REPORT TO COUNCIL
SUBJECT
Title
Receive and File the City of Sunnyvale Investment Report for Third Quarter 2025
Report
BACKGROUND
In accordance with California Government Code Section 53646, staff is submitting the attached investment report for City Council review. The report includes all investments held by the City of Sunnyvale. Chandler Asset Management (Chandler), the City’s investment adviser, manages the long-term portion of the City’s portfolio, while staff manages the liquid/short-term portion.
Funds for the City’s Deferred Compensation Plan, the City’s Retirement Plan, the City’s Pension Trust, Other Post-Employment Benefits Trust, and any unspent proceeds from debt issuance are not included in this report. Third-party administrators and trustee custodial banks manage and hold these funds.
EXISTING POLICY
California Government Code Section 53600 et seq. strictly governs which investments public agencies can hold. In some cases, state law also governs the percentage of the portfolio that can be invested in certain security types, the maximum maturities, and the minimum credit ratings assigned by major rating agencies (Standard & Poor’s and Moody’s Investors Service). Public agencies can invest only in fixed-income securities, and stock purchases are prohibited. Therefore, the City primarily invests in highly rated securities such as U.S. Treasuries, federal agencies, government-sponsored enterprise debt, and high credit quality, non-governmental debt securities.
The California Government Code also requires investment objectives of safety, liquidity, and return, in that order. As such, the safety of principal is the foremost objective of the City’s investment program. The portfolio must remain sufficiently liquid to enable the City to meet all cash requirements.
The City Council first adopted a policy (Council Policy 7.1.2, Investment and Cash Management) governing the investment of City funds on July 30, 1985. The City Council reviews and adopts this policy annually, and the Council last adopted an updated policy (for FY 2025/26) at its September 30, 2025, meeting (RTC No. 25-0853). The City’s investment policy follows the Government Code and includes additional restrictions beyond state law on certain investments, such as lower allowable percentages per investment type or issuer.
ENVIRONMENTAL REVIEW
This action does not require environmental review because it is not a project that has the potential for causing a significant impact on the environment. (CEQA Guideline 15061(b)(3).) Furthermore, the action being considered does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15378(b)(4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
DISCUSSION
This report provides information on the values (par, book, and market), the type of investment, issuer, maturity date, and yield of each investment. The par value of a bond is the amount that the issuer agrees to repay the City by the maturity date. The book value is the amount the City initially paid for the bond, which changes over time if a premium or discount is amortized. The market value is the bond's value as of the report date.
Investment Portfolio
Most of the City’s funds are actively managed by its investment advisor, with maturities ranging from 0 to 7 years. The City’s main investment portfolio of securities has a target duration of 2.48 years as measured by its risk and performance measuring benchmark. As of quarter-end, the portfolio had a duration of 2.56 years, slightly longer than its target, as market interest rates have fallen and are expected to remain lower later in the year. The longer duration stance allows the City to preserve its income for a longer period of time and will cause the City’s investments to appreciate in value if market rates indeed fall.
New purchases focused on highly liquid U.S. Treasury obligations and a high credit quality medium-term corporate note. The average yield to maturity of the main portfolio of securities alone was 3.98%, on top of the 3.98% three months prior. The market yield, which can be inferred as a reinvestment rate, was 3.86%, slightly lower than last quarter’s 3.99%, reflecting the recent drop in rates. The total market value of Chandler's main portfolio of securities was $818,490,831 as of September 30, 2025, with income of $7,593,916 and realized gains of $35,505. This includes investments totaling $756,227,866 and a subaccount totaling $62,262,965. Staff recently took steps to move some investments previously held in the City’s main portfolio into a managed subaccount created for liquidity purposes to facilitate large payments for major capital improvement projects currently in progress.
Local Agency Investment Fund
The City holds funds in the Local Agency Investment Fund (LAIF) which it can easily access to meet short-term cash needs. The City’s LAIF balance totaled $31,467,718 as of September 30, 2025, and earned interest of $343,843 for the quarter, which is included in the market value of the total portfolio. LAIF is a program created by statute as an investment alternative for California’s local governments and special districts.
CalTRUST
The City opened a CalTRUST account in July 2025. CalTRUST is a Joint Powers Authority created by public agencies in 2003 to provide a convenient method for pooling public agency assets for investment purposes and offers an additional highly liquid investment option for the City. As of September 30, 2025, the CalTRUST account totaled $10,035,608 and earned interest of $35,508 for the quarter, which is included in the market value of the total portfolio.
US Bank Sweep Account
The City’s sweep account with US Bank is an interest-bearing account to which any excess funds are automatically swept daily from the US Bank operating bank account. The sweep account balance was $16,585,509 as of September 30, 2025, with an average rate of return of 3.82% and earnings of $211,038 for the quarter.
Summary of Total City Investments
Attachment 1 to this report provides a summary and detailed information on each security. Also included is an activity report of sales, purchases, and maturities for the three-month accounting period as required by Government Code Section 53607. The City’s total investments (Investment Portfolio, Caltrust, and LAIF) were $859,994,157 as of September 30, 2025. This amount does not include $4,542,447 of accrued interest, which has been earned but not yet received.
The investment program’s average yield to maturity (the income expected to be earned over the next twelve months if portfolio holdings do not change) was 3.79% as of September 30, 2025. This yield includes the yield earned on assets invested in LAIF and CalTrust. The investment program's market yield was 3.89%, up from 3.87% at the end of the prior quarter.
Market forces, such as interest rate movements, credit quality, fiscal policy, and economic growth, affect the portfolio's value. It is also affected by the volume and timing of the City's available revenues after maintaining sufficient liquidity to meet operational needs. Some revenue sources include property tax revenues, development-related activities such as park impact fees, housing impact fees, traffic mitigation fees, developer contributions, building and planning fees, utility enterprise funds revenues, and other City revenues or financial activities. The portfolio manager primarily focuses on following the long-term duration investment strategy for the City’s main portfolio. Staff continue to monitor available cash balances, regularly assess cash flow needs, and communicate with the portfolio manager regarding operational and capital project funding needs.
Economic Conditions
The Federal Government shutdown that began on October 1, 2025, halted the release of key economic data. At the same time, heightened trade policy uncertainty has added to market volatility. Core levels of inflation remain above the Federal Reserve’s target, while tariffs continue to cloud forecasts. Signs of a softer labor market are emerging, prompting expectations that the Federal Government will move cautiously toward policy normalization. Given the economic outlook, gradual normalization of monetary policy and a steepening yield curve are expected.
The Federal Reserve lowered the Federal Funds Rate by a quarter percentage point to the range of 3.75-4.00% at the October 2025 Federal Open Market Committee meeting. Chair Jerome Powell referenced the weakening labor market despite some inflationary pressures and moderate economic growth.
The U.S. Treasury yield curve flattened in October 2025, as the 2-year Treasury yield declined 3 basis points to 3.58%, the 5-year Treasury yield declined 5 basis points to 3.69%, and the 10-year Treasury yield declined 14 basis points to 4.08%. The spread between the 2-year and 10-year Treasury yield points on the curve decreased to +50 basis points at October month-end, versus +54 basis points at September month-end.
For comparison, the spread between the 2-year and 10-year Treasury yields was +11 basis points one year ago. The spread between the 3-month and 10-year Treasury yield points on the curve was +26 basis points in October versus +21 basis points in September.
FISCAL IMPACT
Overall, the City’s investment income remained strong for the first quarter, totaling $8,184,302. In comparison, investment income for the same period of the prior year was $7,248,828.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
RECOMMENDATION
Recommendation
Receive and file the City of Sunnyvale Investment Report for Third Quarter 2025.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
_X_ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Dennis Jaw, Assistant Director of Finance
Reviewed by: Matt Paulin, Director of Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. City of Sunnyvale Third Quarter Investment Report 2025