To the People of Oklahoma:
The Office of the State Treasurer is pleased to issue the monthly investment performance report. This report is an important part of my office and commitment to disclose our economic environment and portfolio results.
Portfolio Performance, Diversification, and Strategy
Fiscal year 2023 portfolio yielded 2.55% with a weighted average maturity of 979 days.
Total portfolio market value of $15.4 billion, which increased $2.8 billion from the previous fiscal year.
No losses were realized due to excellent liquidity and because investments were typically held to maturity.
Total portfolio contained 57% in U.S. Treasurys, 17% in U.S. government agencies,
18% in mortgage-backed securities, and 7% cash on June 30, 2023. Diversification was maintained through a mixture of fixed income securities such as U.S. treasuries, government sponsored enterprises and mortgage-backed securities. The comprised balance of funds invested were certificates of deposit, state bond issues and foreign bonds. Cash holdings were diversified through the utilization of several government money market mutual funds.
Portfolio interest earnings for fiscal year 2023 of $220 million, compared to $80 million in fiscal year 2022
The investment portfolio’s yield will continue to increase due to lower earning bonds maturing and bonds with higher yields being purchased, reflecting the Federal Reserve’s strategy of continued interest rate increases during the fiscal year.
Market Conditions for FY 2023
The Federal Reserve continued to boost interest rates. The benchmark federal funds rate was between 5% and 5.25% as of June 30, reflecting a gain of 3.50% for fiscal year 2023. The rate surge included three monthly increases of 75 basis points each and a series of 25 basis point increase, which until June 2022 the Fed had not raised rates by 0.75% in a month since 1994. Inflation pressures and the strong job market and were attributed to why the Federal Reserve took such a tightening monetary policy stance. In fact, the Fed raised rates even after the second and third largest bank failures occurred in U.S history during the month of March.
The treasury curve was inverted during the fiscal year, reflecting shorter maturities yielding more than longer maturing treasuries. The 2-year treasury was earning 4.90% in comparison to the benchmark 10-year treasury gained only 0.82% by June 30, with a yield of 3.84% relative to the range of interest rate increases.
The equity index returns for July thru December 2022 were weak due to volatility caused by high inflation, continued interest rate increases and the war in Ukraine. However, the total returns for the entire fiscal year were 17.5% for the S&P 500, 11.8% for the Dow Jones Industrial Average and 25% for the NASDAQ. The positive earnings were the result of the economy and job market remaining robust, as well as company profits being stronger than anticipated.
Economic Developments for FY 2023
The national unemployment rate averaged from a low of 3.4%, the lowest since 1969, to ending June at 3.7%. There were approximately 3.9 million jobs created during the fiscal year, in comparison to 6.0 million in FY 2022. The highest nonfarm payroll for the fiscal year was for the month of July 2022 and the lowest was in March 2023. The underemployment rate, which occurs when a job does not adequately use the worker’s skills and training or is part-time, was 6.7%, dropping from 7.1% in fiscal year 2022.
The headline Consumer Price Index (CPI) and the Producer Price Index (PPI) on a month-over-month basis averaged 0.3% and 0.1% respectively for fiscal year 2023, reflecting an improvement over the previous fiscal year. Consumers experienced continued increases in gas prices. Food prices also skyrocketed, reflecting the highest increase since 1979. As of June 30, the year-over-year CPI was 4.0%, and the PPI final demand was at 2.2%. Retail sales were volatile and were below expectations during the 2022 holiday season. Consumers slowed down spending but, only modestly, amid the higher inflation. The average retail sales month-over-month was 0.4% in comparison to 0.5% for the 2022 fiscal year. The sale of existing homes stubbornly, lowered during the fiscal year due to continued escalating mortgage rates. The seasonally adjusted sales of existing homes were 5.13 million, 4.63 million, 4.24 million and 4.42 million, for each successive quarter. Median existing home prices declined from $416,000 in June 2022 to $396,100 in May 2023. In addition, homes remained on the market for 19 days up from 16 days one year ago, as lower housing inventory continued to be a factor in slowly declining home sales.
The gross domestic product (GDP) – a measure of goods and services produced across the United States – improved during the fiscal year. Consumer spending, a key contributor to the economy, and a strong labor market were attributed to reversing a negative GDP to positive results. On an annualized quarter-over-quarter basis, GDP was -0.7% for the 3rd quarter of 2022, 2.9% for the 4th quarter of 2022, 2.73% for the 1st quarter of 2023 and 1.47% for the 2nd quarter of 2023.
Collateralization
All funds under the control of this office requiring collateralization were secured at rates ranging from 100% to 110%, depending on the type of investment.
Payments, Fees, and Commissions
Securities were purchased or sold utilizing competitive bidding. Bank fees and money market mutual fund operating expenses are detailed in the attached pages, as is the earnings split between the State Treasurer and the master custodian bank on securities lending income.
Total Funds Invested Funds available for investment at market value include the State Treasurer’s investments at $11,878,146,452 and State Agency balances in OK Invest at $3,506,396,841, for a total of $15,384,543,293.
Best regards,
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