APPROVED AS TO FORM AND LEGALITY
________________________
CITY ATTORNEY’S OFFICE
OAKLAND CITY COUNCIL
RESOLUTION NO. _______________ C.M.S.
RESOLUTION ADOPTING THE CITY OF OAKLAND INVESTME NT
POLICY FOR FISCAL YEAR 2023-2024
WHEREAS, the City of Oakland may present a statement of its Investmen t Policy to the City’s legislative body annually; and
WHEREAS, on June 21, 2022, the City Council passed Resolution No. 89272 C.M.S., which adopted the City’s Investment Policy for Fiscal Year (FY) 2022-2023; and
WHEREAS, in accordance with best financial practices and sound financial management the City’s investment policy will continue to be presented to the City’s legislative body for approval each year; and
WHEREAS, the City’s proposed FY 2023-24 Investment Policy is presented herewith for City Council approval; now therefore be it
RESOLVED: That the proposed City of Oakland FY 2023- 24 Investment Policy , attached hereto as Exhibit A, is adopted.
IN COUNCIL, OAKLAND, CALIFORNIA,
PASSED BY THE FOLLOWING VOTE:
AYES – FIFE, GALLO, JENKINS, KALB, KAPLAN, RAMACHANDRAN, REID, AND
PRESIDENT FORTUNATO BAS
NOES –
ABSENT –
ABSTENTION –
ATTEST:
ASHA REED
City Clerk and Clerk of the Council of
the City of Oakland, California
EXHIBIT A
City of Oakland
Investment Policy
For
Fiscal Year 2023-24
Prepared by
The Finance Department, Treasury Bureau
Adopted by the City Council
On July 18, 2023
1 Table of Contents
Topic Page Number
Policy 2
Scope 2
Prudence 2
Objectives 2
Delegation of Authority 3
Internal Control 3
Ethics and Conflicts of Interest 3
Safekeeping and Custody 3
Applicable Ordinances 4
Social Responsibility 4
Reporting 4
Trading Polices 5
Broker/Dealers and Financial 5
General Credit Quality 6
Permitted Investments 7
U. S. Treasury Securities 7
Federal Agencies and Instrumentalities 7
Banker's Acceptances 7
Commercial Paper 8
Asset -Backed Commercial Paper 8
Local Government Investment Pools 9
Medium Term Notes 9
Negotiable Certificates of Deposit 9
Repurchase Agreements 9
Reverse Repurchase Agreements 10
Secured Obligations and Agreements 10
Certificates of Deposit 11
Money Market Mutual Funds 11
State Investment Pool (Local Agency Investment Fund) 12 Local City/Agency Bond 12
State Obligations –CA and Others 12
Other Local Agency Bonds 13
Deposits- Private Placement 13
Supranationals 13
Public Bank Obligations 14
Maximum Maturities 14
Glossary 14-24
2 1.0 POLICY
The purpose of this Investment Policy (“Policy”) is to establish overall guidelines for the management and investment of the City of Oakland (the “City”) public funds.. This Investment Policy is amended and adopted as of July 18, 2023 pursuant to Council Resolution No. ______ C.M.S. and will serve as the City of Oakland’s Investment Policy for Fiscal Year 2023-24 and until it’s further revised.
2.0 SCOPE
The Investment Policy applies to the operating funds of the City of Oakland, and the Port of Oakland (the “City Operating Pool”), which includes the General Fund, Special Revenue Funds, Debt Service Funds and all other funds comprised in City Operating Pool.
2.1 Proceeds of notes, bonds issues or similar financings including, but not limited to, reserve funds, project funds, debt service funds and capital trust funds derived from such financing, are not governed by this Investment Policy, but rather shall be invested pursuant to their respective bond indentures or the State of California Government Code 53600, as applicable.
2.2 Retirement/Pension Funds and Deferred Compensation Funds are also not governed by this Investment Policy, but rather by the policies a nd Federal or State statutes explicitly applicable to such funds.
3.0 PRUDENCE
All investments and evaluation of such investments shall be made with the Prudent Investor Standard as set forth by California Government Code, Section 53600.3 is defined as;
Prudent Investor Standard: Acti ng with care, skill, prudence and diligence under the circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the professional management of their business affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.
4.0 OBJECTIVES
The primary objectives, in order of priority, of the City Portfolio are:
4.1 Preservation of Capital (S afety)
Th e first and primary goal of the Portfolio is the preservation of capital. Investment shall be undertaken in a manner to avo id losses due to ma rket value risk, issuer default and broker default. To attain this objective; investments are diversified.
4.2 Liquidity
The Portfolio will be structured in a manner that will provid e cash as needed to meet anticipated disbursements. Cash flow modeling ensures that investments mature as needed for disbursements.
4.3 Dive rsity
The objective is to avoi d over-concentration in issuers, instruments, and maturity sectors.
No more th an 5 percent of the total assets of the investment s h eld by the City may be 3 invested in the securities of any one issuer, except the obli gations of t he United Sta tes government or government-sponsored enterprises.
4.4 Yield
The Portfolio is also managed to maximize its overall market return with consideration of the safety, liquidity, and diversity parameters discussed above. Exception to the prohibition of securities issued by, or backed by, the United States government that could result in zero or negative interest accrual if held to maturity, in the event of or duration of negative market interest rates. This exception will sunset on January 1st, 2026.
5.0 DELEGATION OF AUTHORITY
Management responsibility for the investment program is specifically delegated by the City Administrator or designee to the Financ e Director (“ Treasurer”) or designee who sha ll establish procedures for t he inves tment programs, which are consistent with the Investment Poli cy.
Authorization for investment decisions is limited to the Treasurer or designee . The Treasury Administrator and/or Investment Operations M anager may ex ecute investment t ransactions in the absence of the Treasurer or designee per the Treasurer’s instructions or prior authorization.
A Treasury Administrator or Investment Operations Manager may make decisions only with respect to overnight investments, but may implement in vestment decisions received directly from the Treasurer or designee.
6.0 INTERNAL CONTROL
The Treasurer or designee shall maintain a sys tem of internal controls designed to ensure c ompliance with the Investment Policy and to prevent losses due to fraud, employee error, and misrepresentations by third parties or unanticipated changes in financial markets.
7.0 ETHICS AND CONFLICTS OF INTEREST
All officers and employees involved in t he investment p rocess shall not engage in any persona l business activ ity, whi ch could conflict with proper execution of investments subje ct to this Policy.
Any material financial interest s in financial institutions which do business with the City should be disclosed to the City Administrator. All individuals involved in the investment process are required to report all gifts and income in accordance with California State Law.
8.0 SAFEKEEPING AND CUSTODY
All security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted o n a delivery-versus-payment (DVP) basis pursuant to approved custodi al safekeeping agreements. All securities owned by the City shall be held in safekeeping by the City’s custodial bank, which acts as agent for the City under the terms of custody agreement.
4 9.0 APPLICABLE ORDINANCES
9.1 Nuclear Free Zone Ordinance
Under the guidelines of a voter-approved Measure, the Oakland City Council approved Ordinance No. 11062 C.M.S effective December 16, 1988, which restricts the City’s investments in U.S Government Treasuries. The Treasurer shall make every attempt to invest in any available short-term option that provides approximately the same level of security and return as Treasuries. In the event that no reasonable alternatives exist, or to the extent that the City may experience financial hardship as a result of investment in these alternatives, the City Council may adopt a waiver for a period not to exceed 60 days, as authorized by the Ordinance, allowing the City to invest in U.S Treasuries.
9.2 Linked Banking Ordi nance
Pursuant to Ordinance No. 12066 C.M.S adopted by Council on July 14,1998, the City has established a Linked Banking Service Program. This reference applies to depositories for both the City of Oakland and the Port of Oakland banking needs. Depositories are defined within the Ordinance as "all banking services utilized by the City including the Port of Oakland operating fund, with the exception of investments made through investment banks and broker/dealers." Depositories providing services to the City and the Port of Oakland must provide to the City, annually, the information enumerated under Section 3 of the Ordinance. On July 27 2017, City Council adopted Ordinance No. 13445 C.M.S that Amended Ordinance No. 12606 C.M.S.
9.3 Tobacco Divestiture Resolution
On February 17, 1998, Council adopted Resolution No. 74074 C.M.S., which prohibits investment in businesses deriving greater than fifteen percent of their revenues from tobacco products. The Treasurer maintains a list of firms excluded from permitted investments due to the tobacco divestiture requirements, updated on annual basis.
9.4 Fossil Fuel Divestiture Resolution
On June 17, 2014, Council adopted Resolution No. 85053 C.M.S. which prohibits the Investment or ownership stake in any companies that extract, produce, refine, burn or distribute fossil fuels. The Treasurer is in full compliance with this Resolution.
9.5 Firearm or Gun Manufacturer Divestiture Resolution On March 5, 2013, Council adopted Resolution No. 84242 C.M.S which prohibits investment or ownership stake in any manufacturer of firearms or ammunition.
9.6 San ctuary City Investment Ordinance
On June 5, 2019, Council adopted Ordinance No. 13540 C.M.S which prohibits the City from investing in companies that contract with the United States Immigration and Customs Enforcement, Customs and Border Protection, or the Department of Health and Human Services of Refugee Resettlement to provide services or goods for data collection or immigration detention services.
City of Oakland Resolutions and Ordinances related to the investment of City funds and adopted after adoption of this Investment Policy are incorporated herein by reference for Fiscal Year 2023-24.
5 10.0 SOCIAL RESPONSIBILITY
When possible, it is th e City's poli cy to invest in companies that promot e the use and production of renewable energy resources and any other socially responsible investments, subject to the prudent investment standard.
11.0 REPORTING
11.1 City Council and Council Committees
The City Administrator or designee shall submit the City’s Investment Policy to the City Council for approval each year.
As best practice and sound financial management pra ctice, the City Admin istrator or designee will publish a quarterly cash management report.
The quarterly cash management report will be deemed timely pursuant to this Investment Policy and Government Code Section 53646, so long as w ithin 45 days following the end of the quarter covered by the report, the City A dministrator submits the report to the City Clerk for scheduling to a City Council or City Council committee meeting.
Due to the City Council’s summer recess, the quarterly cash management report for the period ending June 30 w ill be deemed timely so long as the City Administrator submi ts the report to the City Clerk by the following September for scheduling to a City Council or a City Council committee meeting.
The report will include the information required under Government Code Section 53646 including: the type of investment, issuer, date of maturity, par and dollar amount invested (this data may be in the form of a subsidiary ledger of investments); a description of any investments under management of contracted parties, if any; current market values and source of valuation; statement of compliance or manner of non-compliance with the Investment Policy; and a statement denoting the ability to meet the Fund's expenditure requirements for the next six months. In addition, the report shall summarize economic conditions, liquidity, diversity, risk characteristics and other features of the portfolio. The report will disclose the total investment return for the 3-month period. In meeting these requirements, the report shall include an appendix that discloses all transactions during each month and the holdings at the end of each month during the period being reported.
11.2 Annual Audit
Investme nt Portfolio is priced to market per Government Accounting Standards Board (GASB) and reported in compliance with General Accepted Accounting Principals.
Annual disclosure requirements such as Custodial Credit Risk, Credit Risk, Concentration of Credit Risk, Interest Rate Risk and Foreign Currency Risk are reported in the City’s Annual Comprehensive Financial Report (ACFR).
11.3 Internal Audits
Internal audits of treasury operations may be conducted periodically to review its procedures and policies and make any recommendations for changes and improvements if needed.
6 12.0 TRADING POLICES
12.1 Sales Prior to Maturity
"Buy and hold" is not necessarily the strategy to be used in managing the Funds. It is expected that gains will be realized when prudent. Losses are acceptable if the proposed swap/trade clearly enhances the portfolio yield over the life of the new security on a total return basis.
Sufficient written documentation will be maintained to facilitate an audit of the transaction. Losses, if any, will be recognized and recorded based on the transaction date.
13.0 BROKER/DEALERS AND FINANCIAL INSTITUTIONS
The purchase of any authorized investment shall be made either directly from the issuer or from any of the following:
Institutions licensed by the State of California as a broker/dealer Members of a federally regulated securities exchange
National or state-chartered banks
Federal or state savings institutions or associations as defined in Finance Code Section 5102 Brokerage firms reporting as a primary government dealer to the Federal Reserve Bank
The Treasurer or designee will maintain a current and eligible list of r eputable primary and regional dealers, brokers and financial institutions with whom s ecurities trading and placement of funds are authorized. A strong capita l base credit worthiness, and, where applic able, a broker/dealer staff experienced in transactions with California local governments are the primary criteria for inclusion on the City of Oakland's approved list.
Approved dealers and brokers shall be limited to primary dealers or regional dealers that qualify under Securities and Exc hange Commission Rule 15C3- 1 (uniform ne t c apital rule) and which provide:
proof of Financial Industry R egulatory Authorit y (FINRA) certification ; proof of Californ ia State registration; and a completed City of Oakland broker/dealer questionnai re. In addition, prior to approval and for every two years thereafter, approved dealers and brokers must provide: an audited financial statement; certification of receipt, review of and wi llingness to comply with the current Investment Policy; and certific ation of com pliance with Rule G -37 of the Munici pal Securities Rulemaking Board regarding limitations on political c ontributions to the Mayor or any member of the City Council or to any candidate for these offices.
The Treasurer may remove a firm from the approved list at any time due to: any failure to comply with any of the above criteria; any failure to successfully execute a transaction; any change in broker/dealer staff; o r any other action, event or failure to act which, in the sole discretion of t he Treasurer i s materially adverse to the best interests of the City.
14.0 GENERAL CREDIT QUALITY
Short- term debt shall be rated at least “A-1” by Standard & Poor’s Corporation, “P-1” by Moody’s Investor Service, Inc., “F-1” by Fitch. Long-term debt shall be rated in a rating category of at least “A” by Standard & Poor’s Corporation, Moody’s Investors Service, Inc., or Fitch. 7 The minimum credit requirement for each security i s further defined within the Permitted Investments section of the policy. If sec urities which are purchased for the Fund are dow ngraded below the credit quality required by the Fund. The Treasurer will determine wh ether to retain or to s ell the security.
Evaluation of divestiture of securities will be determined on a case-by-case basis.
15.0 PERMITTED INVESTMENTS
The f ollowing se curities are permissible investments pursuant to Section 53601 of the Cal ifornia Government Code as well as this Investment Policy. Any other inve stment not specified hereunder shall be made only upon prior approval by the City Council.
15.1 U. S. Treasury Securities
Bills, notes and bonds issued by the U.S. Treasury which are direct obligations of the federal government.
Maximum Maturity: 5 years
Maximum Portfolio Exposure: 20%*
Maximum Issuer Exposure: Prudent person standard applies overall
Credit Requirement: N.A.
*20% limit is a result of the Nuclear Free Zone Ordinance, subject also to prior adoption by Council of a waiver for a period not to exceed 60 days allowing investment in U.S.
Treasury securities due to s pecified findings. There is no limitation under the California Government Code
15.2 Federal Agencies and Instrumentalities
Notes and bonds of federal agencies, government-sponsored enterprises and international institutions. Not all are direct obligations of the U. S. Treasury but may involve federal sponsorship and/or guarantees, in some instances.
Maximum Maturity: 5 years
Maximum Portfolio Exposure: None
Maximum Issuer Exposure: Prudent person standard applies overall
Credit Requirement: N.A.
15.3 Bank er’s Acceptances (BA)
Bills of exchange or time drafts drawn on and accepted by a commercial bank, typically created from a letter of credit issued in a foreign trade transaction.
Maximum Maturity: 180 days
Maximum Portfolio Exposure: 40%
Maximum Issuer Exposure: 30% of to tal surplus funds may be in BAs of one commercial bank; maximum 5% per issuer
8 Credit Requirement: Al, P1, or F1 or better by two or the three na tionally recognized rating services. No ra ting m ay be lower than any of t he rating listed above.
15.4 Commercial Paper
A short-term, unsecured promissory note issued by financial and non-financial companies to raise short-term cash. Financial companies issue commercial paper to support their consumer and/or business lending; non-financial companies issue for operating funds.
Maximum Maturity: 270 days
Maximum Portfolio Exposure: 40%
Maximum Issuer Exposure: No more than 10% of the total assets of the investments held by the City may be invested in any one issuer’s commercial pa per; and maximum 5% per issuer
Credit Requir ement: Al, P1, or F1 or better by two or the three nationally recognized rating serv ices. No rating may be lo wer than any of the rating lis ted above.
Eligibility Limited to ge neral corporations organize d an d operating in the United States with assets in e xcess of $500 million, and having rating category of "A" or higher ratings for the issuer's debt, other than commercial paper, if any, as provided by NRSRO.
15.5 Asset-Backed Commercial Paper
Asset-Backed Commercial Paper (“ABCP”) issued by special purpose corporations (“SPCs”) that is supported by credit enhancement facilities (e.g. over-collateralization, letters of credit, surety bonds, etc.)
Maximum Maturity: 270 days
Maximum Portfolio Exposure: 25% (Not to exceed 25% of total secu red and unsecured CP)
Maximum Issuer Exposure: No more than 10% of the total assets of the investments held by the City or Agency ma y be invested in any one issuer’ s commercial paper; and maximum 5% per issuer
Credit Requirement: Al, P1, or F1 or better by two or the three nationally recognized rating services. No rating may be lower than any of the rating listed above.
Eligibility: Issued by special purpose corporations (“SPC”) organized and operating in the United S tates with assets exceedin g $500 million. Restricted to program s sponsored by commercial banks or f inance com panies organized and oper ated i n the United States.
Program must have credit facility that provides at least 100% liquidity
9 Serialized ABCP programs are not eligible
Ratings are to be routinely monito red. The Treasurer is to perform the Treasurer’s own due diligence as to creditworthiness.
15.6 Local Government Investment Pools
For local agencies ( including counties, cities or other local agencies) that pool money in deposits or investments with other local agencies, investments may be made subject to the following:
Maximum Maturity: N/A
Maximum Portfolio Exposure: 20%
NAV Requirement: $1.00
Credit Requirement: Top ranking or highest letter and numerical rating provided by at least two nationally recognized statistical rating organizations
Must retain an Investment Advisor
Registered with the SE C w ith not less than 5 ye ars experience in investi ng securities as authorized by the Code, and with assets under management in excess of $500 million
Fund Composition Comprised of instruments in accordance w ith the California State Government Code
15.7 Medium Term Notes
Corporate Bonds, Corporate Notes and Deposit Notes. Issuers are banks and bank holding companies, thrifts, finance companies, insurance companies and industrial corporations.
These are debt obligations that are generally unsecured.
Maximum Maturity: 5 years (additional limitations based on credit, below)
Maximum Portfolio Exposure: 30%
Maximum Issuer Exposure: No more than 5% of the Portfolio shall be invested in any single institution.
Credit Requirement: Must be Rated A3, A -, or A - or better by two of the three nationally recognized rating services, Moody’s, S&P, or Fitch, resp ectively. No Rating may be lower than any of the Rating listed above and should have minimum “A” rating category or its equivalent or better.
Eligibility: Limited to corporations organized and operating within the United States or depository institution s licens ed by the United States or any state and operating within the United States
15.8 Negotiable Certificates of Deposit
Issued by commercial banks and thrifts, and foreign banks (Yankee CD's). 10 Maximum Maturity: 5 years
Maximum Portfolio Exposure: 30%
Maximum Issuer Exposure: Prudent person standard applies overall; m aximum 5% per issuer
Credit Require ment: Top 3 rat ing categories, A, A2 or A (S&P/Moody's/Fitch) being the lowest, if rated by S&P, Moody's or Fitch.
15.9 Repurchase Agreements
A contractual transaction between the investor and a bank/dealer to exchange cash for temporary ownership or control of securities/collateral with an agreement by the bank/dealer to repurchase the securities on a future date. Primarily used as an overnight investment vehicle.
Maximum Maturity: 360 days
Maximum Portfolio Exposure: None
Maximum Dealer Exposure: Prudent person standard applies overall; maximum 5% per issuer
Collateral Requirements: Collateral limited to Treasury and Agency securities; must be 102% or greater
Mark-to-market: Daily
Eligibility: Limited to primary dealers of the Fede ral Reserve Bank of Ne w York, for which a current Master Repurchase Agreement has been executed with the City.
15.10 Reverse Repurchase Agreements
The mirror image of a repurchase agreement. Used as a source of liquidity when there is a mismatch of cash flow requirement and scheduled maturities. A mechanism to avoid liquidating securities for immediate cash needs. Restricted to securities owned for a minimum of 30 days prior to settlement of the repurchase agreement.
This strategy should be used solely for liquidity and not for arbitrage or leverage purposes.
Maximum Maturity: 92 days (unless a written agreement guaranteeing the earnings or spread for the entire period)
Maximum Portfolio Exposure: 20% of the base value of the portfolio
Eligibility: Limited to primary dealers of the Federal Reserve Bank of New York or nationally or State chartered bank with significant banking r elationship with the City.
15.11 Secured Obligations and Agreements
Obligations, including notes or bonds, collateralized at all times in accordance with 11 Sections 53651 and 53652 of the Government Code.
Maximum Maturity: 2 years
Maximum Portfolio Exposure: 20%
Maximum Issued/ Provider Ex posure: Prudent person standard applies overa ll; maximum 5% per issue
Collateral Requirements: Collateral limited to Treasury and Agency securities; must be 102% or greater
Mark-to-market: Daily
Credit Requirement: Issuer/Provider rated in "AA" category by at least one national rating agency; or agreement guaranteed by an "AA" company
Eligibility: Banks, insurance companies, insurance holding companies and other financial institutions
15.12 Certificates of Deposit
Time deposits, which are non-negotiable, are issued most commonly by commercial banks, savings and loans and credit unions with federal deposit insurance available for amounts up to $250,000. Deposits in banks, savings and loan associations and federal credit unions with a branch office within Oakland will be made (to the extent permissible by State and Federal law or rulings) pursuant to the following conditions:
Maximum Maturity: 360 days
Maximum Portfolio Exposure: Prudent person standard applies.
Maximum Issuer Exposure: Prudent person standard applies.
Credit Requirement: For deposits over $250,000: Top 3 rating categories - A, A2 or A (S&P/Moody’s/Fitch) being the lowest, if rated by S&P, Moody’s or Fitch.
Deposit Limit: For f ederally insured deposits of $250,000 or less: No minimum credit rating required. City’s deposits cannot exc eed the total shareholder’s equity of the institution. For deposits over $250,000, it must be collateralized.
Depository Selection: Highest available rate of interest
Institution Requirements: Most recent Annual Report
Pursuant to Government code 53637, the City is prohibited from investing in negotiable certificates of deposit of a state or federal credit union if a member of the legislative body or any person with decision-making authority serves on the board of directors or committee.
15.13 Money Market Mutual Funds
Regulated by the SEC, these funds operate under strict maturity and diversification guidelines. These funds have no federal guarantee but are viewed as a very safe short- 12 term cash investment.
Maximum Maturity: N/A
Maximum Portfolio Exposure: 20%
NAV Requirement: $1.00
Credit Requirement: Top ranking or highest letter and numerical rating provided by at least two nationally recognized statistical rating organizations
Investment Advisor Alternative to Ratings: Registered with the S EC with not less than 5 years ex perience in investing s ecurities as authorized by the Code, and with assets under management in excess of $500 million
Fund Composition: Comprised of instruments in accordance with the California State Government Code
15.14 State Investment Pool (Local Agency Investment Fund) A pooled investment fund overseen by the State Treasurer, which operates like a money market fund, but is for the exclusive benefit of governmental entities within the state.
Maximum currently authorized by Local Agency Investment Fund (LAIF) is $75 million, which is subject to change. The LAIF is in trust in the custody of the State Treasurer.
The City’s right to withdraw its deposited monies from LAIF is not contingent upon the State’s failure to adopt a State Budget.
Maximum Maturity N /A
Maximum Portfolio Exposure None
15.15 Local City/Agency Bonds
Bonds issued by the City of Oakland, or any department, board, agency or authority of the City.
Maximum Maturity: 5 years
Maximum Portfolio Exposure: None
Maximum Issuer Exposure: Prudent person standard applies overall; maximum 5% per issuer
Credit Requirement: Minimum Rating Category of “A” or better
15.16 State of California Obligations and Others
State of California and any other of the 49 United States registered state warrants, treasury notes, or bonds issued by a State.
Maximum Maturity: 5 years
Maximum Portfolio Exposure: None
13 Maximum Issuer Exposure: Prudent person standard applies over all; maximum 5% per issuer
Credit Requirement: Prudent person standard applies
15.17 Other Local Agency Bonds
Bonds, notes, warrants or other evidences of indebtedness of any local agency with the state.
Maximum Maturity: 5 years
Maximum Portfolio Exposure: None
Maximum Issuer Exposure: Prudent person standard applies overall; maximum 5% per issuer
Credit Requirement: Minimum Rating Category of “A” or better
15.18 Deposits- Private Placement
Prudent to California Government Code Section 53601.8 an d 53635.8, local agencies are authorized to invest their surplus funds in deposits, certificates of deposits including negotiable certificate of depos its at a commercial o r saving bank, saving and loan, or credit union using a private sector deposit placement service.
• Maximum Portfolio Exposure: 50%
Maximum Issuer Exposure: maximum 10% per private sector placement entity
Credit Requirement: Prudent person standard applies
Sunset on January 1, 2026
15.19 Supranationals
U.S dollar denominated senior unsecured unsubordi nated obligations iss ued or unconditionally guaranteed by any of the supranational institutions suc h as International Bank of Reconstr uction and Development (IBRD), the International Finance Corporation (IFC), and the In ter-American Deve lopment Bank (IA DB).
Eligible for purchase and sale within the United States.
Maximum Maturity: 5 years
Maximum Portfolio Exposure: 30%
• Credit Requirement: Minimum Rating Category of “AA” or better by NRSRO
15.20 Public Bank Obligations
Any commercial paper, debt securities, or other obligations of a public bank as defined in California Government Code Section 57600-57607.
Maximum Maturity: 5 year
14 Maximum Portfolio Exposure: N.A
• Credit Requirement: Prudent Standard Applies
16.0 MAXIMUM MATURITIES
The City’s Investment Policy shall be struc tured to provide that sufficient funds from investments are available to me et City’s anticipated cash need . No investments will have a maturity of mo re than 5 years from its settlement date . Purchase of investments with forward settlement d ate exceeding 45 days from time of investment is prohibited.
17.0 GLOSSARY
Definitions of investment-related terms are listed.
15 GLOSSARY
ACCRETION: Adjustment of th e difference b etween the prices of a bond bought at an or iginal discount and the par value of the bond.
AGENCIES: Federal agency securities and/or Government-sponsored enterprises (GSEs), also known as U.S. Go vernment instrumentalities. Securities is sued by Government N ational Mortgage Association (GNMA) are considered true agency securities, backed by the full faith and credit of the U.S. G overnment. GSEs a re financial intermediaries established by the federal government to fund loans to certain groups of borrowers, fo r example homeowners, farmers and students and ar e privately owned corporations with a public purpose. The most common GSEs are Federal Farm Credit System Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Association, and Feder al National Mortgage Association.
AMORTIZATION: Accounting procedur e that g radually reduces the cost value of a limited life or intangible asset through periodic charges to income. For fixed assets, the term used is “depreciation”.
It is common practice to amortize any premium over par value paid in the purchase of prefe rred stock or bond investments.
APPRECIATION: Increase in the value of an asset such as a stock bond, commodity or real estate.
ASKED PRICE: The price a broker/dealer offers to sell securities.
ASSET BACK ED: A type of security that is secured by receivables, such as credit card and auto loans. These securities typically pay principal and interest monthly.
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company.
The acc epting institution guarantees payment of the bill, as well a s the is suer. This money market instrument is used to finance international trade.
BASIS POINT: One-hundredth of one percent (i.e., 0.01%).
BENCHMARK: A comparative base for m easuring the perfor mance or risk tolerance of the investment p ortfolio. A bench mark should rep resent a close cor relation to the level of risk an d the average duration of the portfolio’s investment.
BID PRICE: The price a broker/dealer offers to purchase securities.
BOND: A financial obligation for which the issuers promises to pay the bondholder a specified stream of future cash flows, including periodic interest payments and a principal repayment.
BOOK VALUE : The value at which a debt security is shown on the holder’s bal ance sheet. Book value is acquisition cost less amortization of premium or accretion of discount.
BROKER: A broker acts as a n intermediary bet ween a buyer and seller for a commission and does not trade for his/her own risk and account or inventory.
CALLABLE SECURITIES : A security that can be redeemed by the iss uer before the scheduled maturity date.
CAPITAL : wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing 16 CASH FLOW: An analysis of all changes that affect the cash account during a specified period.
CERTIFICATE OF DEPO SIT (CD): A time deposit with a specific mat urity evidenced by a certificate. Large-denomination CD's are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
COLLATERALIZED MORTGAGE OBLIGATION (CMO): A type of mortgage-backed security that cr eates sepa rate pools of pass -through rates for different classes of bondholders w ith v arying maturities, called trances . The re payments from t he pool of pass -through securities are used to re tire the bonds in the order specified by the bonds' prospectus.
COMMERCIAL PAPER: Short-term, unsecured, negotiable promissory notes of corporations.
ANNUAL COMPREHENSIVE FINANCIAL REPORT ( ACFR): The offi cial annual financial report for the City. It includes combined statements and basic financial statements for each indi vidual fund and account gr oup pre pared in conformity with Generall y Accepted Accounting Princ iples (GAAP).
CONCENTRATION : Percentage in one type of security or sector
CORPORATE NOTE: Debt instrument issued by a private corporation.
COUPON: The annual rate at which a bond pays interest.
CREDIT RATINGS : A grad e gi ven to a debt instrument t hat indi cates its credit quality. Private independent rating services such as Standard & Poor's, Moody's and Fitch provide these
CREDIT RISK: The risk t hat an obligation will not be pa id and a loss will result due to a failu re of the issuer of a security.
CUSIP: Stands for Committee on Uniform Securitie s Identification Procedures. A CUSIP number identifies most s ecurities, including: stocks of all regist ered U.S. and C anadian companies, and U .S. government and municipal bonds. T he CUSIP system—owned by the American Bankers Association and operated by Standard & Poor’s—facilitates the clearing and se ttlement process of securities. The number consists of nine characters (including letters and numbers) that uniquely identify a company or issuer and the type of security.
CURRENT YIELD: The annual interest on an investment divided by the current market value. Since the calculation relies on the current market value rather t han the investor’ s cost, current yie ld is unrelated to the actual return the investor will earn if the security is held to maturity.
CUSTODIAN: A bank or other financial institution that keeps cust ody of stock certificates and other assets.
DEALER: A dealer, as op posed to a broker, acts as a principal in all transactions, buying and selling for his/her own risk and account or inventory.
DEBENTURES: A bond secured only by the general credit of the issuers.
17 DELIVERY VERSUS PAYMENT (DVP) : Delivery of securities with a simultaneous exchange o f money for the securities.
DERIVATIVE: A financia l instr ument that is based on, or der ived from, som e underlying asset, reference date, or index.
DIRECT ISSUER: Issuer markets its own paper directly to the investor wi thout use of an intermediary.
DISCOUNT: The diffe rence between the cost of a security and its value at maturity when q uoted at lower than face value.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering indepen dent returns and risk profiles.
DURATION: A measur e of the timin g of the cash flo ws, such as the inte rest payments and the principal repayment, to be re ceived from a given fixed- income security. Thi s calculation i s based on three variables: term to matur ity, coupon rat e, and yie ld to m aturity. Duration m easures the pr ice sensitivity of a bond to changes in interest rates.
FACE VALUE: The principal amount owed on a debt instrument. It is the amount on which inter est is computed and represents the amount that the issuer promises to pay at maturity.
FAIR VALUE : The amou nt at w hich a security could be excha nged between willing parties, other than in a force d or liquidation sale. If a market price is av ailable, the fair value is equal to the market value.
FANNIE MAE : Trade name for the Fed eral National Mortg age Associatio n (FNMA ), a U.S.
Government sponsored enterprise.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that provides insurance on bank deposits, guaranteeing deposits to a set limit per account, currently $250,000.
FEDERAL FARM CR EDIT BANK (FFCB) : Gov ernment-sponsored enterprise t hat con solidates the financing activi ties of the Fe deral Land Banks, the Federal Intermediate Credit Banks and the Banks for Cooperatives. Its securities do not carry direct U.S. government guarantees.
FEDERAL FUNDS RATE: The rate of i nterest at which Fed eral fu nds are traded. This rate is considered to be the most sensitive indicator of the directio n of interest rates, as it is currently pegged by the Federal Reserve through open-market operations.
FEDERAL GOVERNMENT AGENCY SECURITIES: Federal Agency or United States government-sponsored enterprise oblig ations, participations, or other instruments, including thos e issued by or fully guaranteed as to princ ipal an d intere st by fede ral agencies o r United Sta tes government-sponsored enterprises.
FEDERAL HOME LOAN BANKS (FHLB): Government sponsored enterprise (currently made up of 12 regional banks) that regulates and lends funds and provides correspondent banking se rvices to member commercial bank s, thrift in stitutions, cr edit unions and i nsurance companies. Although the banks operate under fede ral charter with government supervision, the securities are not guaranteed by the U. S. Government.
18 FEDERAL HOME LOA N MORTG AGE CORP ORATION (F HLMC): Government sponsore d enterprise t hat hel ps m aintain the availability o f mortg age credit for residential housing. FHLMC finances these operations by marketing guarantee d mortgage cer tificates and mortgage participation certificates. Its discount notes and bonds do not carry direct U.S. government guarantees.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): Government sponsored enterprise that is the largest single provider of residential mortgage funds in the United States. FNMA is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed -rate mortgages. FNMA's securities are also hi ghly liquid and are widely accepted.
FEDERAL OPEN MARKET COMMITTEE (FOMC): A committee of the Federal Reserve Board, which establishes monetary policy and executes it through temporary and perma nent changes t o the supply of bank reserves.
FEDERAL RESERVE SYSTEM: The central bank of the U.S. which consists of a seven member Board of Governors, 12 regional banks and about 5,700 commercial banks that are members.
FED WIRE: A wire transmission serv ice established by the Federal Reserve Bank to facilitate th e transfer of funds through debits and credits of funds between participants within the Fed system.
FREDDIE MAC: Trade na me for the Federal Home Loan Mortgage Corporation (FHLMC), a U.S. government sponsored enterprise.
GINNIE MAE : Trade name for the Gov ernment National Mortgage Association (GNMA), a direct obligation bearing the full faith and credit of the U.S. Government.
GOVERNMENT ACC OUNTING STANDARDS BO ARD (GAS B): A standard -setting body, associated with the Financial Accounting Foundation, which prescribes stan dard accounting practices for governmental units.
GUARANTEED INVESTMENT CONTRACTS (GICS): An agreement ackn owledging receipt of funds, for deposit, specifying terms for withdrawal, and guaranteeing a rate of interest to be paid.
INTEREST RATE: The annual yield earned on an investment, expressed as a percentage.
INTEREST RATE RISK: The risk of ga in or loss in market values of securities due to ch anges in interest-rate levels. For example, rising interest rates will cause the market value of portfolio secu rities to decline.
INVESTMENT AGREEMENTS: A contract providing for the lending of issuer funds to a financi al institution which agrees to repay the funds with interest under predetermined specifications.
INVESTMENT GRADE (LONG TERM RATINGS ): The minimum, high quality ratings for long term debt such as corporate notes. Investment Grade ratings are as follows: A3 (Moody’s), A- (S&P), and A- (Fitch).
INVESTMENT PORTFOLIO : A collection of securities held by a bank, individual, institution or government agency for investment purposes.
LIQUIDITY: A liquid as set is one that can be co nverted easily and rapidly into c ash with minimum risk of principal.
19 LOCAL AGENCY INVESTMENT FUND (LAIF ): An investment pool sponsored by the State of California and administered/managed by the State Treasurer. Local govern ment units, with consent of the governing body of t hat agency, may voluntari ly deposit surplus funds f or the purpose of investment. Intere st earned is d istributed by the State Controller to the part icipating gove rnmental agencies on a quarterly basis.
LOCAL AGE NCY INVE STMENT POO L: A po oled investment veh icle sponsored by a l ocal agency or a group of local agencies for use by other local agencies.
MARKET RISK: The risk that the value of securities w ill fluctuate w ith changes in overall market conditions or inter est rates. Systema tic risk of a security that is common to all securities of the same general class (st ocks, bonds, notes, money mar ket instrument s) and cannot be eliminated by diversification (which may be used to eliminate non-systematic risk).
MARKET VALUE: The price at which a security is curr ently being sold in t he market. See FAIR VALUE.
MASTER RE PURCHASE AGREEMENT : A written contract cover ing all future transactions between the parties to repurchas e agreements and reverse repurchase agreements tha t establish each party's rights in the transactions. A master agreement will often specify, amo ng other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower.
MATURITY: The date that th e princi pal or sta ted val ue of a debt instru ment becomes d ue and payable.
MEDIUM-TERM NOTES (M TNs): Unsecured, investment -grade sen ior debt secur ities of major corporations which are sold in relatively small amounts either on a continuous or an intermittent basis.
MTNs are highly flexible debt instruments that can be structured to respond to market opportunities or to investor preferences.
MODIFIED DURATION: The percent change in price for a 100 basis point change in yields. This is a measure of a portfolio’s or security’s exposure to market risk.
MONEY MARKET : The market in which short term debt instr uments (Treasury Bills, Discou nt Notes, Commercial Paper, Banker’s Acceptances and Negotiable Certificate s of Deposit) are issued and traded.
MORTGAGED B ACKED SE CURITIES: A type of secu rity that is secured by a mortgage or collection of mortgages. These securities typically pay principal and interest monthly.
MUNICIPAL BONDS: Debt obligations issued by sta tes and local governments and their agencie s, including ci ties, counties, g overnment retiremen t plans, school distr icts, stat e universities, sewe r districts, municipally owned utilities and author ities running bridges, airports and other transportation facilities
MUTUAL FUND: An entity that pools money a nd can i nvest in a variety of se curities which are specifically defined in the fund’s prospectus.
NEGOTIABLE CERTIFICATE OF DEPOSIT : A large deno mination certificate of deposit which can be sold in the open market prior to maturity.
20 NET PORTFOLIO YIELD : Calculation in whi ch the 365- day basis equal s the annualiz ed percentage of the sum of all Net E arning during the period divided by t he sum of all Average Daily Portfolio Balances.
NATIONALLY RECOGNIZED RATING ORGANIZATION (NRSRO): is a credit rating agency that issues credit rating that U.S Securities and Exchange Commission permits other financial firms to use for certain regulatory purposes.
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New Yor k Federal Reserve Bank a s directed b y the FOMC in order t o influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and c redit: Sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool.
PAR VALUE: The amount of principal whi ch must be pai d at maturity. Also referred to as the face amount of a bond. See FACE VALUE.
PORTFOLIO: The collection of securities held by an individual or institution.
PREMIUM: The difference between the par value of a bond and the cost of the bond, when the cost is above par.
PRIMARY DEALER: A group of government securitie s dealers who submit daily reports of marke t activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are sub ject to its informal oversight. These dealer s are authorized to buy and sell government securities in dir ect dealing with the Federal Reserve Bank of New York in its execut ion of market operations to carry out U.S. monetary policy. Such dealers must be qualified in terms of reputation, capacity, and adequacy of staff and facilities.
PRIME (SHO RT TERM RATING ): High quality ratings for short term debt such as commercial paper. Prime ratings are as follows: P1 (Moody’s), A1 (S&P), and F1 (Fitch).
PRINCIPAL: The face value or par value o f a debt instrument, or the amount of capital invested in a given security.
PRIVATE PLACEMENTS : Securities that do not have to be registered with the Secu rities and Exchange Commission because they are offered to a limited number of sophisticated investors.
PROSPECTUS: A legal document that must be provided to a ny prospective purchaser of a new securities offering reg istered with th e Securiti es and Exchang e Commission that typically inclu des information on the issuer, the issuer’s business, the proposed use of proceeds, the experience of the issuer’s management, and certain certified financial statements (also known as an “official statement”).
PRUDENT INVESTOR STANDARD: A standar d of conduc t for fiduciaries. Investments shall be made with judgment and care--under ci rcumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, c onsidering the probable safety of the ir capital as well as the prob able income to be derived.
PUBLIC BANK : A corporation, orga nized as either a n onprofit mutual benefit corporation or a nonprofit public benefit corporation for the pur pose of engagi ng in t he commercial banking business 21 or industrial banking business, that is wholly owned by a local agency, as specified, local agen cies, or a joint powers authority.
PUBLIC DEPOSITS : A ba nk that is qual ified unde r Calif ornia l aw to accept a deposit of public funds.
PURCHASE DATE: The date in which a security is purchased fo r settlement on that or a later date.
Also known as the “trade date”.
RATE OF RETURN: 1) The yield which can be att ained on a security based on its purchase price or its current market price. 2) Income earned on an investmen t, expressed as a percentage o f the cost of the investment.
RATING SCALE:
Moody's S&P Fitch
Rating description Long-
term
Short-
term
Long-
term
Short-
term
Long-
term
Short-
term
Aaa
P-1
AAA
A-1+
AAA
F1+
Prime
Investment-grade
Aa1 AA+ AA+
High grade Aa2 AA AA
Aa3 AA− AA−
A1 A+ A-1 A+ F1 Upper medium
grade A2 A A
A3 P-2 A− A-2 A− F2 Baa1 BBB+ BBB+
Lower medium
grade Baa2 P-3 BBB A-3 BBB F3 Baa3 BBB− BBB−
Ba1
Not
prime
BB+
B
BB+
B
Non-investment
grade
speculative
Non-investment
grade
aka high-yield
bonds
aka junk bonds
Ba2 BB BB
Ba3 BB− BB−
B1 B+ B+
Highly speculative B2 B B
B3 B− B−
Caa1 CCC+
C CCC C
Substantial risks
Caa2 CCC Extremely
speculative
Caa3 CCC− Default imminent
with little
prospect for
recovery
Ca
CC
C
C
D /
DDD
/ In default / DD
D
22 REALIZED GAIN (OR LOSS): Gain or loss resulting from the sale or disposal of a security.
REGIONAL DEALER: A financial intermediary that buys and sells securities for the benefit of i ts customers without maintaining substantial inventories of securities and that is not a primary dealer.
REPURCHASE AGREEMENT (RP or REPO ): A transaction in which a counterparty or the holder of securities (e.g. investment dealer) s ells these securities to an investor (e.g. the City) with a simultaneous agreement to repurchase them at a fixed date. The s ecurity "buyer" (e.g. the City) in effect lends the "seller" money for the period of the agreement, and the terms of the agreement a re structured to compensate the “buyer” for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money, that is, increasing bank reserves.
REVERSE REPURCHASE AGREEMENT (REVERSE REPO ): T he opposite of a repu rchase agreement. A reverse repo is a transaction in which t he City sells securities to a counterparty (e.g. investment dealer) and agrees to repurchase the securities from the counterparty at a fixed date. The counterparty in effect lends the seller (e.g. the City) money for the period of the agreement with terms of the agreement structured to compensate the buyer.
RISK: Degree of uncertainty of return on an asset.
SAFEKEEPING: A service which banks offer to clients for a fee, where physical securities are held in the bank’s vault for protection and book -entry se curities are on record with the Federal Reserve Bank or Depository Trust Company in the bank’s name for the benefit of the client. As agent for the client, the safekeeping ba nk settles securities transactions, collects coupon payments, and r edeems securities at maturity or on call date, if called.
SECURITIES AND EXCHANGE COMMISSION (SEC): Agency created by Congress to protect investors in securities transactions by administering securities legislation.
SECONDARY MARKET : A market for the rep urchase and res ale of outstanding issues following the initial distribution.
SECURITIES: Investment instruments such as notes, bonds, stocks, money market instruments and other instruments of indebtedness or equity.
SETTLEMENT DATE: The date on which a trade is cleared by delivery of securities against funds.
SPREAD: The difference between two figures or percentages. It may be the difference between the bid (price at which a prospective b uyer offers to pay) a nd asked (price at which an owner offers to sell) prices of a quote, or between the amount paid when bought and the amount received when sold.
STRUCTURED NOTE : A complex, fixed income instrument, which pays interest, based on a formula tied to other inte rest rates, commodities or indices. Examples include “inverse floating rate” notes which have coupons that increase when other interest rates are falling, and which fall when other interest rates are rising and “dual index floaters”, which pay interest based on the relationship between two other inte rest rates, for example, the yield on the ten -year Treasu ry note minus the Libor rate.
Issuers of such notes lock in a reduced cost of borrowing by purchasing interest rate swap agreements.
23 SUPRANATIONALS: a re international institutions that provide de velopment financ ing, advisory services and/or financial s ervices to their member countries to achieve the overall goal of improving living standards through sustainable economic growth. The Government Code allows local agencies to purchase the United States dollar denominated senior unsecured unsubordinated obli gations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank.
TIME DEPOSIT: A de posit with a California bank or savings and loan associat ion for a specific amount and with a specific maturity date and inter est rate. Deposits of up to $250,000 are insured by FDIC. Deposits over $250,000 are collateralized above the insurance with either government securities (at 110% of par value), first trust deeds (at 150% of par value), or letters of credit (at 105% of par value).
TOTAL RATE OF RETURN: A measure of a portfolio’s perfor mance over time. It is the internal rate of return which equates the beginning va lue of the portfolio with the ending value, and includes interest earnings and realized and unrealized gains and losses on the portfolio. For bonds held to maturity, total return is the yield to maturity.
TRUSTEE OR TRUST COMPANY OR TRUST DEPARTMENT OF A BANK : A financial institution with trust powers which acts in a fiduciary capacity for the benefit of the bondholders in enforcing the terms of the bond contract.
UNDERWRITER: A dealer which purchases a new issue of municipal securities for resale.
UNIFORM NET CAPITAL RULE : Securities and Exchange Commission requirement that member firms as well as nonmember broker/dealers in securities maintain a maximum ratio of indebtedne ss to liquid capital of 15 to 1; also called net capital rule and net capital rati o. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of unde rwriting syndicates. Liquid capital includes cash and assets easily converted into cash.
U.S. GOVERNMENT AGENCY SECURITIES : Securities issued by U.S. government agencies, most of which are secured only by the credit worthiness of the particular agency. See AGENCIES.
U.S. TRE ASURY OBLIGATIONS : Securities issued by the U .S. Treasury and backed by the full faith and credit of t he United States. Treasuries are the benchmark for interest rates on all other securities in the U.S. The Treasury issues both discount ed securities and fixed coupon notes and bonds. The income from Treasury securities is exempt from state and local, but not federal, taxes.
TREASURY BILLS: Securities issued at a discount with initial maturities of one year or less. The Treasury currently issues three-month and six-month Treasury bills at regular weekly auctions. It also issues very short-term “cash management” bills as needed to smooth out cash flows.
TREASURY NOTES : Intermediate -term coupon- bearing securities with initial maturit ies of one year to ten years.
TREASURY BOND: Long-term coupon -bearing securities with initial maturities of ten years or longer.
24 UNREALIZED GAIN (OR LOSS ): Gain or loss that has not become actual. It becomes a realized gain (or loss) when the security in which there is a gain or loss is actually sold. See REALIZED GAIN (OR LOSS).
VOLATILITY: Characteristic of a security, commodity or market to rise or fall sharply in price within a short-term period.
WEIGHTED AVERAGE MATURITY: The average maturity of a ll the securities th at comprise a portfolio that is typically expressed in days or years.
Yankee CD's : A type of certificate of deposit that is issued in the United States by a b ranch of a foreign bank. Yankee CD are denominated in U.S dollars and ar e u sed by foreign ba nks to raise capital from U.S investors.
YIELD: The annual rate of retur n on an investment expressed as a percentage of the investment. See CURRENT YIELD; YIELD TO MATURITY.
YIELD CURVE: Graph showing the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity.
YIELD TO MATURITY: Concept used to determine the rate of return if an investment is held to maturity. It takes into account purchase price, redemptio n value, time to maturity, coupon yield, and the time between interest payments. It is the rate of income return on an investment, minus any premium or plus any discount, with the adjustment spread over the period from the date of purc hase to the date of maturity of the bond, expressed as a percentage.