CA Review CKM
Meeting Date: Sept. 23, 2025
To: Mayor and City Council
From: Geoff Patnoe, City Manager
Staff Contact: Christian Peacox, City Treasurer
[email protected], 442-339-5119
Subject: Annual Report of Investments for Fiscal Year 2024-25
Districts: All
Recommended Action
Accept and file Annual Report of Investments for Fiscal Year 2024-25.
Executive Summary
The City Treasurer provides an annual report to the City Council and the community on the City’s investment portfolio, as required by the city’s Investment Policy. The Annual Report of Investments (Exhibit 1) outlines the market environment influencing the city’s investment strategy, summarizes portfolio status, and presents key analyses for fiscal year 2024‑25.
During the year, the investment portfolio’s par value, the face value of the investments, grew by 5.78% and generated more than $25 million in interest income, with an average yield of
3.09%, reflecting prudent management in alignment with the objectives of safety, liquidity, and return.
Explanation & Fiscal Analysis
Objectives
The City Treasurer is tasked with overseeing cash and investment activities for the city and its agencies by managing funds in excess of day‑to‑day operating needs. City investments are pooled and managed to meet three objectives:
1. Safeguarding principal
2. Maintaining sufficient liquidity to meet the city’s operating requirements
3. Achieving a reasonable rate of return that is commensurate with prevailing market conditions and consistent with — while always subordinate to — the first two objectives of safety and liquidity
The first objective is the preservation of the city’s capital. Prudent investment decisions are made to protect public funds for the benefit of residents. All investments are executed in accordance with the city’s Investment Policy, and current investment details are provided Sept. 23, 2025
Item #2 Page 1 of 40
monthly for full transparency and review. The second objective, liquidity, is ensured through several policy‑driven methods:
• Maintaining cash and short‑term investments maturing within one year equal to at least two‑thirds of the approved operating budget
• Keeping the portfolio’s modified duration — the change in the value of a security due to a change in interest rates, a measure of sensitivity to interest‑rate changes — under the policy maximum
• Limiting the maturity of any investment to five years from purchase settlement, with an average portfolio maturity of three years or less
These practices maintain ready access to capital for operational needs and help avoid selling investments at a loss.
Once safety and liquidity objectives are satisfied, the third objective is to earn a reasonable rate of return. This is pursued by making investment decisions that balance market opportunities with the ongoing priority of capital preservation and sufficient liquidity.
Performance highlights for fiscal year 2024-25
Safety
• Portfolio par value, or face value, increased $52.2 million from the previous fiscal year. • Book value, which is the cost value of the investments adjusted for amortized premiums and discounts, increased $49.2 million from the previous fiscal year. • At the fiscal year’s‑end, all corporate notes, supranational securities, mortgage pass‑through securities, and municipal bonds held a rating of AA‑ or better by at least one of the major national rating organizations.
Liquidity
• Average $311.8 million in cash and investments maturing within one year (Minimum required: $279.3 million)
• Modified duration at fiscal year-end: 1.69 (Maximum allowed: 2.20) • Average portfolio maturity: 1.98 years (Maximum average allowed: 3 years) Return
• Portfolio yield ranged from 2.88% (start of year) to 3.38% (end of year), averaging
3.09%.
• Interest earnings exceeded $25 million, an 18% increase over the prior fiscal year. • Market value increased $72 million year‑over‑year.
Market value gains reflected prudent investment decisions that balanced current market rates with anticipated rate trends. Throughout the fiscal year, the city maintained a laddered portfolio structure, staggering when investments mature to provide steady cash flow, enhance liquidity and reduce interest‑rate risk. This disciplined approach supported a 5.78% increase in portfolio par value, as the City Treasurer capitalized on rising rates by purchasing securities to lock in higher yields. The strategy delivered an 18% increase in interest earnings over the previous year — adding more than $3.8 million in additional revenue.
More detailed information can be found in the report attached as Exhibit 1.
Sept. 23, 2025
Item #2 Page 2 of 40
Next Steps
The City Treasurer will continue to actively manage the investment program for the city and its agencies, including the Carlsbad Municipal Water District, in alignment with the objectives of safety, liquidity and return. Monthly and annual investment reports will be prepared and presented to the City Council and shared with the community to ensure transparency and ongoing accountability.
Environmental Evaluation
The proposed action is not a “project” as defined by California Environmental Quality Act Section 21065 and CEQA Guidelines Section 15378(b)(5) and does not require environmental review under CEQA Guidelines Section 15060(c)(3) and 15061(b)(3) because the proposed action to report on the monthly update of city investments is an organizational or administrative government activity that does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. Any subsequent action or direction stemming from the proposed action may require preparation of an environmental document in accordance with CEQA or the CEQA Guidelines.
Exhibits
1. Annual Report of Investments for the Fiscal Year Ended June 30, 2025 Sept. 23, 2025
Item #2 Page 3 of 40
1 FISCAL YEAR 2024-25
City Treasurer's
Annual Report of Investments
Exhibit 1
Sept. 23, 2025
Item #2 Page 4 of 40
2 CITY
TRESURER
ANNUAL
REPORT OF
INVESTMENTS
FISCAL YEAR 2024-25
CHRISTIAN PEACOX
CITY TREASURER
SEPT. 23, 2025
Sept. 23, 2025
Item #2 Page 5 of 40
3 TABLE OF CONTENTS
INTRODUCTION
City Treasurer letter of transmittal ......................................................................5 Fiscal year 2024-25 quick look .............................................................................6
MARKET REVIEW
Federal funds target rate .....................................................................................8 Short-term interest rates .....................................................................................10 Market yield curve ...............................................................................................11
PORTFOLIO OVERVIEW
Portfolio total assets ............................................................................................13 Sources of portfolio .............................................................................................15 Allocation of portfolio ..........................................................................................16
PORTFOLIO ANALYSIS
Portfolio yield .......................................................................................................19 Maturity & modified duration .............................................................................22 Interest income ....................................................................................................24
APPENDICES
Risk management disclosures ..............................................................................27 Data tables ...........................................................................................................30 Additional resources ............................................................................................37
Sept. 23, 2025
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4 INTRODUCTION
Sept. 23, 2025
Item #2 Page 7 of 40
5 CITY TREASURER LETTER OF TRANSMITTAL
Fiscal Year 2024-25 Annual Report of Investments
Sept. 23, 2025
Honorable Mayor, City Council, and residents of the City of Carlsbad, I am pleased to present the Annual Report of Investments for the City of Carlsbad for fiscal year 2024–25, which ended June 30, 2025. This report provides a comprehensive overview of the city’s investment portfolio and serves as both a performance review and an archival reference for future decision-making.
The City Treasurer’s Office is responsible for designing and managing an effective cash and investment program for the city and its affiliated agencies. This includes arranging banking services, investing idle funds, managing risk exposures, and reporting all investment activities in accordance with the City’s Investment Policy.
The report is organized into five sections:
• Introduction – includes this Letter of Transmittal and a quick look at key annual data • Market Review – analyzes the economic environment and interest rate trends • Portfolio Overview – details total assets, fund sources, and portfolio allocation • Portfolio Analysis – presents performance metrics including yield, duration, and interest income
• Appendices – provides supporting data tables, disclosures, and additional resources Investment decisions throughout the year were guided by the city’s core objectives: preserving principal, maintaining liquidity, and earning a reasonable rate of return commensurate with prevailing market conditions. Future fund activity will continue to be shaped by market trends and evaluated in alignment with these priorities.
Sincerely,
Christian Peacox
City Treasurer
Sept. 23, 2025
Item #2 Page 8 of 40
6 FISCAL YEAR 202 4-25 QUICK LOOK
Market review
• Federal funds target rate:
4.50%; fiscal year decrease
of 1 percentage point
• Two-year U.S. Treasury:
3.72%; fiscal year decrease
of 0.99 percentage points
Portfolio overview
• Total portfolio value at par
value: $955,070,906
• Total portfolio fiscal year
increase: $52,215,646
• Federal Agencies represent
34.4% of all investments
Portfolio analysis
• Portfolio yield as of
06/30/25: 3.38%
• Portfolio interest for the
fiscal year: $25,010,299
• Average maturity as of
06/30/25: 1.99 years
3.50 4.00
4.50 Three-
month
Two- year Five- year Ten- year
Interest rate (%)
Maturity
Market yield curve
06/30/25
760
810
860
910
960
1,010
Par value Market value Book value
Asset Value ($ millions)
Valuation
Total Portfolio Valuation
06/30/25
2.75 2.95
3.15 3.35Portfolio yield (%)
Month
Portfolio yield
Fiscal year 2024-25
Sept. 23, 2025
Item #2 Page 9 of 40
7 MARKET REVIEW
Sept. 23, 2025
Item #2 Page 10 of 40
8 FEDERAL FUNDS TARGET RATE
The federal funds target rate is considered one of the most important interest rates in the U.S. economy. It is a key money market rate that correlates with the rates of other short-term credit arrangements. It is the interest rate that banks charge each other for overnight loans and influences many aspects of the U.S. economy.
The rate is represented as a range, which is set by the Federal Open Market Committee eight times per year. The Federal Open Market Committee specifies the short-term objective for the purchase and sale of securities in the open market.
The federal funds rate is adjusted to help keep inflation in check and support a healthy job market, influencing borrowing costs and interest rates across the economy. To slow the rate of inflation, the Federal Reserve began raising rates in 2022. This continued through the first half of 2023 and then held steady from July 2023 through July 2024. September 2024 saw the first rate cut in more than four years and was followed by two additional rate cuts during the fiscal year.
0.00 1.00
2.00 3.00
4.00 5.00
6.00Rate (%)
Month
Federal Funds Rate changes
Fiscal year 2024-25
Sept. 23, 2025
Item #2 Page 11 of 40
9 After years at near-zero, the Federal Reserve began raising the federal funds rate starting in late 2015 until mid-2019 reflecting an improving economy following the Great Recession. Rates lowered in 2020 and 2021 as a result of the COVID-19 pandemic, but with inflation on the rise since 2022, rates steadily increased. Rates leveled out in mid-2023, holding steady until September 2024, which began a series of rate decreases as inflation declined and labor markets cooled. The federal funds rate has remained unchanged since January 2025 as the Federal Reserve has taken a “wait and see” approach in the midst of economic uncertainty particularly related to the impact of tariff policies.
0.00 1.00
2.00 3.00
4.00 5.00
6.00Rate (%)
Fiscal year
Federal Funds rate
Fiscal year 2024-25 and prior nine years
Sept. 23, 2025
Item #2 Page 12 of 40
10 SHORT -TERM INTEREST RATES
The rates for U.S. Treasury bonds are important to all investors, but especially to bond investors. These bonds are issued by the Department of the Treasury and are an indicator as to how the U.S. government predicts inflation and the overall economy will change. Changes in short-term market interest rates are usually affected by the actions of the Federal Reserve.
Interest rates in the three exhibited trends of five-year market, two-year market, and six-month market all decreased between 0.54 and 1.04 percentage points, measured from June 30, 2024, to June 30, 2025:
• Six-month: decrease of 1.04 percentage points, from 5.33% to 4.29% • Two-year: decrease of 0.99 percentage points, from 4.71% to 3.72% • Five-year: decrease of 0.54 percentage points, from 4.33% to 3.79%
3.00 3.50
4.00 4.50
5.00 5.50
6.00 Rate (%)
Month
Short and medium term interest rates of U.S. Treasuries Fiscal year 2024-25
Six-month Two-year Five-year
Sept. 23, 2025
Item #2 Page 13 of 40
11 MARKET YIELD CURVE
The yield curve is a graphic presentation of the difference between short-term and longer-term interest rates of U.S. Treasury instruments on a given day. Financial analysts use it to, among other things, assess likely changes in inflation levels as well as the likelihood that the U.S. economy will enter an economic recession.
Yield curves:
• Normal: implies economic expansion
• Inverted: implies economic reduction
• Flat: implies transition in the economic environment
The current fiscal year began to show an un-inverted u-shaped yield curve with higher yields on the long and short ends of the curve and a dip in the middle. The Federal Reserve has signaled its commitment to keeping inflation in check by maintaining high short-term interest rates.
However, the lower yields in the middle of the curve suggest investors are bidding up these bonds likely due to concerns about the economy or anticipated future rate cuts. A u-shaped yield curve generally signals a period of uncertainty and potential volatility.
The City Treasurer manages a balanced portfolio of liquid assets and long-term investments, enabling the city to benefit from higher short-term interest rates while ensuring security against economic uncertainties.
3.00 3.50
4.00 4.50
5.00 5.50
6.00 Three-month Two-year Five-year Ten-year
Rate (%)
Term
Market yield curve
Fiscal year end 2024-25 and two prior fiscal year ends
Jun 2023 Jun 2024 Jun 2025
Sept. 23, 2025
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12 PORTFOLIO REVIEW
Sept. 23, 2025
Item #2 Page 15 of 40
13 PORTFOLIO TOTAL ASSETS
Assets are invested by the City Treasurer with three primary objectives: (1) preserving the safety of principal, (2) maintaining sufficient liquidity to meet the city’s operating requirements and (3) earning a reasonable rate of return that is commensurate with prevailing market conditions and consistent with the first two objectives. Safety of principal remains the highest priority in all investment decisions.
By pooling assets and utilizing a laddered portfolio structure, the city ensures that funds are available to meet obligations as they arise, while maintaining flexibility and stability across changing market conditions. This approach supports the city’s ability to earn a prudent return on investments without compromising safety or liquidity
Total assets in the investment portfolio:
• Par value: $955,070,906, an increase of 5.78% over the prior year. • Market value: $943,918,786, an increase of 8.26% over the prior year. • Book value: $946,565,715, an increase of 5.52% over the prior year.
The portfolio is constantly fluctuating. Safety of capital is the first and foremost investing principle, but small increases and decreases are normal and expected. These fluctuations occur as a normal part of operations.
-
200
400
600
800
1,000
1,200
Par value Market value Book value
Asset Value ($ millions)
Valuation
Portfolio ending balance comparison by valuation method Fiscal year 2024-25 and prior year
Current year Prior year
Sept. 23, 2025
Item #2 Page 16 of 40
14 Causes of portfolio increases:
• Interest earned
• Revenues in excess of expenses
Causes of portfolio decreases:
• Interest incurred
• Expenses in excess of revenues
Key portfolio changes at par value during fiscal year 2024-25:
• Maturities: $186,991,213
• Calls: $50,515,000
• Buys: $302,792,000
The City Treasurer is responsible for maintaining the city’s operational cash flow needs while ensuring that excess funds are being invested in a safe and effective manner year after year.
Total portfolio value has increased year after year. The last ten years have seen an increase of
32.78%. This represents a cash value of $228,844,405. This increase results from prudent investment and financial decisions. All funds in excess of expenses are reinvested while maintaining the liquidity required for city operations.
-
100
200
300
400
500
600
700
800
900
1,000Asset Value ($ millions)
Fiscal year
Total portfolio value at amortized cost
Fiscal year 2024-25 and prior nine years
Sept. 23, 2025
Item #2 Page 17 of 40
15 SOURCES OF PORTFOLIO
The portfolio is an internal investment pool that invests the available cash from various funds of all city agencies, city owned and fiduciary assets.
The capital project fund includes funds for the general capital construction, traffic impact fees, public facilities fees, park development, certain taxes, drainage fees, special districts, infrastructure replacement, and gas tax funds. Enterprise funds consist of the Carlsbad Municipal Water District, wastewater, solid waste, storm water, and golf course funds.
General
20%
Capital projects
43%
Enterprise
23%
Fiduciary & Internal
10%
Special & Other
4%
Source of funds at amortized cost
June 30, 2025
Sept. 23, 2025
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16 ALLOCATION OF PORTFOLIO
Investments are made in financial instruments authorized by the City of Carlsbad Investment Policy and the California Government Code. Apart from bank deposits, deposits in the California state Local Agency Investment Fund (LAIF) and California Asset Management Program (CAMP), all investments are in fixed-income instruments with known maturity dates.
Federal agencies make up 34.41% of the total investment portfolio. Provided below is the breakout of issuers within the federal agency category as of June 30, 2025:
Federal agency breakdown by percentage of total portfolio at par value Federal Farm Credit Bank 8.46%
Federal Home Loan Bank 16.15%
Federal Home Loan Mortgage Corporation 5.76%
Federal National Mortgage Association 1.77%
Federal Agricultural Mortgage Corporation 2.27%
Total 34.41%
Federal agencies
34%
Supra-nationals
3%
U.S. Treasury
8%Coporate notes
17%
Cert. of deposit
2%
Mortgage-backed
11%
Municipal bonds
11%
Cash & pooled
14%
Allocation of investments at par value
June 30, 2025
Sept. 23, 2025
Item #2 Page 19 of 40
17 Fiscal year 2024-25 net changes
Changes in investments are a result of multiple factors including maturities, calls and new investments. The data is represented at par value and does not reflect fluctuations in the market value because in conjunction with the liquidity principle, the city maintains a ‘buy and hold’ philosophy. This means that the city does not sell investments in the normal course of operations and instead holds the investments to maturity. The benefit of this policy is that investments will typically not be sold at a loss, and the full par value will be returned.
Certain investment types are restricted by the City of Carlsbad Investment Policy for the purpose of balanced allocation. All investments are well under the policy limitations allowing for continued purchases of the best-fit investments.
-30.00
-20.00
-10.00
0.00 10.00
20.00 30.00
40.00 Federal
agencies
Supra-
nationals
U.S.
Treasury
Coporate
notes
Cert. of
deposit
Mortgage
-backed
Municipal
bonds
% Change (6.23) 23.12 30.77 30.50 (21.01) 36.29 4.22
Percentage change (%)
Percent value change by investment class
Fiscal year 2024-25
0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00
Supranational
Corporate notes
Cert. of deposit
Municipal bonds
Percentage of portfolio (%)
Policy Limits and Portfolio Allocation
June 30, 2025
Policy limitation Portfolio
Sept. 23, 2025
Item #2 Page 20 of 40
18 PORTFOLIO ANALYSIS
Sept. 23, 2025
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19 PORTFOLIO YIELD
The yield of the portfolio increased 0.50 percentage points during the current fiscal year from
2.88% for fiscal year ending June 2024 to 3.38% for fiscal year ending June 2025.
The current year has shown a portfolio yield increase of 0.50 percentage points, and a ten-year increase of 2.29 percentage points. The city has experienced record returns on the portfolio this year, primarily due to higher interest rates. It is important to recognize that future performance will depend upon the direction of interest rates moving forward.
2.75 2.85
2.95 3.05
3.15 3.25
3.35 3.45
Portfolio yield (%)
Month
Portfolio yield
Fiscal year 2024-25
0.00 0.50
1.00 1.50
2.00 2.50
3.00 3.50
4.00 Portfolio yield (%)
Fiscal year
Portfolio yield
Fiscal year 2024-25 and prior nine years
Sept. 23, 2025
Item #2 Page 22 of 40
20 Compared to U.S. Treasury rates, the portfolio yield is more stable and typically slower to react to market interest rate fluctuations that impact its performance. By investing in a range of maturity dates and various types of investments, and adhering to a buy and hold policy, the effect of significant changes in market rates is less pronounced on the city’s portfolio.
0.00 1.00
2.00 3.00
4.00 5.00
6.00 Interest rate (%)
Fiscal year
Portfolio rate with U.S. Treasury rates
Fiscal year 2024-25 and prior nine years
U.S. Treasury 6-month U.S. Treasury 2-year U.S. Treasury 5-year Portfolio Sept. 23, 2025
Item #2 Page 23 of 40
21 Investments experience changes in market value after purchase due to fluctuations in market interest rates. When market interest rates decline, investments made at previously higher rates will increase in value. Conversely, when market interest rates rise, these investments decrease in value. These variations are known as unrealized gains and unrealized losses.
Changes in investment value due to market interest rates are normal and expected. The city reports market value annually, but its buy-and-hold policy protects against actual realized losses.
-7.00
-6.00
-5.00
-4.00
-3.00
-2.00
-1.00
0.00 1.00
2.00 3.00
Percent of Amortized Cost (%)
Fiscal year end
Historical unrealized gains and losses
Fiscal year 2024-25 and nine prior years
Sept. 23, 2025
Item #2 Page 24 of 40
22 MATURITY & MODIFIED DURATION
The second objective in the City Treasurer’s investing strategy is liquidity. The purpose of liquidity is to ensure that adequate cash is available to fund city operations. In order to maintain liquidity, measurements of maturity and modified duration are used.
The maximum term for investments is five years. This graph shows how maturity is distributed as of June 30, 2025. 34.49% of the portfolio is maturing within 12 months and includes overnight pooled cash accounts. The Investment Policy dictates that a minimum of two-thirds of the operating budget be maturing within 12 months. As of June 30, 2025, 78.63% of the fiscal year 2024-25 budget is maturing within 12 months.
Average maturity is required to be three years or less, and as of June 30, 2025, is 1.99 years.
This reflects a deliberate balance between extending maturities to the five-year limit to capture higher yields available on the yield curve, while also maintaining sufficient short-term investments to meet both near-term operational needs and the investment policy requirement that no less than two-thirds (66.67%) of the current fiscal year operating budget shall mature within one year.
0 10
20 30
40 0-12 13-24 25-36 37-48 49-60
Percent of porfolio (%)
Months until maturity
Portfolio liquidity
June 30, 2025
1.80 1.90
2.00 2.10
Average Maturity (years) Month
Average maturity by month
Fiscal year 2024-25
Sept. 23, 2025
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23 Modified duration is a way to measure how sensitive a bond portfolio is to changes in interest rates. For example, if a bond has a modified duration of 2, a 1 percentage point increase in market interest rates could cause its price to drop by about 2%. The maximum modified duration established by the city’s Investment Policy is 2.2. As of June 30, 2025, the modified duration was 1.69.
1.50 1.55
1.60 1.65
1.70 1.75
1.80 Modified duration
Month end
Modified duration
Fiscal year 2024-25
Sept. 23, 2025
Item #2 Page 26 of 40
24 PORTFOLIO INTEREST INCOME
The city’s interest income reflects the payments received from investments over the fiscal year but should not be confused with the portfolio’s overall yield. Some investments were purchased at prices above or below their face value, so the interest paid does not always match the investment’s true earnings over time.
Interest for the fiscal year totaled $25,010,299, a 17.97%, or $3,808,905, increase from the prior fiscal year. Interest income is allocated to city funds based on their value.
Interest income is influenced by several factors, including prevailing market interest rates, the mix of short-term and long-term investments in the portfolio, the timing of when investments are purchased or mature and the reinvestment opportunities available at those times. As a result, interest income will vary from year to year depending on these market conditions and the city’s investment activity, even when the portfolio composition and maturity profile remain the same.
-
500
1,000
1,500
2,000
2,500
3,000
Interest Income ($ thousands)
Month
Portfolio interest income
Fiscal year 2024-25
-
5.0 10.0
15.0 20.0
25.0 30.0
Interest Income (millions)
Fiscal year
Portfolio interest income
Fiscal year 2024-25 and prior nine years
Sept. 23, 2025
Item #2 Page 27 of 40
25 The city’s interest income by investment classification reflects its diversified portfolio mix. With 34% of our portfolio allocated to Federal Agencies, we expect to see the majority of our interest income derived from this class. The second largest source of interest income this past fiscal year was cash & pooled investments due to the large amount of liquidity required in near-term investments under 1 year. The city has benefited from relatively high short-term interest rates maintained by the Federal Reserve over the last year.
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Interest income (thousands)
Classification
Interest income by investment classification
Fiscal year 2024-25
Sept. 23, 2025
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26 APPENDICIES
Sept. 23, 2025
Item #2 Page 29 of 40
27 RISK MANAGEMENT DISCLOSURES
All investments are exposed to risk of some type. The objective of risk management is to identify the risks involved and establish acceptable levels of risks that are consistent with the city’s investment objectives. Risk management includes managing, measuring, monitoring and reporting the various risks to which portfolio investments are exposed.
Portfolio investments are exposed to the following types of risks:
• Credit risk
- Custodial credit risk
• Investments
• Deposits
- Default credit risk
- Concentration credit risk
• Interest rate risk
• Event risk
Custodial credit risk (investments)
The city uses third-party custody and safekeeping service for its investment securities. Principal Custody Solutions is under contract to provide these custodial services. Custodial credit risk is the risk that the city will not be able to recover the value of its investments in the event of a Principal Custody Solutions failure. All city investments held in custody and safekeeping by Principal Custody Solutions are held in the name of the city and are segregated from securities owned by the firm. This is the lowest level of custodial credit risk exposure.
Custodial credit risk (deposits)
The city maintains cash accounts at Wells Fargo Bank. At the conclusion of each business day, balances in these accounts are “swept” into overnight investments. These overnight investments are pooled and collateralized with either U.S. government securities or U.S. agency securities. The California Government Code authorizes this type of investment. A small amount of cash is not swept from the Wells Fargo Bank checking accounts to cover checks that may be presented for payment. Amounts up to $250,000 are FDIC insured.
Default credit risk
Default credit risk is the risk that the issuer of the security does not pay either the interest or the principal when due. The debts of most U.S. agencies are not backed by the full faith and credit of the federal government; however, because the agencies are U.S. Government- sponsored, they carry an AA credit rating. The default credit risk of these investments is minimal.
Unless otherwise exempted, the California Government Code limits investments, at the time of purchase, to the top three credit ratings: AAA, AA, and A. It is the city’s policy, however, to limit Sept. 23, 2025
Item #2 Page 30 of 40
28 investments, at the time of purchase, to the top two credit ratings (AAA and AA). As of June 30, 2025, all investments have maintained credit ratings at or above the minimum requirement.
All investments are made when the credit ratings are either AAA or AA, however, an investment may fall below the minimum requirement subsequent to purchase. The California Government Code and the city’s Investment Policy allow the City Treasurer to determine the course of action to correct exceptions to the policy. The default credit risk for corporate notes with a credit rating of single A (A) is considered by the City Treasurer to be within acceptable limits for purposes of holding to maturity and is within the California Government Code limitations.
LAIF is an investment pool managed by the California State Treasurer. Its investments are short- term and follow the investment requirements of the state. The state treasurer is not required to contract for a credit rating to be assessed for LAIF. California Government Code Section 16429.3 excludes LAIF deposits from being transferred, loaned, impounded, or seized by any state agency or official.
Concentration credit risk
Concentration credit risk is the heightened risk of potential loss when investments are concentrated in one issuer. The California Government Code does not identify a specific percentage that indicates when concentration risk is present for any one issuer.
California Government Code Section 53601(k) requires that total investments in medium-term corporate notes of all issuers not exceed 30% of the portfolio. As of June 30, 2025, approximately 16.81% of the city’s total portfolio investments were in medium-term corporate notes.
California Government Code Section 53601(o) requires that non-agency mortgage-backed securities shall not exceed 20% of the portfolio. As of June 30, 2025, all city-held mortgage- backed securities are backed by Federal Agencies.
For concentration of investments in any one issuer, the city’s Investment Policy requires that no more than 5% of investments in corporate notes, non-agency mortgage-backed securities, and municipal bonds be in any one issuer. There is no similar requirement in either the California Government Code or the city’s investment policy for U.S. agencies. As of June 30, 2025, no investments in any one of the aforementioned securities has an issuer that exceeded 5% of total portfolio investments.
Interest rate risk
The interest rate risk is the risk that investments will lose market value because of increases in market interest rates. A rise in market interest rates will cause the market value of investments made earlier at lower interest rates to lose value. The reverse will cause a gain in market value.
As of June 30, 2025, the portfolio had a 0.28% unrealized loss in market value based on amortized cost.
Sept. 23, 2025
Item #2 Page 31 of 40
29 The city’s Investment Policy has adopted two means of limiting its exposure to market value losses caused by rising market interest rates: (1) limiting total portfolio investments to a maximum modified duration of 2.2, and (2) requiring maturing investments within one year to be equal to an amount that is not less than two thirds of the current year operating budget of $419,000,413. As of June 30, 2025, the modified duration of the portfolio was 1.69, within the required maximum of 2.2. Investments maturing within one year were $329,439,801, exceeding the required minimum of $279,333,609. The city’s exposure to interest rate risk is within acceptable limits.
Event risk
Event risks include the chance that something unexpected will impede the ability of an issuer of a security to meet its obligations. These types of risks are usually short in duration but can impair the city’s ability to communicate with or use banking services. Such an event could cause a delay in collecting securities which have matured. Security risks are also within this category.
Sept. 23, 2025
Item #2 Page 32 of 40
30 DATA TABLES
Data tables provided for additional details for graphs throughout the report.
Federal target rate detail, fiscal year 2024-25
Period Range limit
Jul 2024
5.25 - 5.50%
Sep 2024
4.75 - 5.00%
Nov 2024
4.50 - 4.75%
Dec 2024
4.25 - 4.50%
Jan 2025
4.25 - 4.50%
Mar 2025
4.25 - 4.50%
May 2025
4.25 - 4.50%
Jun 2025
4.25 - 4.50%
Short-term interest U.S. Treasury rate detail, fiscal year 2024-25
Period
Six-month
Two-year
Five-year
Jul 2024
5.14%
4.29%
3.97%
Aug 2024
4.89%
3.91%
3.71%
Sep 2024
4.38%
3.66%
3.58%
Oct 2024
4.43%
4.16%
4.15%
Nov 2024
4.42%
4.13%
4.05%
Dec 2024
4.24%
4.25%
4.38%
Jan 2025
4.28%
4.22%
4.36%
Feb 2025
4.25%
3.99%
4.03%
Mar 2025
4.23%
3.89%
3.96%
Apr 2025
4.19%
3.60%
3.72%
May 2025
4.36%
3.89%
3.96%
Jun 2025
4.29%
3.72%
3.79%
Market yield curve, fiscal year 2024-25 and prior two years
FY end date Three-month Two-year Five-year Ten-year
06/30/23 5.43% 4.87% 4.13% 3.81%
06/30/24 5.48% 4.71% 4.33% 4.36%
06/30/25 4.41% 3.72% 3.79% 4.24%
Sept. 23, 2025
Item #2 Page 33 of 40
31 Valuation table, fiscal year 2024-25
Different values are presented throughout the report. This data table presents varying valuation types, listed by class as of June 30, 2025.
Class Par value Market value Book value
Certificate of Deposit $ 17,756,000 $ 17,694,439 $ 17,754,177 Corporate Notes $ 160,500,000 $ 157,200,605 $ 158,033,932 Federal Agency $ 328,674,000 $ 324,547,215 $ 327,123,439 U.S. Treasury $ 72,250,000 $ 71,950,785 $ 71,701,023 Supranational $ 26,950,000 $ 26,872,524 $ 26,809,226 Municipal Bonds $ 106,035,000 $ 103,571,852 $ 103,687,146 Pass Through Securities $ 105,148,679 $ 104,324,141 $ 103,699,547 Cash & Pooled $ 137,757,227 $ 137,757,227 $ 137,757,227 Total $ 955,070,906 $ 943,918,786 $ 946,565,715
Portfolio assets valuation, fiscal year 2024-25 and prior nine years
Fiscal year Par value Market value Book value
2015-16 $ 715,837,393 $ 721,730,358 $ 717,721,310 2016-17 $ 720,912,625 $ 720,280,916 $ 722,577,923 2017-18 $ 761,973,309 $ 750,805,057 $ 761,499,745 2018-19 $ 794,156,136 $ 796,915,076 $ 793,677,467 2019-20 $ 807,311,873 $ 827,577,140 $ 812,848,717 2020-21 $ 813,600,409 $ 827,094,051 $ 821,268,939 2021-22 $ 846,773,333 $ 821,428,843 $ 852,168,180 2022-23 $ 874,350,106 $ 830,832,607 $ 874,704,150 2023-24 $ 902,855,260 $ 871,929,110 $ 897,056,042 2024-25 $ 955,070,906 $ 943,918,786 $ 946,565,715
Sources of portfolio at amortized cost, fiscal year 2024-25
Fund type 2023-24 2024-25
General $ 189,968,625 $ 188,998,257
Capital projects $ 385,624,688 $ 410,509,844 Enterprise $ 211,961,039 $ 212,483,694 Fiduciary & Internal service $ 78,541,383 $ 98,728,981 Special & other $ 30,960,307 $ 35,844,939 Total $ 897,056,042 $ 946,565,715
Sept. 23, 2025
Item #2 Page 34 of 40
32 Portfolio allocation at book value, June 30, 2025
Policy limitations are not limited for federal agency issuers.
Class % Total Policy limits
Supranational 2.82% 10%
Municipal Bonds 11.10% 15%
Corporate Notes 16.81% 30%
Certificate of Deposit 1.86% 30%
U.S. Treasury 7.56% N/A
Mortgage-backed (Agency) 11.01% N/A
Federal Investments 34.41% N/A
Cash & Pooled Cash 14.42% N/A
Totals 100.00%
Investment changes by class, fiscal year 2024-25
This table presents the details of investment changes, excluding cash and pooled cash, listed by class.
Class 6/30/2024 6/30/2025 Dollar change Change
Certificate of Deposit $ 22,480,000 $ 17,756,000 $ (4,724,000) -21.01% Corporate Notes $ 122,990,000 $160,500,000 $ 37,510,000 30.50% Federal Agency $ 350,525,000 $328,674,000 $(21,851,000) -6.23% U.S. Treasury $ 55,250,000 $ 72,250,000 $ 17,000,000 30.77% Supranational $ 21,890,000 $ 26,950,000 $ 5,060,000 23.12% Municipal Bonds $ 101,745,000 $106,035,000 $ 4,290,000 4.22% Mortgage-Backed (Agency) $ 77,147,892 $105,148,679 $ 28,000,787 36.29% Total $ 748,595,716 $817,313,679 $ 65,285,787 8.72%
Class Maturities Calls Buys
Certificate of Deposit $ 5,466,000 - $ 742,000 Corporate Notes $ 35,990,000 $ 8,000,000 $ 81,500,000 Federal Agency $ 85,521,000 $ 42,330,000 $ 106,000,000 U.S. Treasury $ 24,500,000 - $ 41,500,000
Supranational $ 5,440,000 - $ 10,500,000
Municipal Bonds $ 17,900,000 $ 185,000 $ 22,375,000 Pass Through Securities $ 12,174,213 - $ 40,175,000 Total $ 186,991,213 $ 50,515,000 $ 302,792,000
Sept. 23, 2025
Item #2 Page 35 of 40
33 Portfolio yields, fiscal year 2024-25 and prior nine years
Treasury, 06/30
Month
ending
Portfolio
yield
Fiscal
year
Portfolio
yield
Six-
month
Two-
year
Five-
year
07/31/24 2.89% 2015-16 1.16% 0.36% 0.58% 1.01%
08/31/24 2.94% 2016-17 1.25% 1.14% 1.38% 1.89%
09/30/24 2.93% 2017-18 1.57% 2.11% 2.52% 2.73%
10/31/24 2.91% 2018-19 1.96% 2.09% 1.75% 1.76%
11/30/24 2.94% 2019-20 1.69% 0.18% 0.16% 0.29%
12/31/24 3.03% 2020-21 1.17% 0.06% 0.25% 0.87%
01/31/25 3.09% 2021-22 1.28% 2.51% 2.92% 3.01%
02/28/25 3.15% 2022-23 2.22% 5.47% 4.87% 4.13%
03/31/25 3.20% 2023-24 2.88% 5.33% 4.71% 4.33%
04/30/25 3.27% 2024-25 3.38% 4.29% 3.72% 3.79%
05/31/25 3.33%
06/30/25 3.38%
Unrealized gain or loss, fiscal year 2024-25
Unrealized gain or loss is calculated by subtracting the market value from the book value. All calculations are performed at the end of each month.
Month
Unrealized
gain or loss
Jul 2024 -2.09%
Aug 2024 -1.53%
Sep 2024 -1.06%
Oct 2024 -1.74%
Nov 2024 -1.55%
Dec 2024 -1.62%
Jan 2025 -1.40%
Feb 2025 -0.94%
Mar 2025 -0.77%
Apr 2025 -0.36%
May 2025 -0.61%
Jun 2025 -0.28%
Sept. 23, 2025
Item #2 Page 36 of 40
34 Modified duration, fiscal year 2024-25
Month Modified duration
07/31/24 1.68
08/31/24 1.65
09/30/24 1.65
10/31/24 1.67
11/30/24 1.65
12/31/24 1.62
01/31/25 1.67
02/28/25 1.72
03/31/25 1.74
04/30/25 1.72
05/31/25 1.69
06/30/25 1.69
Revenue from investments monthly, fiscal year 2024-25
Month Income
Jul 2024 $ 2,469,114
Aug 2024 $ 2,225,463
Sep 2024 $ 1,969,876
Oct 2024 $ 2,010,316
Nov 2024 $ 1,363,194
Dec 2024 $ 2,167,964
Jan 2025 $ 2,470,888
Feb 2025 $ 2,275,222
Mar 2025 $ 1,923,422
Apr 2025 $ 2,144,206
May 2025 $ 1,451,046
Jun 2025 $ 2,539,588
Total $ 25,010,299
Sept. 23, 2025
Item #2 Page 37 of 40
35 Revenue from investments by class and totals, fiscal year 2024-25 and prior nine years
Investment class Cash income Fiscal year Cash income
Federal Agency $ 7,197,988 2015-16 $ 8,678,630 Supranational $ 494,116 2016-17 $ 9,286,187 Treasury $ 1,325,020 2017-18 $ 11,248,807 Corporate Notes $ 3,726,755 2018-19 $ 14,837,963 Certificate of Deposit $ 519,950 2019-20 $ 17,031,603 MBS (agency) $ 3,407,877 2020-21 $ 14,026,325 Municipal $ 2,236,694 2021-22 $ 12,047,464 Cash & Pooled Cash $ 6,101,899 2022-23 $ 16,168,150 Fiscal Year 2024-25 Total $ 25,010,299 2023-24 $ 21,201,394 2024-25 $ 25,010,299
Liquidity by maturity period as of June 30, 2025
Period, in months Maturity value Percentage
0-12 $ 329,439,801 34.49%
13-24 $ 166,129,886 17.39%
25-36 $ 147,366,910 15.43%
37-48 $ 161,776,309 16.94%
49-60 $ 150,358,000 15.74%
Total $ 955,070,906 100.00%
Average maturity, fiscal year 2024-25
Month Average maturity (years)
Jul 2024 1.95
Aug 2024 1.92
Sep 2024 1.91
Oct 2024 1.98
Nov 2024 1.96
Dec 2024 1.95
Jan 2025 1.99
Feb 2025 2.04
Mar 2025 2.07
Apr 2025 2.03
May 2025 2.02
Jun 2025 1.99
Sept. 23, 2025
Item #2 Page 38 of 40
36 Cash inflows and outflows, fiscal year 2024-25
The city’s portfolio balance increased 5.52% from $897 million to $947 million in book value over the fiscal year. The increase of $50 million does little to show the volume of cash that flows in and out of the portfolio during one fiscal year. The following table illustrates that the City Treasurer managed over $1.57 billion of cash inflows and cash outflows which prompted investment decisions during the fiscal year.
Cash inflows and outflows
Investment calls $ 50,515,000
Investment maturities $ 186,991,213
Investment purchases $ 302,792,000
Interest income $ 25,010,299
CAMP investments $ 150,500,000
CAMP withdrawals $ 158,025,000
Overnight investments $ 358,774,387
Overnight withdrawals $ 345,540,205
Sept. 23, 2025
Item #2 Page 39 of 40
37 ADDITIONAL RESOURCES
The Annual Report of Investments is a stand-alone report; however, additional documents are available for interested parties:
Investment Policy
The Investment Policy is approved at least annually by City Council and governs investment management. Included are topics such as:
• Investing objectives
• Authorized investments
• Limitations
• Review and reporting
The Investment Policy can be found on the City of Carlsbad City Treasurer website at:
https://www.carlsbadca.gov/city-hall/city-treasurer
Monthly investment reports
Monthly investment reports are presented to City Council and provide an in-depth status on the full portfolio on a routine basis. These reports include aspects such as:
• Current period maturities, calls, and purchases
• Detail listing of investments
• Investment ratings and outlooks
• Portfolio allocation by issuer
The monthly investment reports can be found on the City of Carlsbad City Treasurer website at:
https://www.carlsbadca.gov/city-hall/city-treasurer
Contacts
We are available for questions or comments on any City Treasurer report or function:
• Christian Peacox, City Treasurer
[email protected]
• Katie Schroeder, Senior Accountant, Treasury Department [email protected]
Sept. 23, 2025
Item #2 Page 40 of 40