When governmental entities in Utah report their investment data to the Office of the State Treasurer, they utilize various security types to categorize their holdings. Understanding these categories is crucial for accurate reporting and effective treasury management. Here's an explanation of each type in this context:
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Agency
Definition: These are debt securities issued by government-sponsored enterprises (GSEs) or federal government agencies. Examples include securities issued by Fannie Mae, Freddie Mac, or Ginnie Mae. While backed by the full faith and credit of the U.S. government (for some), others have implied or explicit government backing.
Reporting Context: Governmental entities might invest in Agency securities for their relative safety and potential for slightly higher yields compared to direct U.S. Treasuries.
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CP (Commercial Paper)
Definition: Commercial Paper is a short-term, unsecured promissory note issued by corporations to finance short-term debt obligations. It typically has a maturity of less than 270 days and is used for working capital needs, inventory financing, and accounts payable.
Reporting Context: While less common for direct investment by governmental entities due to its unsecured nature and corporate issuer, sophisticated treasury operations might consider highly-rated CP from extremely stable corporations as a short-term cash management tool.
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Corp Note (Corporate Note/Bond)
Definition: These are debt instruments issued by corporations to raise capital. They represent a loan from the bondholder to the corporation, with the corporation promising to repay the principal amount on a specific maturity date and usually pay periodic interest (coupons).
Reporting Context: Governmental entities may invest in Corporate Notes to achieve higher yields than government-backed securities. However, due diligence regarding the financial health and creditworthiness of the issuing corporation is paramount.
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Equities (Stocks)
Definition: Equities represent ownership in a corporation, giving the shareholder a claim on the company's assets and earnings. Common stock provides voting rights, while preferred stock typically offers fixed dividends but no voting rights.
Reporting Context: Investment in equities by governmental entities is generally more restricted due to their higher volatility and risk compared to fixed-income securities. If permitted by investment policy, it would likely be through diversified vehicles like mutual funds or ETFs rather than individual stocks.
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Municipal Bonds
Definition: These are debt securities issued by state and local governments or their agencies to finance public projects such as schools, highways, and hospitals. They are often considered attractive due to their tax-exempt interest income at the federal level and sometimes at the state and local levels.
Reporting Context: Governmental entities within Utah might invest in municipal bonds issued by other governmental entities for diversification and yield enhancement, especially if the interest is tax-exempt for them as well.
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Mutual Fund
Definition: A mutual fund is a type of financial vehicle made up of a pooled portfolio of stocks, bonds, or other securities. Investors buy shares in the fund, and the fund's assets are managed by a professional fund manager.
Reporting Context: Mutual funds offer diversification and professional management, making them a popular investment vehicle for governmental entities seeking to spread risk across various underlying assets. Reporting would specify the name of the mutual fund, its investment objective (e.g., money market, bond fund, balanced fund), and the value of the investment.
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Negotiable Brokered CD (Certificate of Deposit)
Definition: A Negotiable Brokered CD is a time deposit offered by banks, typically with a fixed interest rate and maturity date. The "negotiable" aspect means it can be bought and sold in the secondary market before maturity, unlike a standard CD. They are often purchased through a broker.
Reporting Context: Governmental entities might invest in Negotiable Brokered CDs for their relative safety and predictable returns. The ability to sell them in the secondary market offers some liquidity.
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Qualified Bank CD (Certificate of Deposit)
Definition: A Qualified Bank CD is a time deposit offered by a bank. The term "qualified" often implies adherence to specific regulatory or investment policy requirements, such as being FDIC-insured up to certain limits or meeting specific maturity and yield criteria deemed acceptable for public funds.
Reporting Context: These are generally considered very safe investments for governmental entities. The "qualified" designation ensures they meet the stringent standards set by the Utah State Treasurer's Office or the entity's own investment policy for safeguarding public funds.
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Treasury
Definition: This refers to debt securities issued by the U.S. Department of the Treasury. The most common types include Treasury Bills (T-Bills) with maturities of one year or less, Treasury Notes (T-Notes) with maturities of 2 to 10 years, and Treasury Bonds (T-Bonds) with maturities of 20 to 30 years. These are considered among the safest investments globally, backed by the full faith and credit of the U.S. government.
Reporting Context: Treasury securities are a cornerstone of many governmental investment portfolios due to their unparalleled safety and liquidity.