TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Tanner Benson, Financial Analyst
SUBJECT:
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Treasurer’s Report - Quarter 2 of Fiscal Year 2025/26
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ABSTRACT
The Fiscal Year 2025/26 Treasurer’s Report for Quarter 2 (October-December 2025) is presented in compliance with California Government Code Section 53646(b) and the City’s Investment Policy. As of December 31, 2025, the City’s investment portfolio had a total market value of $158.3 million, a book value of $154.1 million, and a stable yield-to-maturity of 4.35%. The LAIF balance totaled $62.0 million, after a $60 million transfer to the account late in the quarter, and had a yield of 4.09%. The Wells Fargo Cash Sweep Program generated $980k in quarterly earnings.
RECOMMENDATION
recommendation
Receive the Fiscal Year 2025/26 Treasurer’s Reports for Quarter 2 (October - December 2025).
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PRIOR ACTION/VOTE
On August 19, 2025, the City Council received the Treasurer’s Report for Quarter 4 of Fiscal Year 2024/25.
On November 18, 2025, the City Council received the Treasurer’s Report for Quarter 1 of Fiscal Year 2025/26.
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
DISCUSSION
Pursuant to Government Code Section 53646(b) and the City of Murrieta (City) Investment Policy, the Finance Department renders a quarterly investment report to the City Council concerning the investment portfolio’s earnings and performance results. The City contracts with Chandler Asset Management to manage the City’s investment portfolio and to advise on all investment-related matters. The purpose of this report is to present the investment earnings for the period October 1, 2025, through December 31, 2025 (Quarter 2).
Total Portfolio Composition
The portfolio comprises available cash balances from over 100 separate funds. The balances are tracked in the City’s financial records individually, but combined for the purpose of investing cash to maximize investment returns. The City’s investment manager invests funds not needed in the near future into securities with maturities of less than five years. The City also utilizes the Local Agency Investment Fund (LAIF), an investment pool operated by the State of California and used by most cities in California to manage the City’s short-term cash flow requirements. Wells Fargo’s “Cash Sweep Program” is the City’s third investment tool, and it allows the City to earn a return on uninvested cash balances in our General Checking Account by automatically "sweeping" cash balances into a Sweep investment vehicle until such balances are otherwise needed to satisfy obligations arising in the account. The Cash Sweep Program exclusively targets high-quality, short-term, U.S. dollar-denominated money market instruments that consist of U.S. Government obligations and repurchase agreements collateralized by U.S. Government obligations. This complies with our Investment Policy and the California Government Code Section 53607.
Investment Portfolio Performance
As of December 31, 2025, the City’s total market value (including accrued interest) of operating funds and liquidity investments totaled $158,298,533.41. The book value, or what the City actually paid for the investments, totaled $154,118,570.17. The fair market value of the City’s portfolio, less accrued interest, totaled $156,989,004.94. The value of fixed-income securities may fluctuate with changes in interest rates. As interest rates rise, the market value of the securities may fall, and the reverse is true: when interest rates fall, the market value of the securities may rise. The difference between the book value and fair market value is recognized as an unrealized gain or loss. The unrealized gain for this reporting period is $2,870,434.76. It is important to note that a loss or gain is realized when an investment is redeemed or sold before its maturity date. In general, City’s investments are retained until maturity. Nonetheless, the City may elect to sell an investment before its maturity and record a capital gain or loss to manage the portfolio's quality, liquidity, or yield in response to market conditions or the City’s risk preferences. The portfolio’s total market value (including accrued interest) increased by $1,761,733.38 from the previous quarter’s end, driven by lower interest rates and higher investment income.
As of December 31, 2025, the portfolio's average yield to maturity remained at 4.35% from September 30, 2025. During the second quarter of FY 2025/26, US Treasury yields on short-term bonds declined, driven by the expectation that the Federal Reserve will cut the Fed Funds overnight rates in the near term. The 2-year US Treasury Note yield decreased to 3.48% from 3.57%, while the 5-year Treasury increased to 3.73% from 3.66% over the reporting period. The near-term economic outlook remains distorted by data delays from the government shutdown. The delayed releases reflect inflation remains moderately above the Federal Reserve’s 2% inflation target, while labor market conditions continue to soften. The portfolio’s market value benefited from sector diversification and remains stable due to the high-quality assets it holds.
Portfolio Duration
The investment portfolio had an average duration of 1.81 years as of December 31, 2025. The portfolio duration remains within an acceptable range. The City continues to implement a disciplined, conservative approach to its portfolio amid financial market volatility.
Asset Allocation
The investment portfolio is allocated in compliance with California Government Code 53601. The sector allocation of the portfolio on December 31, 2025, was 18.45% in US Government Agency bonds, 25.00% in high-grade Corporate Bonds, 36.89% in U.S. Treasury bonds, 8.35% in Asset-Backed Securities (ABS), 1.17% in Supranational, 10.03% in Agency Collateralized Mortgage-Backed Securities, and 0.10% in Money Market Fund. Supranational is a financial institution owned by member countries to promote international development.
The following pie chart summarizes the asset allocation by sector.
(The chart above may not sum to 100% due to rounding.)
Maturity Distribution
As of September 30, 2025, approximately 28.00% of the portfolio will mature in less than 1 year, 27.00% in 1-2 years, 32.00% in 2-3 years, and 12.80% in 3-4 years. The City’s portfolio maintains liquidity through bank deposits, money market funds, and local government investment pools to meet its near-term liquidity needs.
(The chart above may not sum to 100% due to rounding.)
LAIF Balance
Funds deposited with LAIF serve as the City’s savings account, enabling the regular investment of short-term cash balances. LAIF complements our investment program by maximizing the earnings on liquid balances not needed for immediate disbursement. It also allows the City’s investment manager to focus on maximizing the return on its longer-term investments.
The balance in LAIF, as of December 31, 2025, was $62,043,673.26. The annual yield on the LAIF portfolio was 4.090%, down 0.344% from the 4.434% earned at the end of December 2024.
Wells Fargo Cash Sweep Program
The Cash Sweep Program may include fixed, floating, or variable interest rates. The security selections for the Cash Sweep Program are based on several factors, including credit quality, yield, and maturity, while considering the fund’s overall liquidity and its weighted average maturity. The securities purchased are considered to present minimal credit risk. For the quarter ending December 31, 2025, total earnings from the Cash Sweep Program were $980,071.77, with an Average Daily Yield of 3.904%.
The graph below compares the investment yields for the Investment Portfolio, LAIF, and the Cash Sweep Program for the period ending December 31, 2024, to December 31, 2025. As shown in the table below, investment yields are responding to the Fed's rate reductions. The yield has decreased by approximately 50 basis points on average compared to last year.
This report presents only the results of the operating portfolio managed by Chandler Asset Management, LAIF, and the Cash Sweep Program. The City’s and developer bond portfolios are available for review in the Finance Department or may be sent to the City Council upon request.
In compliance with the California Government Code Section 53646, the Treasurer of the City of Murrieta hereby certifies that sufficient investment liquidity and anticipated revenues are available to meet the City’s budgeted expenditure requirements for the subsequent six months, January through June 2026. All investments in the City’s portfolio comply with state law and the City’s adopted Investment Policy.
FISCAL IMPACT
There is no fiscal impact associated with the recommended action.
ATTACHMENTS
ATT 1 - City of Murrieta Investment Report December 31, 2025
ATT 2 - LAIF Regular Monthly Statement December 31, 2025
ATT 3 - Wells Fargo Sweep Account Statements for October, November, and December 31, 2025
ATT 4 - Portfolio Composition Chart as of December 31, 2025