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March 2022 Economic Review

Tensions (and Everything Else) Rise

On February 24, Russia invaded the eastern border of Ukraine. As resulting sanctions severely and adversely affect Russia, most commodity prices, particularly oil, approach historic highs. The price of Brent crude oil surpassed $130/bbl, the highest since July 2008. Crude oil prices doubled in 1973-74, 1978, and 2007-2008, all preceding an impending recession. If crude oil sustains its ~$20 elevated shock, Wall Street analysts are projecting a 0.6% and 0.3% drop in the Euro-area GDP and in the U.S GDP, respectively. Wheat is also approaching its all-time high price as Ukraine, one of the top global wheat suppliers, faces several production challenges given the developing conflicts.

The shorter tenors of the yield curve are experiencing an upward shift compared to the previous month which coincides with a flattening in longer durations as investors are avoiding reinvestment risk. With equity markets and high-yield investments proving to be increasingly volatile, investors are making a flight to quality. Commercial paper markets have seen a material uptick in yield from the previous period as well, jumping as high as 50 bps on an issuer-specific level with the highest average maturity being 6-month CP above 35 bps to Treasuries.

Inflation has been steadily increasing and is up 7.5% YoY. Unemployment in the U.S. is only 30 bps above the pre-COVID level; however, the labor participation rate is significantly below pre-COVID levels as many people fled the job market (often referred to as the Great Resignation). As the world continues to face supply chain disruptions and shocking commodity prices, CPI readings are expected to continue the upward trend. On March 16, the Federal Open Market Committee (FOMC) voted to raise the Fed Funds Target Rate by 25 basis points to a new range of 0.25% to 0.50%. Additionally, the FOMC indicated the potential for six additional rate increases this year.

Treasury Yields
Maturity 3/4/22 2/9/22 Change
3-Month 0.321% 0.330% -0.009%
6-Month 0.628% 0.577% 0.051%
1-Year 0.991% 0.883% 0.108%
2-Year 1.476% 1.364% 0.112%
3-Year 1.606% 1.629% -0.023%
5-Year 1.637% 1.817% -0.180%
10-Year 1.731% 1.942% -0.211%
30-Year 2.155% 2.245% -0.090%
Agency Yields
Maturity 3/4/22 2/9/22 Change
3-Month 0.513% 0.415% 0.098%
6-Month 0.674% 0.550% 0.124%
1-Year 1.019% 0.879% 0.140%
2-Year 1.576% 1.430% 0.146%
3-Year 1.677% 1.651% 0.026%
5-Year 1.767% 1.868% -0.101%

 

Commercial Paper Yields (A-1/P-1)
Maturity 3/4/22 2/9/22 Change
1-Month 0.290% 0.120% 0.170%
3-Month 0.640% 0.350% 0.290%
6-Month 0.970% 0.620% 0.350%
9-Month 1.120% 0.830% 0.290%
Current Economic Releases
Data Period Value
GDP QoQ Q4 ’21 7.00%
U.S. Unemployment Feb ’22 3.80%
ISM Manufacturing Feb ’22 58.60
PPI YoY Jan ’22 12.20%
CPI YoY Jan ’22 7.50%
Fed Funds Target March 17, 2022 0.25% – 0.50%

Source: Bloomberg. Data unaudited. Information is obtained from third party sources that may or may not be verified. Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political, or financial developments. All comments and discussions presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.