301 Moved Permanently
301 Moved Permanently
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II.
Investments - Third Quarter 2009
Investment
Results
- The
amortized cost (book value) of the DIF investment portfolio decreased
by $10.6 billion during the first nine months of 2009, or by
39.9 percent, from $26.6 billion on December 31, 2008, to $16.0
billion on September 30, 2009. Similarly, the DIF portfolio’s
market value dropped by approximately $12.6 billion, or by 43.8
percent, from $28.8 billion on December 31, 2008, to $16.2 billion
on September 30, 2009. Again, the declines were primarily the
result of funding failed institution resolutions during the first
nine months of 2009.
- The
DIF investment portfolio's total return for the first nine months
of 2009 was 0.123 percent, approximately 94 basis points higher
than its benchmark, the Merrill Lynch 1 - 10 Year U.S. Treasury
Index (Index), which had a total return of negative return of
0.814 percent during the same period. The DIF portfolio’s
Treasury Inflation-Protected Securities (TIPS) considerably outperformed
the Index’s conventional Treasury securities. In addition,
because the DIF conventional Treasury securities have a lower
average duration than the securities held in the Index, and given
the substantial increase in yields over the course of the year
on longer duration securities, the DIF’s conventional Treasury
securities outperformed those in the Index. Finally, the DIF
portfolio’s high cash balances helped contribute to the
positive relative return.
- During
the third quarter of 2008, to help fund resolution-related cash
outlays, staff sold a total of 50 AFS conventional Treasury securities
on four occasions; the securities had a total book value of $8.3
billion, a total market value of $9.0 billion, a weighted average
maturity (WAM) of 3.38 years, a weighted average modified duration
of 3.07 years, and a weighted average yield at cost of 4.59 percent.
These security sales resulted in a realized gain of $731.7 million.
On September 30, 2009, the DIF portfolio’s overnight investment
balance was $8.6 billion (about 53.1 percent of the portfolio
by market value), reflecting the receipt of approximately $8.7
billion in assessments on September 30, 2009.
Other
Corporate Investment Portfolios
- During the
first nine months of 2009, the book value of the Debt Guarantee Program
investment portfolio increased substantially, from $2.4 billion on
December 31, 2008, to $7.0 billion on September 30, 2009. The funds
in this portfolio are from the guarantee fees related to the Debt Guarantee
Program under the Temporary Liquidity Guarantee Program (TLGP). More
recently, during the third quarter, the book value of the Debt Guarantee
Program investment portfolio decreased from $7.5 billion on June 30,
2009, to $7.0 billion on September 30, 2009. The quarter’s decline
in funds was due to the fact that the TLGP fees collected during the
quarter were less than amount of claims against the TLGP’s Transaction
Account Guarantee program. Consistent with the approved quarterly investment
strategy, all Debt Guarantee Program portfolio funds were invested
in overnight investments during the quarter .
- The Other
Systemic Risk Reserves investment portfolio was established in
2009 and holds $131.1 million as of September 30, 2009. Included in
this
amount was the receipt of a $50.4 million payment on July 30,
2009, coincident with the conversion of the former Fixed Rate Cumulative
Perpetual Preferred Stock, Series G issued by Citigroup Inc.
(Citigroup
Stock) to the new trust preferred security issued by Citigroup
Capital XXXIII (Citigroup TruPS). As the Citigroup Stock last paid
its $60.5
million quarterly dividend on May 15, 2009, the $50.4 million
represents 2.5 months of the regular dividend rate. Subsequently, the
DIF will
receive the full $60.5 million dividend per quarter from the
Citigroup TruPS, but with different payment dates: October 30, January
30, April
30, and July 30 .
- On September 30, 2009, the FDIC collected about $181.8 million
in fees related to the Transaction Account Guarantee Program under the
TLGP. However, these funds were then immediately transferred to the Debt
Guarantee Program portfolios for reimbursement of claims and expenses,
so the recently established Transaction Account Guarantee Program investment
portfolio had no balance at month-end.
The
Treasury Market
- During
the third quarter of 2009, conventional Treasury yields decreased
modestly across all sectors of the Treasury yield curve. The
three-month Treasury bill (T-Bill) and the six-month T-Bill yields
declined by 7 basis points and 17 basis points, respectively.
The yield on two-year Treasury note, which also is very sensitive
to actual and anticipated changes in the federal funds rate,
decreased by 16 basis points during the third quarter, generally
reflecting consensus forecasts for no changes in the federal
funds target rate over the near term. Intermediate- to longer-maturity
Treasury security yields decreased modestly as well; the yield
on the five-year Treasury note decreased by 25 basis points,
while the yield on the ten-year Treasury note decreased by 22
basis points. Finally, the thirty-year Treasury bond yield decreased
by 28 basis points. The conventional Treasury yield curve remained
relatively steep during the third quarter. On September 30, 2009,
the two-year to ten-year yield curve had a 236-basis point positive
spread (a little lower than the 242-basis point spread at the
beginning of the quarter). Over the past five years, this spread
has averaged 87 basis points.
Prospective
Strategies
- The fourth quarter 2009 DIF investment strategy calls for
placing all net proceeds from deposit insurance assessments, maturing
securities, Temporary Liquidity Guarantee Program surcharges, coupon
and other interest payments, and receivership dividends into overnight
investments and/or short-term T-Bills in anticipation of using
such funds for resolution activities.
- For the
TLGP, all funds will be invested into overnight investments
in anticipation of possibly using such funds for resolution activities
or claims against
the TLGP.
- For the Other Systemic Risk Reserves investment portfolio—which
by contrast to the DIF portfolio is in investment mode—the fourth
quarter 2009 investment strategy calls for strategically investing
all available funds in overnight investments, and/or in conventional
or callable
Treasury securities with effective maturity dates not to exceed
December 31, 2012.
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