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II. Investments
Results & Prospective Strategy -
Third Quarter 2004
BIF
- The book value of the BIF investment portfolio increased year-to-date by approximately 2.32 percent-from $32.237 billion on December 31, 2003, to $32.988 billion on September 30, 2004.
- During the third quarter of 2004, taking advantage of the rise in the yields of short- to intermediate-maturity securities, staff purchased for the BIF portfolio new securities with a total par value of $2.350 billion, a weighted average maturity of 2.23 years, and a weighted average yield of 2.688 percent. At the end of the quarter, the effective duration of the BIF portfolio was 2.36 years.
SAIF
- The book value of the SAIF investment portfolio increased year-to-date by approximately 2.67 percent-from $11.528 billion on December 31, 2003, to $11.836 billion on September 30, 2004. This increase reflects net interest revenue as well as the receipt of modest receivership dividends and other transfers from the National Liquidation Fund (NLF).
- The securities purchased for SAIF during the third quarter of 2004 had a total par value of $780 million, a weighted average maturity of 2.12 years, and a weighted average yield of 2.647 percent. At the end of the quarter, the effective duration of the SAIF portfolio was 2.61 years.
The Treasury Market
- Over the first three quarters of 2004, yields on short- to intermediate-maturity Treasury securities rose modestly while the yields on longer-maturity Treasury securities remained relatively flat. At the same time, market yields on the BIF and SAIF investment portfolio's Treasury Inflation-indexed Securities (TIIS) holdings declined by approximately 32 basis points.
- The ten-year Treasury note yield is again testing the 4 percent level
(that is, reverting to a yield at or below 4 percent), reflecting factors such as the market's nervousness
with respect to the Iraq war and other geopolitical developments; the high, and possibly increasing, price of oil and its effect on economic growth; the sustainability of economic growth and employment; and recent weakness in consumer sentiment.
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 fourth quarter of 2004, while at the same time ensuring that the portfolios maintain sufficient liquidity.
- If higher yields were to become available-either as a result of upward
shift in the yield curve or a continuation of recent price volatility-the strategy does provide the flexibility to purchase comparatively higher-yielding, longer-maturity Treasury securities.
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