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II.
Investments Results & Prospective Strategy -
First Quarter 2005
BIF
- The book value of the BIF investment portfolio increased by $131
million or approximately 0.39 percent—from $33.231 billion on December
31, 2004, to $33.362 billion on March 31, 2005.
- During
the first quarter of 2005, taking advantage of the rise in yields on
intermediate- to longer-maturity Treasury securities, FDIC
purchased new securities for the BIF portfolio with a total par value
of $2.650 billion, a weighted average maturity (WAM) of 6.47 years,
and a weighted
average yield to maturity (YTM) of 4.01 percent. At the end of the
quarter, the effective duration of the BIF portfolio was 2.55 years.
- The
BIF investment portfolio's total return for the first quarter was
-0.435 percent or approximately 28 basis points greater than the
return
of the benchmark, the Merrill Lynch 1 – 10 Year U.S. Treasury
Index, which earned -0.717 percent during the first quarter.
SAIF
- The
book value of the SAIF investment portfolio increased by $193 million
or approximately 1.61 percent—from $11.962 billion on December
31, 2004, to $12.155 billion on March 31, 2005.
- During the first quarter of 2005, again taking advantage of the rise
in yields on intermediate- to longer-maturity Treasuries securities,
FDIC purchased new securities for the SAIF portfolio with a total par value of
$945 million, a WAM of 6.30 years, and a weighted average YTM of 3.98
percent.
At the end of the quarter, the effective duration of the SAIF portfolio
was 2.73 years.
- The SAIF investment portfolio's total return for the first quarter
was -0.533 percent or approximately 18 basis points greater than the return
of the benchmark, the Merrill Lynch 1 – 10 Year U.S. Treasury
Index, which earned -0.717 percent during the first quarter.
The Treasury Market
- Treasury yields increased across all maturity sectors (the one
exception being the thirty-year maturity sector, which registered a modest
decline during the first quarter). The largest increases were exhibited
by securities within the two- to three-year sector, while the yield increase
on the ten-year note was more modest. The Treasury yield curve continued
to flatten during the quarter, with the spread between two- and ten-year
securities ending the quarter at 70 basis points, which was 45 basis points
lower than the 115 basis point spread at the end of fourth quarter of 2004.
Prospective Strategies
- The current investment strategies provide the flexibility to purchase
a wide range of different Treasury securities with varying maturities, depending
on Treasury market conditions and developments during the second quarter of
2005, while at the same time ensuring that the portfolios maintain sufficient
liquidity.
- Similar
to the first quarter, as higher yields become available—either
as a result of an upward shift in the yield curve or because of
significant price volatility—the strategy does
provide the flexibility to purchase comparatively higher-yielding,
longer-maturity Treasury securities.
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