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II.
Investments Results & Prospective Strategy -
Fourth Quarter 2004
BIF
- The book value of the BIF investment portfolio increased year-to-date
by approximately 3.08 percent—from $32.237 billion on December 31, 2003,
to $33.231 billion on December 31, 2004.
- During the fourth quarter of 2004, taking advantage of the rise
in yields of short- to intermediate-maturity securities, staff purchased for
the BIF portfolio new securities with a total par value of $2.700 billion,
a weighted average maturity of 1.97 years, and a weighted average yield of
2.97 percent. At the end of the quarter, the effective duration of the BIF
portfolio was 2.30 years.
- The BIF investment portfolio's return for the year ended December
31, 2004, was 2.831 percent or approximately 87 basis points greater
than the return of the benchmark, the Merrill Lynch 1-10 Year U.S.
Treasury Index, which earned 1.964 percent for the year.
SAIF
- The book value of the SAIF investment portfolio increased year-to-date
by approximately 3.76 percent—from $11.528 billion on December 31,
2003, to $11.962 billion on December 31, 2004.
- During the fourth quarter of 2004, taking advantage of the rise
in yields of short- to intermediate-maturity securities, staff purchased
for the SAIF portfolio new securities with a total par value of $1.000
billion, a weighted average maturity of 2.02 years, and a weighted average
yield
of 2.98 percent. At the end of the quarter, the effective duration of
the SAIF portfolio was 2.53 years.
- The SAIF investment portfolio's return for the year ended December
31, 2004, was 2.862 percent or approximately 90 basis points greater
than the return of the benchmark, the Merrill Lynch 1-10 Year U.S.
Treasury Index, which earned 1.964 percent for the year.
The Treasury Market
- The Treasury yield curve flattened significantly over 2004, with
yields on short- to intermediate-maturity Treasury securities rising and
the yields on longer-maturity Treasury securities remaining virtually unchanged.
- The ten-year Treasury note is currently trading within a range
with yields holding between 4.0 and 4.3 percent. This trading range appears
to be a result of market sentiment that over the near term, economic
growth will be restrained and inflationary pressures will remain contained.
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 2005, while at the same time ensuring that the portfolios maintain sufficient
liquidity.
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