PORTFOLIO PERFORMANCE, DIVERSIFICATION, AND STRATEGY:
- December portfolio yielded 3.47%, up from 3.05% last year, with a weighted average maturity of 976 days.
- Total assets under management of $15.7 billion, in comparison to $15.9 billion a year ago. Portfolio totals are expected to decline over the next year as ARPA and LCF projects are funded.
- Total portfolio contained 73.6% in U.S. Treasurys, 3.4% in U.S. government agencies, 13.9% in mortgage-backed securities, 8.0% money market mutual funds, 0.2% in certificates of deposit, and 0.9% in state bond issues and foreign bonds, comprising the balance of funds invested.
“Total portfolio yields are lower than current yields due to the laddered structure
of the investments over a 3 year average.”STATE TREASURER, TODD RUSS
TOTAL FUNDS INVESTED:
Funds available for investment at market value include the State Treasurer’s investments at $12,436,000,689 and State Agency balances in OK Invest at $3,268,955,590, for a total of $15,704,956,279.
MARKET CONDITIONS:
In December the yield on the 3-month treasury bill fell below the yield of the 10-year note for the first time in more than two years aided by the rate cut that the Federal Reserve delivered late December that determines short-term overnight lending rates. The 2-year and 10-year treasury notes rose .09% and 0.40% respectively to 4.24% and 4.57%. December treasury yields were mixed as the yield curve flipped and turned positive.
The S&P 500 finished its second straight year with gains of more than 20%, something it hasn’t done since 1998 per the Associated Press. For the month of December, returns were mixed.
The minutes from the Federal Reserve’s December meeting revealed that the decision to cut rates by 0.25% was a close call. Officials are waiting to see more progress on inflation and the economic impacts of the incoming administration’s policies before they set a definite path to a neutral rate or declare victory over inflation. The updated dot plot indicates a majority of officials believe that two rate cuts are appropriate in 2025. The Fed will almost certainly not cut rates at the January 29 meeting and could likely announce the first rate cut of 2025 at either the May or June meeting.
ECONOMIC DEVELOPMENTS
n December, unemployment fell to 4.1% from 4.2% in November. According to the Bureau of Labor Statistics, total non-farm payroll employment increased by 256,000 jobs in December, exceeding consensus expectations by almost 100,000 jobs signaling lingering inflation concerns. Employment trended up in the health care, government, and social assistance job markets. Retail added seasonally adjusted jobs in December after a loss in November. Annual job growth measured by payroll employment rose by 2.2 million in 2024, less than the increase of 3 million in 2023.
The consumer price index (CPI) rose to 2.9% for the year ending in December. Core CPI, which excludes volatile food and energy prices, increased 3.2% over the same period. Core personal consumption expenditures (PCE), the Fed’s preferred measure of inflation increased 2.8% over 12 months ending in October signaling lingering inflation concerns. The producer price index (PPI) increased 0.2% in December. The index for final demand goods increased 0.6% and prices for final demand services were unchanged. According to the Bureau of Labor Statistics, the increase, “is attributable to a 3.5% jump in the index for final demand energy”.
Retail sales adjusted for seasonal variation rose 0.4% in December and were revised up to 0.8% for November. Retail sales grew 3.9% annually in 2024. This month’s growth came in just below expectations of 0.5%, according to FactSet. Barron’s writes, “Trends in spending were fairly healthy. Only three out of the 13 categories the Census Bureau tracks saw monthly declines in spending, and the biggest drop, 2%, came at dealers in building materials and supplies, which aren’t often a focus of holiday spending”.
In November, the National Association of Realtors reported that existing home sales increased 4.8% to a seasonally adjusted annual rate of 4.15 million homes, up 6.1% from last year. Total housing inventory fell to 1.16 million, the equivalent of 3.7-month supply at the current sales pace. At the end of November, the average 30-year fixed rate mortgage was 6.81%, up 6.0% from a year ago. The median existing home sales price in November was $406,100, up 4.7% from last year.
The third estimate of third-quarter gross domestic product (GDP) growth was 3.1%, a jump from the previous estimate of 2.8% signaling lingering inflation concerns. Many economists believe that the upward revisions indicate the economy is on a positive trajectory for 2025. The Bureau of Economic Analysis reports, “the update primarily reflected upward revisions to exports and consumer spending that were partly offset by a downward revision to private inventory investment”.
Treasurer Todd Russ said, “There may be some balancing out of inflation somewhere in this data not seen yet”.
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.
Best regards,
TODD RUSS
STATE TREASURER
