State Board of Finance hears higher Q2 earnings, approves dealer additions and new book-return target

Treasurer Milligan told the State Board of Finance on Feb. 8 that the treasury's second-quarter book return for fiscal 2022 was 0.839% and that the office recorded roughly $27,500,000 in earnings through the first half of the fiscal year. "Our actual book return for the quarter was 0.839%, exceeding the established target," Milligan said, adding the long-term portfolio produced most of the gains.

Milligan said 10-year Treasury rates rose toward pre-pandemic levels, inflation was elevated and Omicron emerged during the quarter, but state revenue inflows and reinvestment of principal from mortgage-backed securities helped boost receipts. He reported the treasury had already met a $20,000,000 obligation to the State Highway Fund for FY22.

Treasury investment staff presented supporting detail. Robert Romack, senior investment manager, told the board the long-term portfolio earned $13,800,000 in the quarter compared with $7,400,000 a year earlier and attributed the increase to higher long-term yields and additional state receipts. Steve Kilgore, treasury director of investment and accounting, summarized book versus total returns and noted that rising interest rates can depress market values even while cash returns rise.

The board approved a recommendation to increase the target rate of book return for Jan. 1'March 31, 2022 to a range of 0.85% to 0.95% (up from the prior 0.7''''.8% range). A motion to adopt that target passed by voice vote.

On procurement matters, the board voted to add two broker-dealers to the state-approved list: Academy Securities and Great Pacific Securities. Commissioner Susanna Marshall moved to approve the additions "as of today, February 8," noting she wanted a dated list going forward so the board could track changes; Eric Munson seconded the motion and it passed.

The meeting also included routine cash-management actions: the board recorded that no funds were available for deposit to the State Board of Finance certificate of deposit program and directed the treasurer to purchase warrants for the succeeding quarter (April 1'June 30, 2022) pursuant to Act 1088 of 2013, while keeping reasonable amounts in demand accounts for daily operations.

The board approved the treasurer's report and the housekeeping motions by voice vote. The treasury said it will continue to monitor market conditions and reinvest principal into higher-yielding, duration-appropriate securities.