INVESTMENT REPORT
City of South San Francisco| As of December 31, 2024
CHANDLER ASSET MANAGEMENT | chandlerasset.com
Chandler Team:
For questions about your account, please call (800) 317-4747, or contact [email protected]
Information contained herein is confidential. We urge you to compare this statement to the one you receive from your qualified custodian. Please see Important Disclosures at the end of the statement.
Recent economic data suggests continued growth fueled by a resilient consumer. Inflationary trends have subsided, but some components remain sticky, and core levels remain above the Fed’s target. The labor market reflects improved balance between supply and demand for workers. While job creation has been robust, continuing jobless claims remain elevated. Given the economic outlook, we expect gradual normalization of monetary policy and a steepening yield curve.
As broadly anticipated, the Federal Open Market Committee (FOMC) reduced the Fed Funds Rate by 25 basis points to the range of 4.25-
4.50% at the December meeting. Although the cut was widely anticipated, market participants viewed the trajectory of rates in the SEP as ‘hawkish.’ Chair Jerome Powell reiterated previous statements indicating the economy is in a good place and that monetary policy is well positioned. The Fed released the quarterly Summary of Economic Projections (SEP), which now forecasts a higher central tendency of core inflation and a higher longer run Fed Funds forecast. In the Chandler team’s view, the updated SEP reflects the continued resiliency of the US economy and the corresponding risk of inflation taking longer to reach the FOMC’s two percent objective in 2025.
US Treasury yields shifted higher in December and the curve steepened. The 2-year Treasury yield increased 9 basis points to 4.24%, the 5- year Treasury rose 33 basis points to 4.38%, and the 10-year Treasury yield surged 40 basis points to 4.57%. The spread between the 2-year and 10-year Treasury yield points on the curve increased to +33 basis points at December month-end versus +2 basis points at November month-end. The spread between the 2-year Treasury and 10-year Treasury yield one year ago was -37 basis points. The spread between the 3-month and 10-year Treasury yield points on the curve increased to +25 basis points in December from -32 basis points in November.
ECONOMIC UPDATE
1 Source: Federal Reserve Source: Bloomberg
0 1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
Federal Reserve Balance Sheet Assets
Recession
In $ millions
As broadly anticipated, the Federal Open Market Committee (FOMC) reduced the Fed Funds Rate by 25 basis points to the range of 4.25-
4.50% at the December meeting. There was one dissenting vote by Cleveland Fed President Beth Hammack who would have preferred no change in rates. Although a reduction in rates was widely anticipated, market participants viewed the trajectory of rates in the SEP as ‘hawkish.’ Chair Jerome Powell reiterated previous statements that monetary policy is “well positioned” and the outlook remains roughly balanced between the dual mandate of maximum employment and price stability. Economic activity is expanding at a solid pace, labor market conditions have “generally eased”, and the unemployment rate “remains low.” The Fed released the quarterly Summary of Economic Projections (SEP) which now forecasts a higher, longer run median Fed Funds rate expectation among Fed Governors at 2.8 –
3.6%. The Fed continues to reduce its holdings of U.S. Treasury securities and agency mortgage-backed securities as per its predefined schedule of $25 billion and $35 billion per month. Since the Fed began its Quantitative Tightening campaign in June 2022, securities holdings have declined by approximately $1.9T to approximately $7.0T.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Effective Federal Funds Rate
Recession
Yield (%)
FEDERAL RESERVE
2 Source: Bloomberg Source: Bloomberg
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
US Treasury Note Yields
2-Year
5-Year
10-Year
Yield (%)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
US Treasury Yield Curve
Dec-24
Sep-24
Dec-23
Yield (%)
At the end of December, the 2-year Treasury yield was 1 basis point lower, and the 10-Year Treasury yield was 69 basis points higher, year-over-year. The spread between the 2-year and 10-year Treasury yield points on the curve increased to +33 basis points at December month-end versus +2 basis points at November month-end. The yield curve inversion which began in July 2022 was historically long. The average historical spread (since 2004) is about +99 basis points. The 3-month and 10-year Treasury yield curve normalized to +25 basis points in December from -32 basis points in November.
BOND YIELDS
3 ACCOUNT PROFILE
4 OBJECTIVES
So San Francisco | As of December 31, 2024
Investment Objectives
The City of South San Francisco's investment objectives, in order of priority, are to provide safety to ensure the preservation of capital in the overall portfolio, provide sufficient liquidity for cash needs and a market rate of return consistent with the investment program.
Chandler Asset Management Performance Objective
The performance objective for the portfolio is to earn a total rate of return through a market cycle that is equal to or above the return on the benchmark index.
Strategy
In order to achieve these objectives, the portfolio invests in high quality fixed income securities consistent with the investment policy and California Government Code.
5 STATEMENT OF COMPLIANCE
So San Francisco Cons Portfolio | Account #10061 | As of December 31, 2024 Rules Name Limit Actual Compliance
Status Notes
AGENCY MORTGAGE SECURITIES (CMOS)
Max % (MV) 20.0 5.7 Compliant
Max Maturity (Years) 5.0 4.7 Compliant
ASSET-BACKED SECURITIES (ABS)
Max % (MV; Non Agency ABS & MBS) 20.0 5.4 Compliant
Max % Issuer (MV) 5.0 0.9 Compliant
Max Maturity (Years) 5.0 4.8 Compliant
Min Rating (AA- by 1) 0.0 0.0 Compliant
BANKERS' ACCEPTANCES
Max % (MV) 25.0 0.0 Compliant
Max % Issuer (MV) 5.0 0.0 Compliant
Max Maturity (Days) 180 0.0 Compliant
Min Rating (A-1 by 1 or A- by 1) 0.0 0.0 Compliant
COLLATERALIZED BANK DEPOSITS
Max % (MV) 0.0 0.0 Compliant
Max % Issuer (MV) 0.0 0.0 Compliant
COMMERCIAL PAPER
Max % (MV) 25.0 0.0 Compliant
Max % Issuer (MV) 5.0 0.0 Compliant
Max Maturity (Days) 270 0.0 Compliant
Min Rating (A-1/P-1 by Moody's & S&P) 0.0 0.0 Compliant
CORPORATE MEDIUM TERM NOTES
Max % (MV) 30.0 15.0 Compliant
Max % Issuer (MV) 5.0 0.8 Compliant
Max Maturity (Years) 5 4 Compliant
Min Rating (A- by 1) 0.0 0.0 Compliant
FEDERAL AGENCIES
Max % (MV) 100.0 8.9 Compliant
Max % Issuer (MV; Agencies & Agency CMOs) 25.0 4.9 Compliant 6 STATEMENT OF COMPLIANCE
So San Francisco Cons Portfolio | Account #10061 | As of December 31, 2024 Rules Name Limit Actual Compliance
Status Notes
Max Callables (MV) 20.0 0.3 Compliant
Max Maturity (Years) 5 3 Compliant
LOCAL AGENCY INVESTMENT FUND (LAIF)
Max Concentration (MV) 75.0 58.5 Compliant
MONEY MARKET MUTUAL FUNDS
Max % (MV) 20.0 0.4 Compliant
Max % Issuer (MV) 10.0 0.4 Compliant
Min Rating (AAA by 2) 0.0 0.0 Compliant
MORTGAGE-BACKED SECURITIES (NON-AGENCY)
Max % (MV; Non Agency ABS & MBS) 20.0 5.4 Compliant
Max % Issuer (MV) 5.0 0.0 Compliant
Max Maturity (Years) 5.0 0.0 Compliant
Min Rating (AA- by 1) 0.0 0.0 Compliant
MUTUAL FUNDS
Max % (MV) 20.0 0.0 Compliant
Max % Issuer (MV) 10.0 0.0 Compliant
Min Rating (AAA by 2) 0.0 0.0 Compliant
NEGOTIABLE CERTIFICATES OF DEPOSIT (NCD)
Max % (MV) 30.0 0.0 Compliant
Max % Issuer (MV) 5.0 0.0 Compliant
Max Maturity (Years) 5 0.0 Compliant
Min Rating (A-1 by 1 or A- by 1 if > FDIC Limit) 0.0 0.0 Compliant
REPURCHASE AGREEMENTS
Max % Issuer (MV) 5.0 0.0 Compliant
Max Maturity (Days) 90.0 0.0 Compliant
Min Rating (AA by S&P + Moodys) 0.0 0.0 Compliant
SRI PROHIBITED INVESTMENTS
Prohibited Investment - Fossil Fuels 0.0 0.0 Compliant
SUPRANATIONAL OBLIGATIONS
7 STATEMENT OF COMPLIANCE
So San Francisco Cons Portfolio | Account #10061 | As of December 31, 2024 Rules Name Limit Actual Compliance
Status Notes
Max % (MV) 30.0 3.1 Compliant
Max % Issuer (MV) 10.0 1.6 Compliant
Max Maturity (Years) 5 4 Compliant
Min Rating (AA- by 1) 0.0 0.0 Compliant
U.S. TREASURIES
Max % (MV) 100.0 39.6 Compliant
Max Maturity (Years) 5 4 Compliant
8 PORTFOLIO CHARACTERISTICS
So San Francisco Cons Portfolio | Account #10061 | As of December 31, 2024 12/31/2024
Portfolio
9/30/2024
Portfolio
Average Maturity (yrs) 1.82 1.96
Average Modified Duration 1.58 1.71
Average Purchase Yield 3.67% 3.71%
Average Market Yield 4.18% 3.96%
Average Quality** AA+ AA+
Total Market Value 357,928,823 335,041,016
*Benchmark: NO BENCHMARK REQUIRED
**The credit quality is a weighted average calculation of the highest of S&P, Moody’s and Fitch. 9 SECTOR DISTRIBUTION
So San Francisco Cons Portfolio | Account #10061 | As of December 31, 2024 Sector as a Percentage of Market Value
Sector 12/31/2024 09/30/2024
US Treasury 39.64% 39.99%
LAIF 16.42% 11.86%
Corporate 14.98% 16.64%
Agency 8.87% 12.39%
Agency CMBS 5.67% 5.63%
Cash 5.56% 4.17%
ABS 5.42% 5.93%
Supras 3.05% 2.73%
Money Mkt Fd 0.40% 0.66%
10 DURATION DISTRIBUTION
So San Francisco Cons Portfolio | Account #10061 | As of December 31, 2024 Date 0-.25 .25-.5 .5-1 1-2 2-3 3-4 4-5 5-7 7+
12/31/2024 38.1% 3.9% 5.8% 14.6% 9.6% 20.3% 7.9% 0.0% 0.0% 09/30/2024 36.4% 0.5% 4.9% 17.0% 12.9% 19.3% 9.0% 0.0% 0.0% 11 HISTORICAL AVERAGE PURCHASE YIELD
So San Francisco Cons Portfolio | Account #10061 | As of December 31, 2024 Purchase Yield as of 12/31/24 = 3.67%
12 PORTFOLIO CHARACTERISTICS
So San Francisco Mid-Term (Chandler) | Account #10059 | As of December 31, 2024 Benchmark* 12/31/2024
Portfolio
9/30/2024
Portfolio
Average Maturity (yrs) 2.66 3.02 3.05
Average Modified Duration 2.48 2.62 2.64
Average Purchase Yield 3.52% 3.40%
Average Market Yield 4.29% 4.47% 3.89%
Average Quality** AA+ AA+ AA+
Total Market Value 206,067,897 207,645,629
*Benchmark: ICE BofA 1-5 Year Unsubordinated US Treasury & Agency Index **The credit quality is a weighted average calculation of the highest of S&P, Moody’s and Fitch. 13 3 Months 12 Months 2 Years 3 Years 5 Years 10 Years Since Inception
TOTAL RATE OF RETURN
So San Francisco MidTerm (CAM) (0.76%) 3.83% 4.23% 1.17% 1.36% 1.66% 1.72% Benchmark (0.76%) 3.42% 3.86% 0.74% 1.05% 1.37% 1.46%
*Periods over 1 year are annualized.
Benchmark: ICE BofA 1-5 Year Unsubordinated US Treasury & Agency Index Total rate of return: A measure of a portfolio’s performance over time. It is the internal rate of return, which equates the beginning value of the portfolio with the ending market value; it includes interest earnings, realized and unrealized gains and losses in the portfolio.
INVESTMENT PERFORMANCE
So San Francisco Mid-Term (Chandler) | Account #10059 | As of December 31, 2024 Total Rate of Return : Inception | 04/01/2009
14 PORTFOLIO CHARACTERISTICS
So San Francisco Limited Maturity | Account #10590 | As of December 31, 2024 Benchmark* 12/31/2024
Portfolio
9/30/2024
Portfolio
Average Maturity (yrs) 1.84 0.17 0.13
Average Modified Duration 1.74 0.17 0.12
Average Purchase Yield 4.50% 4.93%
Average Market Yield 4.25% 4.27% 4.72%
Average Quality** AA+ AAA AAA
Total Market Value 67,508,082 66,705,773
*Benchmark: ICE BofA 1-3 Year US Treasury & Agency Index **The credit quality is a weighted average calculation of the highest of S&P, Moody’s and Fitch. 15 3 Months 12 Months 2 Years 3 Years 5 Years 10 Years Since Inception
TOTAL RATE OF RETURN
So San Francisco Limited Mat 1.20% 5.28% 4.98% 3.29% 2.38% 2.43% *Periods over 1 year are annualized.
Benchmark: ICE BofA 1-3 Year US Treasury & Agency Index Total rate of return: A measure of a portfolio’s performance over time. It is the internal rate of return, which equates the beginning value of the portfolio with the ending market value; it includes interest earnings, realized and unrealized gains and losses in the portfolio.
INVESTMENT PERFORMANCE
So San Francisco Limited Maturity | Account #10590 | As of December 31, 2024 Total Rate of Return : Inception | 05/01/2018
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
12 months 2 years 3 years 5 years 10 years Since Inception Portfolio
16 PORTFOLIO CHARACTERISTICS
City of South San Fran Pen Res | Account #11042 | As of December 31, 2024 Benchmark* 12/31/2024
Portfolio
9/30/2024
Portfolio
Average Maturity (yrs) 2.66 3.06 2.99
Average Modified Duration 2.48 2.62 2.63
Average Purchase Yield 4.35% 4.37%
Average Market Yield 4.29% 4.46% 3.86%
Average Quality** AA+ AA+ AA+
Total Market Value 6,007,046 6,052,977
*Benchmark: ICE BofA 1-5 Year Unsubordinated US Treasury & Agency Index **The credit quality is a weighted average calculation of the highest of S&P, Moody’s and Fitch. 17 3 Months 12 Months 2 Years 3 Years 5 Years 10 Years Since Inception
TOTAL RATE OF RETURN
City of South San Fran Pen Res (0.76%) 3.78% 4.50% 4.50% Benchmark (0.76%) 3.42% 3.86% 3.86%
*Periods over 1 year are annualized.
Benchmark: ICE BofA 1-5 Year Unsubordinated US Treasury & Agency Index Total rate of return: A measure of a portfolio’s performance over time. It is the internal rate of return, which equates the beginning value of the portfolio with the ending market value; it includes interest earnings, realized and unrealized gains and losses in the portfolio.
INVESTMENT PERFORMANCE
City of South San Fran Pen Res | Account #11042 | As of December 31, 2024 Total Rate of Return : Inception | 01/01/2023
18 PORTFOLIO CHARACTERISTICS
So San Francisco Liquidity Portfolio | Account #10060 | As of December 31, 2024 Benchmark* 12/31/2024
Portfolio
9/30/2024
Portfolio
Average Maturity (yrs) 0.41 0.00 0.00
Average Modified Duration 0.41 0.00 0.00
Average Purchase Yield 3.31% 3.31%
Average Market Yield 4.23% 3.31% 3.31%
Average Quality** AA+ AAA AAA
Total Market Value 78,345,798 54,636,637
*Benchmark: ICE BofA US 6-Month Treasury Bill Index
**The credit quality is a weighted average calculation of the highest of S&P, Moody’s and Fitch. 19 IMPORTANT DISCLOSURES
So San Francisco | As of December 31, 2024
2024 Chandler Asset Management, Inc, An Independent Registered Investment Adviser.
Information contained herein is confidential. Prices are provided by ICE Data Services Inc (“IDS”), an independent pricing source. In the event IDS does not provide a price or if the price provided is not reflective of fair market value, Chandler will obtain pricing from an alternative approved third party pricing source in accordance with our written valuation policy and procedures. Our valuation procedures are also disclosed in Item 5 of our Form ADV Part 2A.
Performance results are presented gross-of-advisory fees and represent the client’s Total Return. The deduction of advisory fees lowers performance results. These results include the reinvestment of dividends and other earnings. Past performance may not be indicative of future results. Therefore, clients should not assume that future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Economic factors, market conditions or changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio.
Index returns assume reinvestment of all distributions. Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. It is not possible to invest directly in an index.
Source ICE Data Indices, LLC (“ICE”), used with permission. ICE permits use of the ICE indices and related data on an “asis” basis; ICE, its affiliates and their respective third party suppliers disclaim any and all warranties and representations, express and/or implied, including any warranties of merchantability or fitness for a particular purpose or use, including the indices, index data and any data included in, related to, or derived therefrom. Neither ICE data, its affiliates or their respective third party providers guarantee the quality, adequacy, accuracy, timeliness or completeness of the indices or the index data or any component thereof, and the indices and index data and all components thereof are provided on an “as is” basis and licensee’s use it at licensee’s own risk. ICE data, its affiliates and their respective third party do not sponsor, endorse, or recommend chandler asset management, or any of its products or services.
This report is provided for informational purposes only and should not be construed as a specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment.
Fixed income investments are subject to interest, credit and market risk. Interest rate risk: the value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market in general could decline due to economic conditions, especially during periods of rising interest rates.
Ratings information have been provided by Moody’s, S&P and Fitch through data feeds we believe to be reliable as of the date of this statement, however we cannot guarantee its accuracy.
Security level ratings for U.S. Agency issued mortgage-backed securities (“MBS”) reflect the issuer rating because the securities themselves are not rated. The issuing U.S. Agency guarantees the full and timely payment of both principal and interest and carries a AA+/Aaa/AAA by S&P, Moody’s and Fitch respectively. 20 BENCHMARK DISCLOSURES
So San Francisco | As of December 31, 2024
Benchmark Disclosure
ICE BofA 1-5 Yr US Treasury & Agency Index
The ICE BofA 1-5 Year US Treasury & Agency Index tracks the performance of US dollar denominated US Treasury and nonsubordinated US agency debt issued in the US domestic market. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch). Qualifying securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity, at least 18 months to maturity at time of issuance, a fixed coupon schedule, and a minimum amount outstanding of $1 billion for sovereigns and $250 million for agencies.
ICE BofA 1-3 Yr US Treasury & Agency Index
The ICE BofA 1-3 Year US Treasury & Agency Index tracks the performance of US dollar denominated US Treasury and nonsubordinated US agency debt issued in the US domestic market. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch). Qualifying securities must have at least one year remaining term to final maturity and less than three years remaining term to final maturity, at least 18 months to maturity at time of issuance, a fixed coupon schedule, and a minimum amount outstanding of $1 billion for sovereigns and $250 million for agencies. 21