virginia government finance officers association economic
TRANSCRIPT
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
October 25, 2018
Greg Pagans, Vice President
Virginia Government Finance Officers Association
Economic Update
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
2
• Headquartered in Southfield, MI
• Fort Lauderdale, FL, office since 1996
• Member of FINRA and SIPC; MSRB registered
• Member since 1988 (CRD #22098)
• Institutional fixed-income focus
• More than 5,000 institutional accounts
• Approved underwriter of U.S. agency securities
• Fannie Mae
• Freddie Mac
• Farmer Mac
• Federal Home Loan Banks
• Federal Farm Credit Banks
• Major underwriter of certificates of deposit (CDs)
About Multi-Bank Securities, Inc.
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
3
• Multi-Bank Securities, Inc. (MBS)
• Broker-dealer, not an investment advisor
• Offers no regulatory/audit advice
• Greg Pagans, Vice President
• Institutional fixed-income focus
• FINRA-registered representative
• Series 6, 7, 24, 50 and 63
• CRD #1585380
Disclaimer
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
4
• Recent past, present and near future
• Federal Reserve Bank/Fed Open Market Committee (FOMC)
• Domestic economy
• Interest rates
Economic Update
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
5
Recent chairmen and active executive officers:
• Paul A. Volcker Aug. 6, 1979 - Aug. 11, 1987
• Alan Greenspan Aug. 11, 1987 - Jan. 31, 2006
• Ben S. Bernanke Feb. 1, 2006 - Jan. 31, 2014
• Janet L. Yellen Feb. 3, 2014 - Feb. 3, 2018
• Jerome H. Powell Feb. 5, 2018 - Present
Federal Reserve Board of Governors
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
6
Section 2a. Monetary Policy Objectives
• The Board of Governors of the Federal Reserve System
and the Federal Open Market Committee shall maintain
long run growth of the monetary and credit aggregates
commensurate with the economy’s long run potential to
increase production, so as to promote effectively the
goals of maximum employment, stable prices and
moderate long-term interest rates.
• [12 USC 225a. As added by act of Nov. 16, 1977 (91 Stat.
1387) and amended by acts of Oct. 27, 1978 (92 Stat.
1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000
(114 Stat. 3028).]
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
7
• Central bank of the U.S.
• Dual mandate:
• Price stability
• Full employment
• Controls short-term interest rates
• Discount and Fed funds rates
• Influences long-term interest rates
U.S. Federal Reserve and FOMC
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
8
Federal Reserve Act
• The Federal Reserve controls the three tools of monetary
policy:
• Reserve requirements – Board of Governors
• Discount rate – Board of Governors
• Open market operations – FOMC
• Using these tools, the Federal Reserve influences the
demand for, and supply of, balances that depository
institutions hold at Federal Reserve Banks
• Alters the federal funds rate – the interest rate at
which depository institutions lend balances at the
Federal Reserve to other depository institutions
overnight
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
9
Federal Reserve Act
Board of Governors
• The seven members of the Board are nominated by the president and confirmed
by the Senate. A full term is 14 years. One term begins every two years, on
February 1 of even-numbered years. A member who serves a full term may not be
reappointed; a member who completes an unexpired portion of a term may be
reappointed.
• The chairman and vice chairman of the Board are named by the president from
among the members and confirmed by the Senate. The serve a four-year term. A
member’s term on the Board is not affected by his or her status as Chairman or
Vice Chairman.
• Currently:
• Jerome “Jay” Powell, Chairman
• Richard Clarida, Vice Chairman
• Michelle Bowman
• Lael Brainard
• Randall K. Quarles
• Nellie Liang and Marvin Goodfriend [nominated]
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
10
Fed Open Market Committee (FOMC)
2018 FOMC Members
• Jerome H. Powell, Board of Governors,
Chairman
• John C. Williams, New York, Vice
Chairman
• Thomas I. Barkin, Richmond
• Raphael W. Bostic, Atlanta
• Michelle Bowman, Board of Governors
• Lael Brainard, Board of Governors
• Richard H. Clarida, Board of Governors
• Mary C. Daly, San Francisco
• Loretta J. Mester, Cleveland
• Randal K. Quarles, Board of Governors
2018 Alternate Members
• James Bullard, St. Louis
• Charles L. Evans, Chicago
• Esther L. George, Kansas City
• Eric Rosengren, Boston
• Michael Strine, First Vice President,
New York
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
11
Fed Funds Rate Since 1980
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
12
• U-3: U.S. unemployment rate total in labor force
• Tracks the number of unemployed persons as a
percentage of the labor force
• Labor force: Total number of employed plus unemployed
• Figures generally come from a household labor force
survey
U-3 Unemployment Rate
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
13
U-3 Unemployment Rate History
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
14
• U-6: Unemployed, margin and part-time as a percentage of the
labor force
• Includes:
• Total unemployed
• All persons marginally attached to the labor force
• Those who are currently neither working nor looking for
work, but indicate that they want and are available for a job
and have looked for work sometime in the past 12 months
• Total employed part-time for economic reasons
• Those who want and are available for full-time work, but
have had to settle for a part-time schedule
• Measured as a percentage of the civilian labor force
U-6 Unemployment Rate
[emphases added]
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
15
U-6 Unemployment Rate History
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
16
Labor Force Participation Rate Since 1948
Updated Oct. 12, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
17
U.S. Treasury 30-Year Bond Yield Since 1980
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
18
U.S. Treasury 10-Year Bond Yield Since 1980
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
19
• A curve on a graph in which the yield of the fixed-interest securities is
plotted against the length of time they have to run to maturity
• U.S. Treasury definition: Treasury yield curve rates
• Commonly referred to as “constant maturity Treasury” rates (CMTs)
• Yields are interpolated by the Treasury from the daily yield curve
• This curve, which relates the yield on a security to its time to maturity, is
based on the closing market bid yields on actively traded Treasury
securities in the over-the-counter market
• These market yields are calculated from composites of quotations
obtained by the Federal Reserve Bank of New York
• Yield values are read from the yield curve at fixed maturities:
• 1, 3 and 6 months
• 1, 2, 3, 5, 7, 10, 20 and 30 years
• This method provides a yield for a 10-year maturity, for example, even if
no outstanding security has exactly 10 years remaining to maturity
Yield Curve
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
20
U.S. Treasury Yield Curve 2006 and Present
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
21
U.S. Treasury Yield Curve 2010 and Present
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
22
Change in U.S. Treasury Yields Since 2013
Accessed Oct. 12, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
23
Change in U.S. Treasury Yields Since 2016
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
24
Producer Price Index (PPI) Since 2010
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
25
Consumer Price Index (CPI) MoM Since 2006
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
26
Consumer Price Index (CPI) YoY Since 2006
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
27
U.S. Treasury 10-Year Yields Since 2013
Accessed Oct. 12, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
28
U.S. Treasury 5-Year Yields Since 2013
Accessed Oct. 12, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
29
U.S. Treasury 3-Year Yields Since 2013
Accessed Oct. 12, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
30
World Interest Rates 10-Year Maturities
Developed countries. Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
31
World Interest Rates 5-Year Maturities
Developed countries. Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
32
Fed Funds Futures Overview
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
33
FOMC Dot Plot
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
34
2018 FOMC Calendar
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
35
2019 FOMC Calendar
Accessed Oct. 9, 2018
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
36
What This Means to You
• Monitor cash flows – stay invested
• Follow credit quality/Code of Virginia, Investment of Public Funds Act:
• § 2.2-4501. Legal investments for other public funds.
• § 2.2-4514. Commonwealth and its political subdivisions as trustee of public
funds; standard of care in investing such funds.
• Public funds held by the Commonwealth, public officers, municipal
corporations, political subdivisions, and any other public body of the
Commonwealth shall be held in trust for the citizens of the Commonwealth.
Any investment of such funds pursuant to the provisions of this chapter shall
be made solely in the interest of the citizens of the Commonwealth and with the
care, skill, prudence, and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like aims.
• 1996, c. 437, § 2.1-328.14; 2001, c. 844.
• Ladder/stagger maturities and call risk
• Consistent action, adherence to policy works all scenarios well: flat, rising,
falling interest rates
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
37
Primary Government Securities Dealers
• J.P. Morgan Securities LLC
• Merrill Lynch, Pierce, Fenner & Smith
Incorporated
• Mizuho Securities USA LLC
• Morgan Stanley & Co. LLC
• NatWest Markets Securities Inc.
• Nomura Securities International, Inc.
• RBC Capital Markets, LLC
• Societe Generale, New York Branch
• TD Securities (USA) LLC
• UBS Securities LLC
• Wells Fargo Securities, LLC
• Bank Nova Scotia, New York Agency
• BMO Capital Markets Corp.
• BNP Paribas Securities Corp.
• Barclays Capital Inc.
• Cantor Fitzgerald & Co.
• Citigroup Global Markets Inc.
• Credit Suisse AG, New York Branch
• Daiwa Capital Markets America Inc.
• Deutsche Bank Securities Inc.
• Goldman Sachs & Co. LLC
• HSBC Securities (USA) Inc.
• Jefferies LLC
Source: https://www.newyorkfed.org/markets/primarydealers
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
38
Wall Street Journal Online U.S. Treasury Yields
http://online.wsj.com/mdc/public/page/mdc_bonds.html?refresh=on
U.S. Department of the Treasury
http://www.treasury.gov/Pages/default.aspx
Securities Industry & Financial Markets Association (SIFMA)
http://www.investinginbonds.com/
Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/
Resources
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
39
Real Clear Markets (news aggregator)
http://www.realclearmarkets.com/
Business Insider (news aggregator)
http://www.businessinsider.com/
ZeroHedge (news aggregator)
http://www.zerohedge.com/
News and Market Information
Member of FINRA & SIPC; MSRB Registered.
Proudly Veteran-Owned!
40
Thank You
For additional information,
please contact:
Greg Pagans
Vice President
(866) 330-0859
Questions?
DISCLOSURE
Multi-Bank Securities, Inc. (MBS) cannot be held
responsible for errors regarding time and/or price
on buy/sell requests. Information provided in this
presentation has been prepared from sources
known to be reliable, but is not guaranteed and is
not a complete summary or statement of all data
necessary for making an investment decision.
This is for informational purposes only and does
not constitute a recommendation; please confirm
all information before investing. Securities
discussed are subject to availability and change
in price and yield. Changes to assumptions may
have a material impact on returns. Past
performance is not indicative of future returns.
For institutional investors only.