PORTFOLIO PERFORMANCE, DIVERSIFICATION, AND STRATEGY
May portfolio yielded 3.30%, up from 2.48% last year, with a weighted average maturity of 985 days.
Total assets under management of $16.4 billion, up $800 million in comparison to May 2023.
Total portfolio contained 69.8% in U.S. Treasurys, 5.7% in U.S. government agencies,
15.7% in mortgage-backed securities, 7.7% money market mutual funds, 0.3% in certificates of deposit,
and 0.8% in state bond issues and foreign bonds, comprising the balance of funds invested.
“Yields will continue to grow as the portfolio sheds the older investments and takes on the influence of the new rate range. Total portfolio yields are lower than current yields due the laddered structure of the investments over a 3 year average.”
STATE TREASURER, TODD RUSS
TOTAL FUNDS INVESTED
Funds available for investment at market value include the State Treasurer’s investments at $12,245,303,149 and State Agency balances in OK Invest at $3,965,321,455, for a total of $16,210,624,604.
MARKET CONDITIONS
Treasuries saw an overall decline for the month of May. The 2-year treasury fell 0.16% to 4.87%. The 10-year treasury decreased by 0.18% to 4.5%. The 30-year treasury saw a 0.14% decrease to 4.65%. 
The month of May marked a rebound from April’s weak market performance. The year started with a strong start with three months of impressive growth in the stock market. However, due to unfavorable inflation metrics, April saw the first red month of the year. A big difference for May was the release of the Fed’s preferred price index, the Personal Consumption Expenditure price index (PCE.) The PCE rose 2.7% year-over-year, which met expectations of many economists. This report showed that inflation is not worsening and led to a market rally.
The Federal Reserve meeting on May 1 produced the sixth straight decision to leave rates unchanged. The federal funds rate is currently 5.25% to 5.5%, where it has been since July of 2023. According to Treasury and Risk, “Minutes from the two-day Federal Open Market Committee (FOMC) gathering that ended on May 1 show that, while participants assessed that policy was ‘well-positioned,’ various officials mentioned a willingness to tighten policy further if warranted.” However, Fed Chair Jerome Powell stated in a press conference another hike is unlikely”. The latest inflation figures are more reassuring than the information that was available at the time of the meeting. The CME FedWatch Tool predicts a 67.7% chance of a rate cut at the September meeting.
ECONOMIC DEVELOPMENTS
May’s unemployment rate came in at an unexpected 4%, compared to 3.9% in April. This is the first time the unemployment rate has been at 4% since January of 2022. On the other hand, nonfarm payrolls increased by 272,000 in May, compared to April’s revised 165,000. According to the Bureau of Labor Statistics news release, “In May, employment continued to trend up in several industries, led by health care; government; leisure and hospitality; and professional, scientific, and technical services.“
The Consumer Price Index (CPI) outperformed the expectations of many economists, going unchanged from April to May. Year-over-year change came in at 3.3%, slightly cooler than April’s 3.4% increase. According to Bloomberg, “Services were the main reason why core inflation came in less than forecast, helped by a decline in car insurance after the biggest run-up in prices in that category since the 1970s.” Shelter continued its climb, with a 0.4% increase. Food increased by 0.1%. On the other hand, the energy index dropped by 2%, with a 3.6% decrease in the gasoline index. Core CPI, which excludes food and energy, rose 0.2%, compared to 0.3% in April. Annualized core CPI increased 3.4%. This was a 3.6% increase in April. May’s annualized core CPI increase is the lowest since April of 2021. The Producer Price Index (PPI) also beat expectations, declining 0.2% over the month. Annualized, PPI growth slowed to 2.2%, compared to April’s upwardly revised 2.3%. Core PPI, which excludes food and energy prices, remained flat over the month. These CPI and PPI releases suggest that inflation is cooling and keep hopes alive for a rate cut this year.
Consumer spending lost some momentum for the month of April, coming in at a 0.0% change from March. March saw a revised increase of 0.6%. Many economists expected a 0.4% increase for April. “By sector, the biggest monthly increase in spending was at gas stations, where sales were up 3.1% in April compared to March. That’s likely a result of surging gas prices experienced in the previous two months,” said CNN Business. Despite this jump in sales at the gas pump, most sectors showed a decrease in spending. The worst performing sector was online retail sales, which dropped 1.2% over the month.
Homes actively for sale in May grew by 35.2% compared to last year. April’s figure for year-over-year homes for sale was 30.4%. For seven straight months, the number of homes for sale has increased at a healthy pace. The median price of homes for sale was $442,500, higher than last month by about 1%. Price per square foot was up 3.8%, which points to smaller and more affordable homes being listed more frequently. Homes in the $200,000 to $350,000 price category increased at a faster rate than any other category at 46.6%. April’s growth in this range was 41%. According to the Realtor.com Market Trends Report, “While the housing market is still in the seller’s territory, it is expected to shift in a buyer-friendly direction as mortgage rates resume their decline over the next year and the number of homes for sale increases. Already, the housing market has taken steps in this direction.”
The second estimate for Q1 Real Gross Domestic Product (GDP) showed an annual increase of 1.3%. This is in comparison to the first estimate, which was 1.6%. In the fourth quarter of 2023, the GDP increased by 3.4%. The Bureau of Economic Analysis reports, “Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected decelerations in consumer spending, exports, and state and local government spending and a downturn in federal government spending.” This increase in GDP was the smallest since the second quarter of 2022. Comerica Chief Economist Bill Adams says,“light blue A cooler economy is limiting businesses’ ability to raise prices, which will help slow inflation in the second half of the year.”
COLLATERALIZATION
All funds under the control of this office requiring collateralization were secured at rates ranging from 100% to 110%, depending on the type of investment.
PAYMENTS, FEES AND COMMISSIONS
Securities were purchased or sold utilizing competitive bidding. Bank fees and money market mutual fund operating expenses are detailed in the attached pages, as is the earnings split between the State Treasurer and the master custodian bank on securities lending income.
Best regards,
TODD RUSS
STATE TREASURER
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