the Fed. If this system is indeed working you will see these percentages
increase on a month-by-month basis. It is anticipated that the Fed will release a
statement today that they will be issuing $100 billion per month for the next 3-4
months. What is still in question is how much and for how long this action will be
taken.
The yield curve is beginning to flatten, but remains steep. Short term rates have
reduced in anticipation of the Fed purchasing the treasury securities thus moving
rates lower. One strategy being considered for the District portfolio is to decrease
the duration of the portfolio, and lower the interest rate risk.
Mr. Schmitt provided the Committee with a summary review of the current
economic/inflation conditions that included information related to job
creation/employment, retail sales, consumer credit, housing and manufacturing. In
summary the economy is continuing to improve slowly.
Mr. Schmitt reviewed the District’s investment portfolio. Chandler continues to
follow the District’s priorities in terms of its investment strategies, i.e., safety of
principle, liquidity and yield of the portfolio. The portfolio is managed to a
benchmark of 1-5 year government securities. Purchases include U.S. Treasuries,
agencies and high grade corporate bonds with a maximum maturity of five years.
The portfolio is in full compliance with the District’s investment policy. Portfolio
characteristics compared to benchmark as of 9/30/20 include: average maturity 2.7
vs. benchmark of 2.52; duration 2.51 vs. 2.39 (2.51 will be declining in the future);
book yield 1.99 (nearly four times greater than LAIF); average quality is AAA.
Portfolio value increased approximately $100K for a total market value as of
9/30/2010 of $8.492 million.
An update was provided on the current situation at Citizens Business Bank (CBB).
Of primary concern is the liquidity of the funds currently being held at this
institution, that include approximately $8 million in the investment portfolio and $6
million in the sweep account. To ensure liquidity management, it was suggested
that the District’s funds be held in multiple vehicles, to include LAIF and at least
one other vehicle. The CBB accounts are collateralized, but could be subject to
delay in recovery for a short period of time if the institution is closed as a result of
the legal issues currently occurring. Chandler suggested that the District consider
opening at least one account at another bank to further protect the liquidity of the
investments. It was not cited that the relationship with CBB needed to cease, only
Standing Finance/Personnel Committee Minutes 11/03/10 Page | 3
[1] Indicates action anticipated by committee to move to full board
[2] Indicates information item; no committee action required