title
Report on the Department’s 4th Quarter Investment Report relating to funds held under Bond Trust Indentures
end
BACKGROUND
The Department’s Investment Policy excludes funds invested under a bond trust indenture for the benefit of bond holders because the trustee for each trust indenture controls the authorized investments in accordance with the requirements of that indenture. Management of assets within an indenture is the responsibility of the Trustee. This internal management report is for informational purposes only and, while not required under the Public Funds Investment Act, it is consistent with the prescribed format and detail as required by the Public Funds Investment Act. It details the types of investments, maturity dates, carrying (face amount) values, and fair market values at the beginning and end of the quarter.
Overall, the portfolio carrying value increased by approximately $248.8 million (see page 3), resulting in an end of quarter balance of $3,710,377,180.
The portfolio consists of those investments described in the attached Bond Trust Indentures Supplemental Management Report.
|
|
Beginning Quarter |
Ending Quarter |
|
Mortgage Back Securities (MBS) |
83% |
82% |
|
Guaranteed Investment Contracts / Investment Agreements |
1% |
1% |
|
Repurchase Agreements (Cash Equivalents) |
10% |
12% |
|
Account Control Agreements (Cash Equivalents) |
0% |
0% |
|
Commercial Paper |
1% |
0% |
|
Municipal Bonds |
0% |
0% |
|
Treasury Backed Mutual / Funds |
2% |
2% |
|
Treasury Notes / Bonds / SLGs |
3% |
3% |
The decrease in percentage of MBS is due to the repayment of mortgage principal on MBS. The increase of Repurchase Agreements is due to the issuance of residential mortgage revenue bonds, and the temporary reinvestment of mortgage repayments until funds are utilized for bond debt service.
Portfolio activity for the quarter:
The MBS purchases this quarter were approximately $181.3 million, due to the issuance of RMRB and multifamily bonds and the investment of proceeds in MBS.
The maturities in MBS were approximately $29.3 million, which represent loan repayments or payoffs.
The table below shows the trend in MBS activity.
|
|
4th Qtr Fy23 |
1st Qtr Fy24 |
2nd Qtr Fy24 |
3rd Qtr Fy24 |
4th Qtr Fy24 |
Total |
|
Purchases |
$210,107,636 |
$277,050,951 |
$378,233,466 |
$145,860,302 |
$181,385,590 |
$1,192,637,945 |
|
Sales |
|
|
|
|
|
|
|
Maturities |
$22,440,177 |
$23,898,674 |
$22,728,554 |
$25,521,843 |
$29,322,589 |
$123,911,837 |
|
Transfers |
|
|
|
|
|
|
The process of valuing investments at fair market value identifies unrealized gains and losses. These gains or losses do not impact the overall portfolio because the Department typically holds MBS investments until maturity.
The fair market value (the amount at which a financial instrument could be exchanged in a current transaction between willing parties) increased $80.7 million (see pages 3 and 4), with fair market value more than the carrying value. The national average for a 30-year fixed rate mortgage, as reported by the Freddie Mac Primary Mortgage Market Survey as of August 29, 2024, was 6.35%, down from 7.03% at the end of May 2024. Various factors affect the fair market value of these investments, but there is a correlation between the prevailing mortgage interest rates and the change in market value.
Given the current financial environment, this change in market value is to be expected.
The ability of the Department’s investments to provide the appropriate cash flow to pay debt service and eventually retire the related bond debt is of more importance than the assessed relative value in the bond market as a whole.
The more relevant measures of indenture parity are reported on page 5 in the Bond Trust Indenture Parity Comparison. This report shows parity (ratio of assets to liabilities) by indenture with assets greater than liabilities in a range from 103.07% to 103.49%, which would indicate the Department has sufficient assets to meet its obligations.