Cochise County treasurer briefs supervisors on conservative $200M-plus investment portfolio, timing risks

County Treasurer Kathy Trey on Monday presented an investment-portfolio report to the Cochise County Board of Supervisors, walking supervisors through holdings, yields, maturities and a probability model that flags securities likely to be called.

Trey said the county's approach is intentionally conservative: the report, dated Feb. 27, showed $211 million in current investments and an unrealized book-to-market variance of about $500,000. She told the board she prefers a buy-and-hold strategy and that the portfolio has grown since she took office, saying it was about $85 million in 2013 and is now roughly $248 million in long-term holdings over that period.

The presentation was led by an outside strategist, identified in the record as Michael Bell ("from Skiffo" in the transcript), who explained a suite of tabs in the report. He described a "shock analysis" that models extreme market moves and a probability-of-redemption page that estimates the likelihood an issuer will call a security under different rate scenarios. "This is as close to the crystal ball as it is," the adviser said, noting the model is a planning tool to help the treasurer prepare for cash-flow timing.

The adviser and treasurer emphasized portfolio structure and limits: holdings are government-sponsored entities (GSEs) and agency securities rather than corporate or high-yield instruments; the county policy described in the presentation limits maximum duration to five years and the portfolio's average life is short (about one year), which the treasurer said preserves liquidity for operations and payroll.

The report breaks down call features and issuer concentration: roughly 49% of positions are in callable structures (variously described as "burn calls," "American calls" or "euro calls") with about 22% in bullet securities whose maturity dates are fixed. One slide showed a concentration in Federal Home Loan Bank issuers in a single chart, which the presenter explained is a product-of-market issuance volumes rather than an intentional credit-risk tilt; the treasurer said the portfolio still holds exposures across five major government instrumentalities for diversity.

Board members asked technical questions about yields, call probabilities and scenarios. The presentation noted that a 100-basis-point rate rise or a 25-basis-point drop materially changes modeled call probabilities for specific bonds, which affects timing for when cash returns to the county and therefore planning for reinvestment or liquidity. The adviser pointed to a specific home-loan security the model flagged as 100% likely to be called on the report date and stated it later was called, illustrating how the tool alerts staff to upcoming cash availability.

Trey and the adviser also discussed alternatives and constraints. The adviser referenced the Arizona Public Funds Act as limiting allowable investments and said Cochise County has chosen to avoid corporate-credit instruments and mortgage-backed structures because of credit risk and compressed spreads; the presentation included a peer-comparison tab that showed other public funds using different allocations but framed that as informational, not a recommendation to change policy.

No formal motions or votes were taken at the work session. The treasurer and staff said the report is an operational tool they will update as securities are called or mature; the board was invited to request copies or ask for further analysis during the budget process. The work session adjourned with the next regular board meeting scheduled for 10:00 a.m. the following day.