GFOAz Winter Training 2015 Tempe History Museum Finding Value in the Markets

Davidson Fixed Income ManagementNeal Helm V.P./Portfolio ManagerRichard Petrenka V.P./Portfolio Manager

Guide to Economic Indicators

Growth and Inflation indicatorsMarket SensitivityMarket Significance Data SourceThe 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 1940. 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 firm

Bond Price TransparencyHow 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.

http://finra.org

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 CORPORATECOUPON RATE- 3.875%Maturity Date- 3/22/17CUSIP- 06051GEQ8Par Amount- $500,000.Date of our purchase-

11/08/2012

The FINRA website www.finra.org- 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

SD

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 question25 Trades that day.D- 107.839 – Broker bought from

a Dealer at 12:57 p.m. at the lowest price of the day with the highest yield of 1.987.

S-109.176 – 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 bond @ 107.882 or $539,410. to yield 1.976%

The Broker sold to the Entity @ 109.176 or $ 545,880. to yield 1.68%

Dollar Difference: $ 6,470. Yield Difference: .296 % almost

30 basis points.

County Portfolio with TRACE DataIssuer CUSIP PAR Amount Purchase Price FINRA Mkt. Price Difference Cost BasisPepsico Inc. 713448BT4 $500,000.00 107.3 106.133 $5,835.00 $536,505.25

Metlife Inc. 59156RAU2 $500,000.00 121.7 120.376 $6,620.00 $608,505.25

J.P. Morgan Chase NTS 48121CJN7 $500,000.00 115.731 114.472 $6,295.00 $578,660.25

Wells Fago Medium Term NTS 949746QU8 $500,000.00 110.135 108.96 $5,875.00 $550,680.25

Bank of Amer. Corp NTS 06051GEA3 $500,000.00 117.24 116.01 $6,150.00 $586,205.25

Caterpillar Financial Services 14912L4X6 $500,000.00 105.341 104.195 $5,730.00 $526,710.25

Coca Cola NTS B/E 191216AU4 $500,000.00 104.942 103.801 $5,705.00 $524,715.25

Verizon Communications 92343VBD5 $500,000.00 105.36 104.242 $5,590.00 $526,805.25

General Elec. Cap Corp NTS 36962G5N0 $500,000.00 107.46 106.197 $6,315.00 $537,305.25

Citigroup Inc. NTS B/E 172967FW6 $500,000.00 111.829 110.503 $6,630.00 $559,150.25

IBM Corp B/E 459200HC8 $500,000.00 102.892 101.672 $6,100.00 $514,465.25

The Walt Disney Company 25468PCS3 $1,000,000.00 102.334 101.121 $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 $1,173,515.73 of premium prior to maturity.

Arizona City Example

Total Portfolio Results

Governmental entity paid $48,693.25 OVER market or 16.5 basis points during 6 months 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: http://www.finra.org/web/groups/industry/@ip/

documents/appsupportdocs/p459636.pdf FINRA: http://finra.org TRACE:

http://finra-markets.morningstar.com/BondCenter/Screener.jsp?type=advanced