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Report on the Department’s 3rd Quarter Investment Report related to funds held under Bond Trust Indentures
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BACKGROUND
Funds held under Bond Trust Indentures are governed by the terms of each respective indenture and are managed by the trustee, who controls permitted investments and compliance requirements. Accordingly, these funds are excluded from the Department’s Investment Policy.
While not required under the Public Funds Investment Act (PFIA), this report is provided for transparency into investment balances and activity, portfolio composition and changes during the quarter, and financial position of each indenture, including parity (asset-to-liability coverage).
The primary objective of these investments is to generate sufficient cash flow to meet debt service requirements and ultimately retire the associated bond obligations.
Portfolio Overview
Total indenture-related investments decreased to $4.47 billion (carrying value), a net decrease of approximately $12.5 million for the quarter. The increase in percentage of MBS is attributable to the pooling of mortgage loans under the RMRB indenture, as well as the reinvestment of mortgage repayments across all indentures
Portfolio Investment Composition
Investment Type Beginning of Quarter End of Quarter
Mortgage-Backed Securities (MBS) 85% 88%
Repurchase Agreements (Cash Equivalents) 9% 5%
Treasury-Backed Mutual Funds 2% 2%
Guaranteed Income Contracts/Agreements 1% %
Treasury Notes/Bonds/SLGs 3% 3%
Total 100% 100%
Quarterly Activity
Portfolio activity reflects continued production within the RMRB and Multifamily indentures, along with ongoing cash flow from the Single Family (SFMRB) indenture. MBS purchases totaled $165.5 million, with MBS paydowns and maturities of $41.4 million.
Repurchase agreements decreased due to the origination of mortgage loans and the temporary reinvestment of mortgage repayments until funds are utilized for bond debt service.
Mortgage-Backed Securities Quarterly Activity
FY25 FY25 FY26 FY26 FY26
Q3 Q4 Q1 Q2 Q3 Total
Purchases $195,691,828 $182,793,683 $209,799,059 $172,583,791 $165,528,040 $926,396,401
Maturities $34,896,349 $36,504,912 $43,900,638 $41,692,216 $41,448,173 $198,442,288
No sales or transfers occurred during the periods presented.
Market Value
The valuation of investments at fair market value results in the recognition of unrealized gains and losses. These changes do not impact the overall portfolio, as the Department generally holds mortgage-backed securities (MBS) to maturity.
During the quarter, fair market value decreased by approximately $58.9 million (see pages 3 and 4), though it remains below carrying value. This change is largely attributable to movements in interest rates. As of May 28, 2026, the national average for a 30-year fixed-rate mortgage, as reported by the Freddie Mac Primary Mortgage Market Survey, was 6.53%, up from 5.98% at the end of February 2026.
While several factors influence market valuations, there is an inverse relationship between prevailing mortgage interest rates and the value of MBS. Given the current interest rate environment, the observed change in market value is consistent with expectations
Parity
Parity remains strong across all indentures and continues to exceed required thresholds. As of May 28, 2026, total parity assets were approximately $5.67 billion, compared to total liabilities of approximately $5.49 billion, resulting in an excess of assets over liabilities of approximately $182.3 million and an overall parity ratio of 103.32%.
Parity by indenture is summarized below.
Parity by Indenture
Indenture Parity Ratio
Single Family (SFRMB) 106.58%
Residential (RMRB) 103.56%
Multifamily 100.47%
Combined Indentures 103.32%
All indentures maintain parity above 100%, indicating sufficient asset coverage to meet debt service obligations.
Conclusion
The indenture portfolio continues to perform as expected, with RMRB driving growth, SFMRB generating stable cash flow, and consistent multifamily activity. Portfolio allocation remains stable, parity is strong across all indentures, and market value fluctuations do not impact the Department’s ability to meet its obligations.