Weekly Corporate Commentary

8/30/10

A horrible existing home sales number on Tuesday caused a sharp rise in Treasury prices, where they remained for
a few days until Friday. Many investors, especially some ‘hot’ money, have been expecting the Fed to expand
their purchase of Treasuries and/or mortgage backed bonds, called quantitative easing, or QE 2.0 as it has been
popularly referred to in many circles, on top of the $1.4 trillion or so of MBS they bought as a response to the
meltdown in the fall of 2008. On Friday, in Jackson Hole, Fed chairman Bernanke implied that the Fed has no
plans to buy any more Treasuries, prompting a sharp sell-off in bonds, nearly 20 basis points on the 10 year
Treasury.

In reality, the statements didn’t preclude the Fed from engaging in more quantitative easing in the future. They
want to see more economic data, confirming whether we are headed towards a double-dip recession or current
conditions merely reflect a temporary slowdown. At any rate, the Fed doesn’t like to do anything major before an
election, and QE 2.0 would be a relatively major development. Yesterday, Treasuries gained back much of their
losses from Friday as investors had time to process his words over the weekend.

Chris ‘Tex’ Byrne

SVP, CCM
919.960.0807
18 Corporate Composite 10 Yr Curves
16
14 USD Composite
AAA Curve
12 USD Composite
AA Curve
10
USD Composite
A Curve
8
USD Composite
6 BBB Curve

USD Composite
4 BB Curve

2 USD Composite
B Curve
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1600 Corporate Composite 10 Year Spreads

1400
USD Composite
1200 AAA Spread

USD Composite
1000 AA Spread

800 USD Composite

A Spread

600 USD Composite

BBB Spread

400 USD Composite

BB Spread

200 USD Composite

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10
Corporate A Rated 10 Yr Sector Curves
9
USD US
8 Industrial A
Curve
USD US Phones
7 A Curve

USD US
6 Finance A
Curve
USD US
5 Insurers A
Curve
USD US Bank A
4 Curve

USD US Utility A
3 Curve

2
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Corporate BBB Rated 10 Yr Sector Curves
11 USD US
Industrial BBB
Curve
10 USD US Phones
BBB Curve

9 USD US
Finance BBB
Curve
8 USD US Bank
BBB Curve

7 USD US
Insurers BBB
Curve
6 USD US Utility
BBB Curve

5 USD US Gas
Transm BBB
Curve
4 USD US Retail
BBB+BBB
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