REPORT TO COUNCIL
SUBJECT
...Title
Receive and File the City of Sunnyvale Investment Report for First Quarter 2026
...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 may be invested in certain security types, maximum maturities, and minimum credit ratings assigned by major rating agencies (Standard & Poor’s and Moody’s Investors Service). Public agencies can only invest in fixed-income securities, and the purchase of stock is 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 December 31, 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 for each 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, the issuer, the maturity date, and the yield for 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 as a premium or discount is amortized. The market value is the bond's value as of the date of the report.
Investment Portfolio
Most of the City’s funds are actively managed by the City’s investment advisor, with maturities ranging from 0 to 7 years. The City’s main investment portfolio of securities has a target duration (a risk metric measuring the portfolio's price sensitivity to a given change in interest rates) of approximately 2.5 years, as measured by its risk and performance benchmark. As of quarter-end, the portfolio had a duration of 2.49 years, close to the duration of its performance and risk-measuring benchmark, as market interest rates have become more volatile due to geopolitical forces. The more neutral duration stance minimizes portfolio market value volatility relative to its target as market rates move.
New purchases focused primarily on highly rated medium-term corporate notes, with additional U.S. Treasury obligations and one purchase of a federal agency mortgage-backed security. Purchase yields averaged over 3.78%. The average yield to maturity of the main portfolio of securities alone was 4.0%. The market yield, which can infer a reinvestment rate, was 4.04%, higher than last quarter’s 3.77%, reflecting a rise in market rates. The total market value of the main portfolio of securities managed by the City’s investment manager totaled $829,438,922 as of March 31, 2026, with income earned of $7,906,163 and realized gains of $299,698 for the prior three months.
The investment portfolio includes a subaccount totaling $43,371,997. Staff maintain some of the City’s investments previously held in the City’s main portfolio in a shorter-duration, 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) that it can easily access to meet short-term cash needs. LAIF totaled $17,009,780 as of March 31, 2026, and earned interest of $83,771 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
CalTRUST is a Joint Powers Authority created by public agencies in 2003 to provide a convenient method for public agencies to pool their assets for investment purposes. As of March 31, 2026, the CalTRUST account totaled $57,781,174 and earned $511,059 in interest for the quarter, which is included in the total portfolio's market value.
Summary of Total City Investments
Attachment 1 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 $904,229,876 as of March 31, 2026. This amount does not include $5,274,000 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 3.86% as of March 31, 2026. This yield includes the yield earned on assets invested in LAIF. The market yield of the investment program was 4.02%, up from 3.77% 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 revenues available to invest 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, and developer contributions; building and planning fees; utility enterprise fund 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 continues to monitor available cash balances, regularly assess cash flow needs, and communicate with the portfolio manager regarding operational and capital project funding needs.
Sweep Account Balance Held with US Bank
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 $14,804,697 as of March 31, 2026, with an average rate of return of 3.25% and earnings of $149,439 for the quarter.
Economic Conditions
March payrolls rebounded by $178,000 after February's revised $133,000 decline, but global events have driven crude oil above $114-potentially injecting an inflationary shock into an economy grappling with core prices remaining above 3%. The Federal Reserve has held the funds rate at 3.50-3.75% and adopted a cautious stance, signaling it may delay rate cuts if oil-related inflation proves persistent rather than transitory.
The Federal Reserve’s Federal Open Market Committee (FOMC) held the target range for the federal funds rate steady at 3.50 to 3.75% on April 29 by an 8-to-4 vote, the most dissents at a single meeting since 1992.
Treasury yields finished April modestly higher across the curve, attenuating the year-to-date flattening trend that has defined the front end. The 2-year note closed April 30 at 3.88% and the 10-year at 4.40%, leaving the 2-to-10-year spread at 50 basis points compared with 69 basis points at year-end 2025. The 3-month-to-10-year spread ended the month near 71 basis points, consonant with a moderately positive curve shape. Since December, the 2-year has moved up roughly 40 basis points and the 10-year about 26, a configuration consistent with elevated inflation expectations tied to the conflict in the Persian Gulf and the constellation of supply pressures it has generated.
FISCAL IMPACT
Overall, the City’s investment income remained strong for the first quarter, totaling $8,950,130. In comparison, the investment income for the same period of the prior year was $7,638,779.
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 Fourth 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 First Quarter Investment Report 2026