GFOAz Winter Training 2015 Tempe History Museum Finding Value in the Markets Davidson Fixed Income Management Neal Helm V.P./Portfolio Manager Richard Petrenka V.P./ Portfolio Manager

Guide to Economic Indicators  Growth and Inflation indicators  Market Sensitivity  Market Significance  Data Source  The Federal Reserve Board of Governors, District Banks and Open Market Committee

The Fixed Income Markets  Negotiable  No “commission”  Custody is preferable to securities held at a brokerage firm “free of charge”.  What is a Fiduciary?

The Fixed Income Markets  Investment advisors are bound to a fiduciary standard that was established as part of the Investment Advisors Act of They can be regulated by the SEC or state securities regulators, both of which hold advisors to a fiduciary standard that requires them to put their client's interests above their own. The act is pretty specific in defining what a fiduciary means, and it stipulates that an advisor must place his or her interests below that of the client. It consists of a duty of loyalty and care, and simply means that the advisor must act in the best interest of his or her client. For example, the advisor cannot buy securities for his or her account prior to buying them for a client, and is prohibited from making trades that may result in higher commissions for the advisor or his or her investment firmfiduciaryInvestment Advisors Act of 1940securities

Bond Price Transparency  How to use FINRA TRACE.  Find out what you paid vs. the market.  What that equals in dollars.  What it equals in yield.

FINRA  What is FINRA?  Financial Industry Regulatory Authority- Independent, authorized by Congress.  Broker/Dealer market participants are members. 

TRACE  Trade Reporting and Compliance Engine : Vehicle for mandatory reporting of over the counter secondary market transactions in eligible fixed income securities. All Broker/Dealer market participants are required to report all trades within a specified time limit.

USING FINRA TRACE  Information needed to research trades?  CUSIP number-  Name of Issuer-  Par Amount-  Maturity Date-  Trade Date-  What will it tell you? Historical minute by minute market pricing for the trading day in question.

Bond from $12.5 mil. in Trades on 11/08/2012  BANK OF AMERICA CORPORATE  COUPON RATE %  Maturity Date- 3/22/17  CUSIP GEQ8  Par Amount- $500,000.  Date of our purchase- 11/08/2012

The FINRA website Click on Investors

Market Data Page Click on Market Data

Choose type of Market Data Click on Bonds

Bond Data Click on Advanced Bond Search

Input Corporate; Input CUSIP: Click on SHOW RESULTS

Bond Detail Click on Trade History

Trade History for $500,000. on 11/8/2012 Click GO

A Closer look SDSD Reporting Party Side

What is the Price Column?  The TRACE price reported on the Market Data Center is the "all-in price." This price includes any markup, markdown or commission.

Reporting Party Side What do the letters mean?  The Reporting Party Side letters are as follows:  B = A customer transaction where the dealer bought securities from the customer.  S = A customer transaction where the dealer sold securities to the customer.  D = An inter-dealer transaction (always from the sell side).

Trading Day in question  25 Trades that day.  D – Broker bought from a Dealer at 12:57 p.m. at the lowest price of the day with the highest yield of  S – Broker sold to the entity at 1:02 p.m. highest price of the day and lowest yield of 1.681

Our trade in dollars & yield  The Broker purchased the or $539,410. to yield 1.976%  The Broker sold to the or $ 545,880. to yield 1.68%  Dollar Difference: $ 6,470.  Yield Difference:.296 % almost 30 basis points.

County Portfolio with TRACE Data IssuerCUSIPPAR AmountPurchase PriceFINRA Mkt. PriceDifferenceCost Basis Pepsico Inc BT4$500, $5,835.00$536, Metlife Inc.59156RAU2$500, $6,620.00$608, J.P. Morgan Chase NTS48121CJN7$500, $6,295.00$578, Wells Fago Medium Term NTS949746QU8$500, $5,875.00$550, Bank of Amer. Corp NTS06051GEA3$500, $6,150.00$586, Caterpillar Financial Services14912L4X6$500, $5,730.00$526, Coca Cola NTS B/E191216AU4$500, $5,705.00$524, Verizon Communications92343VBD5$500, $5,590.00$526, General Elec. Cap Corp NTS36962G5N0$500, $6,315.00$537, Citigroup Inc. NTS B/E172967FW6$500, $6,630.00$559, IBM Corp B/E459200HC8$500, $6,100.00$514, The Walt Disney Company25468PCS3$1,000, $12,130.00$1,023,345.25

County Portfolio with TRACE Data

Total Portfolio Results  Governmental entity paid $156,420. OVER market or 125 basis points.  The OVER market purchase price places the entire portfolio under water immediately.  Side note: Investment accounting must now amortize $1,173, of premium prior to maturity.

Arizona City Example

Total Portfolio Results  Governmental entity paid $48, OVER market or 16.5 basis points during 6 month s of trading activity for the total portfolio.  Annualized that is a cost of 33 basis points.  The City is immediately that far from the market

USEFUL WEBSITES  Fact Book :  cuments/appsupportdocs/p pdf  FINRA :   TRACE: markets.morningstar.com/BondCenter/Scr eener.jsp?type=advanced markets.morningstar.com/BondCenter/Scr eener.jsp?type=advanced