Virginia Government Finance Officers Association Economic

Member of FINRA & SIPC; MSRB Registered.

Proudly Veteran-Owned!

October 25, 2018

Greg Pagans, Vice President

Virginia Government Finance Officers Association

Economic Update



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• Headquartered in Southfield, MI

• Fort Lauderdale, FL, office since 1996

• Member of FINRA and SIPC; MSRB registered

• Member since 1988 (CRD #22098)

• Institutional fixed-income focus

• More than 5,000 institutional accounts

• Approved underwriter of U.S. agency securities

• Fannie Mae

• Freddie Mac

• Farmer Mac

• Federal Home Loan Banks

• Federal Farm Credit Banks

• Major underwriter of certificates of deposit (CDs)

About Multi-Bank Securities, Inc.



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• Multi-Bank Securities, Inc. (MBS)

• Broker-dealer, not an investment advisor

• Offers no regulatory/audit advice

• Greg Pagans, Vice President

• Institutional fixed-income focus

• FINRA-registered representative

• Series 6, 7, 24, 50 and 63

• CRD #1585380

Disclaimer



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• Recent past, present and near future

• Federal Reserve Bank/Fed Open Market Committee (FOMC)

• Domestic economy

• Interest rates

Economic Update



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Recent chairmen and active executive officers:

• Paul A. Volcker Aug. 6, 1979 - Aug. 11, 1987

• Alan Greenspan Aug. 11, 1987 - Jan. 31, 2006

• Ben S. Bernanke Feb. 1, 2006 - Jan. 31, 2014

• Janet L. Yellen Feb. 3, 2014 - Feb. 3, 2018

• Jerome H. Powell Feb. 5, 2018 - Present

Federal Reserve Board of Governors



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Section 2a. Monetary Policy Objectives

• The Board of Governors of the Federal Reserve System

and the Federal Open Market Committee shall maintain

long run growth of the monetary and credit aggregates

commensurate with the economy’s long run potential to

increase production, so as to promote effectively the

goals of maximum employment, stable prices and

moderate long-term interest rates.

• [12 USC 225a. As added by act of Nov. 16, 1977 (91 Stat.

1387) and amended by acts of Oct. 27, 1978 (92 Stat.

1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000

(114 Stat. 3028).]



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• Central bank of the U.S.

• Dual mandate:

• Price stability

• Full employment

• Controls short-term interest rates

• Discount and Fed funds rates

• Influences long-term interest rates

U.S. Federal Reserve and FOMC



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Federal Reserve Act

• The Federal Reserve controls the three tools of monetary

policy:

• Reserve requirements – Board of Governors

• Discount rate – Board of Governors

• Open market operations – FOMC

• Using these tools, the Federal Reserve influences the

demand for, and supply of, balances that depository

institutions hold at Federal Reserve Banks

• Alters the federal funds rate – the interest rate at

which depository institutions lend balances at the

Federal Reserve to other depository institutions

overnight



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Federal Reserve Act

Board of Governors

• The seven members of the Board are nominated by the president and confirmed

by the Senate. A full term is 14 years. One term begins every two years, on

February 1 of even-numbered years. A member who serves a full term may not be

reappointed; a member who completes an unexpired portion of a term may be

reappointed.

• The chairman and vice chairman of the Board are named by the president from

among the members and confirmed by the Senate. The serve a four-year term. A

member’s term on the Board is not affected by his or her status as Chairman or

Vice Chairman.

• Currently:

• Jerome “Jay” Powell, Chairman

• Richard Clarida, Vice Chairman

• Michelle Bowman

• Lael Brainard

• Randall K. Quarles

• Nellie Liang and Marvin Goodfriend [nominated]



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Fed Open Market Committee (FOMC)

2018 FOMC Members

• Jerome H. Powell, Board of Governors,

Chairman

• John C. Williams, New York, Vice

Chairman

• Thomas I. Barkin, Richmond

• Raphael W. Bostic, Atlanta

• Michelle Bowman, Board of Governors

• Lael Brainard, Board of Governors

• Richard H. Clarida, Board of Governors

• Mary C. Daly, San Francisco

• Loretta J. Mester, Cleveland

• Randal K. Quarles, Board of Governors

2018 Alternate Members

• James Bullard, St. Louis

• Charles L. Evans, Chicago

• Esther L. George, Kansas City

• Eric Rosengren, Boston

• Michael Strine, First Vice President,

New York



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Fed Funds Rate Since 1980

Accessed Oct. 9, 2018



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• U-3: U.S. unemployment rate total in labor force

• Tracks the number of unemployed persons as a

percentage of the labor force

• Labor force: Total number of employed plus unemployed

• Figures generally come from a household labor force

survey

U-3 Unemployment Rate



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U-3 Unemployment Rate History




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• U-6: Unemployed, margin and part-time as a percentage of the

labor force

• Includes:

• Total unemployed

• All persons marginally attached to the labor force

• Those who are currently neither working nor looking for

work, but indicate that they want and are available for a job

and have looked for work sometime in the past 12 months

• Total employed part-time for economic reasons

• Those who want and are available for full-time work, but

have had to settle for a part-time schedule

• Measured as a percentage of the civilian labor force

U-6 Unemployment Rate

[emphases added]



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U-6 Unemployment Rate History




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Labor Force Participation Rate Since 1948

Updated Oct. 12, 2018

http://fred.stlouisfed.org/graph/?g=jJ7i



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U.S. Treasury 30-Year Bond Yield Since 1980




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U.S. Treasury 10-Year Bond Yield Since 1980




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• A curve on a graph in which the yield of the fixed-interest securities is

plotted against the length of time they have to run to maturity

• U.S. Treasury definition: Treasury yield curve rates

• Commonly referred to as “constant maturity Treasury” rates (CMTs)

• Yields are interpolated by the Treasury from the daily yield curve

• This curve, which relates the yield on a security to its time to maturity, is

based on the closing market bid yields on actively traded Treasury

securities in the over-the-counter market

• These market yields are calculated from composites of quotations

obtained by the Federal Reserve Bank of New York

• Yield values are read from the yield curve at fixed maturities:

• 1, 3 and 6 months

• 1, 2, 3, 5, 7, 10, 20 and 30 years

• This method provides a yield for a 10-year maturity, for example, even if

no outstanding security has exactly 10 years remaining to maturity

Yield Curve



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U.S. Treasury Yield Curve 2006 and Present




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U.S. Treasury Yield Curve 2010 and Present




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Change in U.S. Treasury Yields Since 2013




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Change in U.S. Treasury Yields Since 2016




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Producer Price Index (PPI) Since 2010




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Consumer Price Index (CPI) MoM Since 2006




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Consumer Price Index (CPI) YoY Since 2006




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U.S. Treasury 10-Year Yields Since 2013




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World Interest Rates 10-Year Maturities

Developed countries. Accessed Oct. 9, 2018



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World Interest Rates 5-Year Maturities

Developed countries. Accessed Oct. 9, 2018



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Fed Funds Futures Overview




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FOMC Dot Plot




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2018 FOMC Calendar




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2019 FOMC Calendar




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What This Means to You

• Monitor cash flows – stay invested

• Follow credit quality/Code of Virginia, Investment of Public Funds Act:

• § 2.2-4501. Legal investments for other public funds.

• § 2.2-4514. Commonwealth and its political subdivisions as trustee of public

funds; standard of care in investing such funds.

• Public funds held by the Commonwealth, public officers, municipal

corporations, political subdivisions, and any other public body of the

Commonwealth shall be held in trust for the citizens of the Commonwealth.

Any investment of such funds pursuant to the provisions of this chapter shall

be made solely in the interest of the citizens of the Commonwealth and with the

care, skill, prudence, and diligence under the circumstances then prevailing

that a prudent person acting in a like capacity and familiar with such matters

would use in the conduct of an enterprise of a like character and with like aims.

• 1996, c. 437, § 2.1-328.14; 2001, c. 844.

• Ladder/stagger maturities and call risk

• Consistent action, adherence to policy works all scenarios well: flat, rising,

falling interest rates



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Primary Government Securities Dealers

• J.P. Morgan Securities LLC

• Merrill Lynch, Pierce, Fenner & Smith

Incorporated

• Mizuho Securities USA LLC

• Morgan Stanley & Co. LLC

• NatWest Markets Securities Inc.

• Nomura Securities International, Inc.

• RBC Capital Markets, LLC

• Societe Generale, New York Branch

• TD Securities (USA) LLC

• UBS Securities LLC

• Wells Fargo Securities, LLC

• Bank Nova Scotia, New York Agency

• BMO Capital Markets Corp.

• BNP Paribas Securities Corp.

• Barclays Capital Inc.

• Cantor Fitzgerald & Co.

• Citigroup Global Markets Inc.

• Credit Suisse AG, New York Branch

• Daiwa Capital Markets America Inc.

• Deutsche Bank Securities Inc.

• Goldman Sachs & Co. LLC

• HSBC Securities (USA) Inc.

• Jefferies LLC

Source: https://www.newyorkfed.org/markets/primarydealers

https://www.newyorkfed.org/markets/primarydealers



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Wall Street Journal Online U.S. Treasury Yields

http://online.wsj.com/mdc/public/page/mdc_bonds.html?refresh=on

U.S. Department of the Treasury

http://www.treasury.gov/Pages/default.aspx

Securities Industry & Financial Markets Association (SIFMA)

http://www.investinginbonds.com/

Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/

Resources

http://online.wsj.com/mdc/public/page/mdc_bonds.html?refresh=on

http://www.treasury.gov/Pages/default.aspx

http://www.investinginbonds.com/

http://www.federalreserve.gov/



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Real Clear Markets (news aggregator)

http://www.realclearmarkets.com/

Business Insider (news aggregator)

http://www.businessinsider.com/

ZeroHedge (news aggregator)

http://www.zerohedge.com/

News and Market Information

http://www.realclearmarkets.com/

http://www.businessinsider.com/

http://www.zerohedge.com/



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Thank You

For additional information,

please contact:

Greg Pagans

Vice President

(866) 330-0859

[email protected]

Questions?

DISCLOSURE

Multi-Bank Securities, Inc. (MBS) cannot be held

responsible for errors regarding time and/or price

on buy/sell requests. Information provided in this

presentation has been prepared from sources

known to be reliable, but is not guaranteed and is

not a complete summary or statement of all data

necessary for making an investment decision.

This is for informational purposes only and does

not constitute a recommendation; please confirm

all information before investing. Securities

discussed are subject to availability and change

in price and yield. Changes to assumptions may

have a material impact on returns. Past

performance is not indicative of future returns.

For institutional investors only.

mailto:[email protected]

Documents

Virginia Government Finance Officers Association Economic