From Steven Diels Redondo Beach City Treasurer
With all of the challenges going on with the Novel Coronavirus and financial markets, I wanted to tell you I am very comfortable with the holdings in the City of Redondo Beach investment portfolio. With interest rates dropping materially the past few weeks, the portfolio has an unrealized gain of approximately $2.3 million. In light of the Fed Emergency Rate Reduction to near zero on Sunday, March 15, 2020, it would be prudent to consider a liquidity strategy that could offset some of the City’s anticipated budgeted revenue shortfalls due to the Novel Coronavirus (ie. Transient Occupancy Tax). The Fed Funds futures chart below indicates that the Fed Funds Futures are expected to remain close to zero for some time.
The market value of the City’s investment portfolio should remain high given the Fed’s action. With our strategy of managing the portfolio to match expected cash outflows and target around a 2-year duration, the portfolio’s book yield will not decline as would a shorter duration portfolio. We are keeping an eye on cash flows. The City’s liquidity is sufficient for the near term. Should we need to liquidate some securities to make up for revenue shortfalls, we can do so without losing principle and by realizing gains. In times of volatility, it is nice to have stability in our portfolio. Thanks to our investment policies, our principle is safe and will continue to provide necessary liquidity. And maybe our duration is such that we will outlast the volatility until higher interest rates prevail.
Redondo Beach City Treasurer