City of
Napa
Quarterly Investment Report
as of December 31, 2025
Introduc
tion
This
report represents the City’s investment portfolio as of December 31, 2025. The report includes all invested City funds with the exception of bond proceeds. All investments are in compliance with the City’s adopted Statement of Investment Policy.
Invest
ment Approach
The City
’s investments are guided by an Investment Policy, which is reviewed and approved by the Council annually. The Investment Policy was last approved by the City Council in June 2024 and is provided as an appendix to this report for reference. The policy directs that investment goals—in order by priority—are safety, liquidity, and yield. This conservative approach ensures assets are available for use while also allowing the City to earn additional resources on idle funds. The City relies on an investment advisor and the state investment pool known as the Local Agency Investment Fund (LAIF).
Curren
t Market Conditions
The l
abor market continued to soften and the unemployment rate edged higher. Core inflation moved lower but remained above the Fed’s 2% target. Gaps in data collection due to the government shutdown likely distorted the official data, though other available private sector data pointed to a slowdown in economic momentum.
The Fed delivered two additional 25 basis point (bps) rate cuts in the quarter, lowering the federal funds target range to 3.50% to 3.75%. The median forecast from the Fed’s December “dot plot” showed an additional 25 bps rate cut in both 2026 and 2027, but the wide dispersion in underlying projections underscores growing differences of opinion. Policymakers have acknowledged ongoing challenges to achieving their dual mandate of maximum employment and stable prices.
The U.S. government shutdown halted the collection of key economic indicators, requiring the Federal Reserve (Fed) and the market to rely on survey-based anecdotal evidence and private data reports.
Yields on 3-month, 2-year, and 10-year U.S. Treasuries ended December at 3.63%, 3.47%, and 4.17%, representing changes of -31+ bps, -14 bps, and +2 bps, respectively, over the past quarter.
ATTACHMENT 1
City of
Napa
Quarterly Investment Report
as of December 31, 2025
Source:
Bloomberg Finance LP.
Portfol
io Strategy and Performance
At quart
er end, the portfolio’s duration was 2.50 years, which was 101% of the benchmark duration.
We continued to manage the portfolio’s duration at this near neutral position relative to the benchmark duration. Excess returns were strong across investment-grade sectors as investor demand and strong fundamentals kept spreads near multi-year lows, and the portfolio’s diversification was beneficial to its performance, both on an absolute basis and relative to the benchmark.
Bond indexes generated positive total returns for the quarter. The ICE BofA 3-month, 2-year, 5-year, and 10-year U.S. Treasury indexes returned 0.97%, 1.09%, 0.93%, and 0.83% for the quarter, respectively. Both the City’s portfolio and its benchmark also returned positive performance for the quarter, and the portfolio outperformed the benchmark due to its sector diversification. The portfolio generated strong performance for the past year, and, over the long term, the portfolio continues to return good performance and to outperform the benchmark.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
3M 1Y 2Y 3Y 5Y 10Y
Maturity
U.S
. Treasury Yield Curve
December 31, 20
25 December 31, 20
24 September 30, 202
5 Matu
rity 12/3
1/25 9/30
/25 Q ove
r Q
Change
3-Mo. 3.63
% 3.94
% -0.31
%
6-Mo. 3.61
% 3.84
% -0.23
%
1-Yr. 3.48
% 3.62% -0.15
%
2-Yr. 3.4
7% 3.61% -0.1
4%
3-Yr. 3.54
% 3.62% -0.08
%
5-Yr. 3.73
% 3.74% -0.02
%
10-Yr. 4.17
% 4.15% +.02
%
Yield Cur
ve History
ATTACHMENT 1
City o
f Napa
Quarterly Investment Report
as of December 31, 2025
Tot
al Return Comparison
Periods Ending December 31, 2025
Past
Qu
arter
Past
Year
Past
3 Years
Past
5 Years
City
of Napa 1.1
7% 6.1
1% 1.7
5% 2.2
4%
ICE BofA 1-5 Y
ear
Gover
nment Index 1.1
2% 5.7
3% 1.3
4% 1.8
3%
LAI
F Yield 1.05% 4.47% 3.96% 2.81%
Return
s for periods under one year are periodic; all other returns are annualized.
Source of LAIF yield is State Treasurer’s website. Reflects quarterly apportionment rate of LAIF averaged over respective time periods Por
tfolio Information
The
City’s cash, excluding bond proceeds, is pooled for investment purposes. As of September 30, 2025, invested funds totaled $276,540,657.26 on a market value basis. These investments belong to the General Fund and restricted funds such as the Developer, Special District, Water, Solid Waste, and Recycling Funds.
The City’s portfolio is well diversified by investment type and consists of U.S. Treasuries, federal agency commercial mortgage-backed securities (CMBS), municipals, corporate notes (including bank notes), negotiable certificates of deposit, asset-backed securities, and cash instruments such as CAMP and LAIF and bank notes. As noted in the following chart and on the attached investment detail report, as of December 31, 2025, approximately 72% of the City’s investment portfolio, was invested in the State Local Agency Investment Fund (LAIF), the California Asset Management Program (CAMP), and high-quality U.S. Treasury and federal agency securities to maintain the focus on safety and liquidity. Approximately 28% of the portfolio is allocated to high quality credit instruments including negotiable certificates of deposit, corporate notes (including bank notes), and asset-backed securities, and less than 1% is in municipal obligations.
ATTACHMENT 1
City o
f Napa
Quarterly Investment Report
as of December 31, 2025
The
City’s Investment Policy allows for a 5-year time horizon with an emphasis on liquidity. As of December 31, 2025, 21% of the City’s funds were invested in very short-term or overnight investments, 15% of the funds were invested with maturities between 91 days and 2 years, and 65% of the investment portfolio had a maturity ranging from 2 to 5 years. This distribution allows the City the necessary liquidity to meet operational and emergency cash needs while maximizing returns on funds not needed in the immediate future.
Federal
Agency
CMBs
12%
Municipals
0%
U.S. Treasuries
39%LAIF and CAMP
21%
Bank Note
1%
Certificates of
Deposit
0%
Corporate
Notes
16%
Asset-Backed
Securities
11%
In
vestments by Type
December 31, 2025
20.7 4%
0.00% 0.31%
14.41%
64.54%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
0 - 90 days 91 - 180 days 181 - 360 days 361 - 720 days 721 - 1825 days Maturit
ies in Days
December 31, 2025
ATTACHMENT 1
City o
f Napa
Quarterly Investment Report
as of December 31, 2025
Co
nclusion
All
City funds are invested in accordance with the approved Investment Policy with an emphasis on safety, liquidity, and yield (in that order). The City’s investment strategy of balancing the investment portfolio between short-term investments (to meet cash flow needs) and longer-term maturities (to realize a higher rate of return) is appropriate given the current market conditions.
ATTACHMENT 1