Quarterly Investment Report Third Quarter 2026

• This report is for City Council information only and requires no action by City Council.
• The investment of City funds is guided by and this report is submitted in compliance with the City’s Investment Ordinance. (Chapter 2-10, Investment of City Funds, Boulder Revised Code 1981).
• The investment objectives as specified in the Ordinance are:
  • The primary objective is preservation and protection of capital. This objective reduces the risk to which the portfolio can be subjected. To comply with this objective investments are diversified by type and maturity horizons.
  • The second objective is to maintain adequate liquidity to meet the daily cash needs of the City. The City’s Ordinance requires that 5% of the portfolio matures within 30 days.
  • Yield is the third objective. The City strives to maximize return while minimizing the risks of the market.

• Investment outlook: As globalization gives way to a more fragmented world, geopolitical shocks, supply-chain disruptions and inflation volatility will likely remain persistent features of the investment landscape. Fixed income investments are supported by attractive yields, healthy corporate fundamentals and resilient economic activity.
• Inflation data remain above target: Inflation pressures remained above the Federal Reserve’s target. The Personal Consumption Expenditure (PCE) Price Index grew at 3.4% year-on-year through August, with the core PCE at 3.0%. In August, Federal Reserve Chair Warsh signalled a greater focus on inflation and the rate with which inflation is moving towards the Fed’s 2% target.
• The Federal Reserve increases rates: The Federal Reserve raised the Federal funds by 25 basis points at its September meeting to a target range to 3.75%-4.00%. This was the first change in rates in 2026 and the first hike in more than three years. Markets priced in a steeper path of future tightening than the projections of the Federal Reserve, contributing to a sharp rise in Treasury yields across maturities.
• Interest rates increase across the yield curve: Treasury yields increased during Q3, consistent with rising rates across all major developed markets. The rise in yields reflects investor caution as markets grappled with higher-for-longer interest rate expectations, inflation concerns, and rising energy prices.
• The S&P 500 Index rose on strong earnings growth: Equity markets rallied over the quarter, with the S&P 500 Index return of 2.3%, taking the year-to-date number to 12.7%.
• Risks include: The principal risks remain a sharper-than-expected slowdown in growth, policy uncertainty stemming from the Fed's evolving framework and an increasingly unpredictable geopolitical backdrop.

US Treasury Yields

• Portfolio strategies implemented this quarter and the investments held in the portfolio comply with the City’s investment objectives and the Ordinance that specifies allowable investments.
  • The objective of safety is achieved through a well-diversified portfolio invested primarily in US Treasury and Agency securities of various maturities. In March 2017 the City Council approved amendments to the Investment Policy proposed by finance staff expanding opportunities to further diversify the portfolio. Pursuit of further diversification through the revised policies is progressing strategically relative to market conditions. Market risk is managed by maintaining a moderate weighted average final maturity (WAM) in the City’s portfolio. As of September 30, 2026, the WAM of the operating portfolio is 2.17 years while the Ordinance allows for a WAM of up to 5 years.
  • The City maintains sufficient liquidity. A minimum of 5% of the City’s total portfolio is held in liquidity accounts.
  • As of September 30, the weighted average purchase yield for the operating portfolio holdings is 4.14%. The yield benchmark is the six-month trailing average of the yield on the 2-year Treasury note, which is 4.17% as of September 30. The purchase yield on the operating portfolio as of September 30 exceeds the benchmark yield by 0.03%.
  • For the third quarter 2026, the fair value periodic return on the operating portfolio is negative 0.42%. The 1-3 Treasury Index return for the period is negative 0.13%. The periodic return on the operating portfolio for the third quarter is 0.29% lower than the 1-3 Treasury Index return.
• The City’s portfolio does not hold any investments in the following: fossil fuels inclusive of pipeline construction and extraction; firearms or weapons not used in national defense; tobacco companies; and firms related to mass incarceration/private prisons/detention centers.
• In the third quarter 2026, the City’s investment advisor invested approximately $25 million in long-term securities for the operating portfolio. Purchases included US Treasury notes, US Agency securities, and municipal bonds. The weighted average purchase yield of these investments is 4.40% and the weighted average maturity at the time of purchase is 3.23 years.
• The portfolio duration maintains exposure to longer-term interest rates and the portfolio is well diversified to various market sectors which may enhance the portfolio’s return over time.

Summary of Portfolio Characteristics

Asset Allocation and Effective Duration

Final Maturity Distribution

Portfolio Holdings as of September 30, 2026

The City’s investment framework includes considering socially responsible investment factors. The City’s SRI program intends to allow the City to better achieve its sustainability and resilience goals, remain financially strong and better align community values. The program incorporates the strategies described below.

Exclusionary Screening

Exclusionary screening, or negative screening, is the process of excluding from investment certain sectors or companies involved in activities which are unacceptable or controversial. Investments for the City’s portfolio exclude the following sectors:

• Fossil fuels inclusive of pipeline construction and extraction
• Firearms or weapons not used in national defense
• Tobacco companies
• Firms related to mass incarceration/private prisons/detention centers

Included in these negative screens is the prohibition of financial firms associated with pipeline construction. The City has further applied this limitation on financial firms to the group of broker/dealers through which investments may be transacted and the City has taken steps to remove any money market funds or cash pools that invest in the above sectors.

Positive Screening and Impact Investing

Positive screening and impact investing consider the impact that an investment is making. This strategy has been implemented through the purchase of a municipal bond issued for the construction and management of affordable housing. Other potential impact investing opportunities include investing in securities issued by the World Bank, which is an approved asset class per the City’s investment policy.

Environmental, Social and Governance (ESG) Integration

The City’s goal is to bring ESG integration to the heart of the investment decision process. The City monitors the ESG ratings provided by MSCI for the corporate bonds in the portfolio. The MSCI ratings are provided on a scale of 1 to 10 with ten being the highest. At this time, the weighted average Industry-Adjusted Score from MSCI for the corporate bond holdings is 7.5 which maps to a letter rated of “AA” on a scale of triple-C to triple-A.

The City also monitors the unadjusted Pillar Scores from MSCI for the corporate holdings. At this time, the weighted average Pillar Scores for the corporate bond holdings are as follows:

• MSCI Environmental Pillar Score: 6.4
• MSCI Social Pillar Score: 5.3
• MSCI Governance Pillar Score: 5.8

The City’s ESG model can be refined to reflect the issues that matter most to the residents of Boulder by applying customized weights to the MSCI Pillar Scores, thus creating ESG scores that better reflect the City’s values, goals and policies.

Active Ownership/Corporate Engagement

Corporate engagement involves discussions with issuers about ESG risks and opportunities. The City is partnering with Insight Investment to seek the benefits of this goal. Insight requests and participates in meetings with management to understand key risks and potentially influence outcomes. Company engagement is critical to Insight’s credit process and their analysts meet with issuers to address ESG factors as well as other credit-related concerns or questions.