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national economic outlook, and on September 20 Fed officials again raised rates 25bps, to
3.75%. Scott McIntyre of First Southwest Asset Management wrote that Fed officials showed
"absolutely no indication that the tightening would end anytime soon" and noted that post-
hurricane repair and reconstruction, estimated at $200 billion, is expected to spark the economy
and contribute to inflationary pressure.
The Treasury yield curve continued to flatten, with short term rates again more closely
approximating long term rates. This flattening is illustrated in the chart below - the spread
between the three-month T-bill and five-year T-note average yield changes from 150 bps on
12/31/2004 to only 57bps by 9/30/2005.
U.S. TREASURY YIELDS
LAST FOUR QUARTERS 2004-05
4.500%
2.000%
4.000%
3.500%
3.000%
2.500%
1.500%
1.000%
0.500%
0.000%
12/31/04
3/31/2005 6/30/2005 9/30/2005
2.601% 2.944% 3.457%
2.882% 3.191% 3.711%
3.534% 3.638% 4.028%
3.810% 4.032% 4.032%
__91-dayT-BiII 2.056%
___182-day T-BiII 2.307%
__2-yrT-Note 2.885%
___5-yr T-Note 3.517%
lnvestment strategies employed in most recent quarter
As described in recent quarterly reports, the trend of rising interest rates prompted the City to
keep new investments short. The City's Weighted Average Maturity (WAM) dropped from 201
days to 157 days during the quarter, as funds from maturing securities were moved to overnight
investment pools.
Activity during the quarter included $12.8 million in new investment and $16.8 million in
redemptions. The portfolio mix changed so that pool balances increased from 31 % to 33%,
while CD's increased from 22% to 26%, and agency securities holdings declined from 47% to
42%. The below table summarizes the types of activity during the quarter, including pool
deposits and withdrawals:
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