HomeMy WebLinkAbout2025-09-23; City Council; 02; Annual Report of Investments for Fiscal Year 2024-25CA Review CKM
Meeting Date: Sept. 23, 2025
To: Mayor and City Council
From: Geoff Patnoe, City Manager
Staff Contact: Christian Peacox, City Treasurer
christian.peacox@carlsbadca.gov, 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 Item #2 Page 6 of 40
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 2024-25 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- yearIn
t
e
r
e
s
t
r
a
t
e
(
%
)
Maturity
Market yield curve
06/30/25
760
810
860
910
960
1,010
Par value Market value Book valueAs
s
e
t
V
a
l
u
e
(
$
m
i
l
l
i
o
n
s
)
Valuation
Total Portfolio Valuation
06/30/25
2.75
2.95
3.15
3.35
Po
r
t
f
o
l
i
o
y
i
e
l
d
(
%
)
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
6.00
Ra
t
e
(
%
)
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
6.00
Ra
t
e
(
%
)
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
Ra
t
e
(
%
)
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
Ra
t
e
(
%
)
Term
Market yield curve
Fiscal year end 2024-25 and two prior fiscal year ends
Jun 2023 Jun 2024 Jun 2025
Sept. 23, 2025 Item #2 Page 14 of 40
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
As
s
e
t
V
a
l
u
e
(
$
m
i
l
l
i
o
n
s
)
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
1,000
As
s
e
t
V
a
l
u
e
(
$
m
i
l
l
i
o
n
s
)
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 Item #2 Page 18 of 40
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
Pe
r
c
e
n
t
a
g
e
c
h
a
n
g
e
(
%
)
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 Item #2 Page 21 of 40
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.
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
In
t
e
r
e
s
t
r
a
t
e
(
%
)
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
Pe
r
c
e
n
t
o
f
A
m
o
r
t
i
z
e
d
C
o
s
t
(
%
)
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 49-60Pe
r
c
e
n
t
o
f
p
o
r
f
o
l
i
o
(
%
)
Months until maturity
Portfolio liquidity
June 30, 2025
Sept. 23, 2025 Item #2 Page 25 of 40
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
Mo
d
i
f
i
e
d
d
u
r
a
t
i
o
n
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
In
t
e
r
e
s
t
I
n
c
o
m
e
(
$
t
h
o
u
s
a
n
d
s
)
Month
Portfolio interest income
Fiscal year 2024-25
-
5.0 10.0 15.0 20.0 25.0 30.0
In
t
e
r
e
s
t
I
n
c
o
m
e
(
m
i
l
l
i
o
n
s
)
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
In
t
e
r
e
s
t
i
n
c
o
m
e
(
t
h
o
u
s
a
n
d
s
)
Classification
Interest income by investment classification
Fiscal year 2024-25
Sept. 23, 2025 Item #2 Page 28 of 40
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
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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
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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
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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
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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
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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
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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
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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
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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
christian.peacox@carlsbadca.gov
• Katie Schroeder, Senior Accountant, Treasury Department
Katie.schroeder@carlsbadca.gov
Sept. 23, 2025 Item #2 Page 40 of 40