City's investments doing well in tough market

 Considering what has been happening in the financial markets, the city of Yuma's investment portfolio did well the past six months, reported Pat Wicks, finance director.

  "Our investment portfolio is stable," he said after the Yuma City Council work session Tuesday evening during which he and Linda Patterson of Patterson and Associates delivered the city's semiannual investment report.

  "It actually outperformed," Wicks said. That is, with one "nick."

  That nick was the city's share of a loss in the Arizona treasurer's Local Government Investment Pool 5 of money invested in Lehman Brothers. That investment represented about 1.2 percent of the total by all investors in the pool.

  Wicks estimated the city lost about $430,000 of its total pool investment of $31 million.

  "That was a small portion of the city's total portfolio," he said. And not all of it was principal as some of it was accumulated interest.

  "It reduced our income but not our investment at that level," he said. "We're still making money on the pool, just not as much."

  Wicks said the city's total portfolio was $195 million as of June 30, a larger amount than usual because it includes about $108 million in proceeds from the sale of bonds in November for upcoming capital improvement projects such as roadwork and utility projects.

  Other funds in the city's portfolio are revenue from sales taxes, special taxes and other city revenue streams.

  Patterson, who oversees the city's investment portfolios outside the state pool, credits the city's good performance in a tough market to diversification and restricting investments only to the highest credit quality in the world.

  She said the city has some money invested in Fannie Mae and Freddie Mac. "But that's OK because the U.S. government took them over. They're now of credit quality equal to the treasury market."

  And treasury bonds and notes are at a premium, she said. "That's an extremely unusual occurrence. It reflects the flight to safety. The only other time it occurred was during the second World War."

  Premium means "you pay a fee for them to hold your money," Wicks explained. For example, an investor would put in $1.10 and get back a dollar. "That happened twice in the last two weeks."

  That situation has corrected somewhat, Patterson said, but investors still are only getting two cents return on each dollar invested in treasuries.

  Patterson provided a summary to the council of what has been happening in the financial markets in what is now being called "Black September," when bad mortgage debt brought down several large mortgage companies and set off a worldwide financial crisis.

  At this point, she said, confidence in the financial market is badly shaken and there is a credit freeze.

  "No one will lend," she said. "They don't have the good capital to make the loan in the first place."

  The market is hopeful the federal government will approve a bailout bill, she said, although "no one knows how long it will take for the market to correct."

  Meantime, Patterson said, she's been extending the city's investments as long as she can to try to lock in the higher rates they now have in anticipation of a rate cut in October.

 Asked about the crisis' impact on municipal bonds, Patterson responded, "It's a tougher market ... but there's still some borrowing. It's just a little tougher."

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Joyce Lobeck can be reached at jlobeck@yumasun.com or 539-6853.