1 Page. As of August 30 th, the ratios of AAA General Obligation municipal yields to Treasury yields were:

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1 Municipal Bond Issuance Continues to Fall Variable Rate Market Unchanged The End of an Era? Municipal Bond Issuance Continues to Fall Rising interest rates continued to negatively impact issuer demand in August, with municipal bond volume 37.7% lower this month than it was over the same period in Total issuance in August totaled $20.9 billion in 746 deals, compared to $33.5 billion in 1,066 deals in August The Municipal Market Data ( ) AAA Muni Market 10 year yield ended August at 2.94%, 23 basis points ( bps ) higher than where it stood on the first day of the month; the 30 year yield also rose 23 bps, from 4.22% to 4.45%. In August, the 10-year US Treasury yield was up 4 basis points ( bps ) from 2.74% to 2.78% at the end of the month. The 30-year Treasury yield fell 7 bps for the month; finishing the month at 3.70%, down from 3.77% on August 1 st. For the year to date, new issuance is down 12% from Refunding volume has decreased even more, down 29% from the year before. As of August 30 th, the ratios of AAA General Obligation municipal yields to Treasury yields were: Year % 1-Year 0.18 / % 5-Year 1.52/ % 10-Year 2.94 / % 30-Year 4.45 / % Sources: The Bond Buyer, Bloomberg, US Department of Treasury, US Federal Reserve Variable Rate Market Unchanged Investor cash was met again with a diminished supply of short-term paper in the taxexempt variable rate market this 1 Page

2 month. The SIFMA Municipal Swap Index, an average of highgrade, tax-exempt, variable rate bonds, rose 1 bp from an all time low of 0.05% to 0.06%. The 30-day LIBOR remained at 0.18% throughout the entire month of August. Sources: The Bond Buyer, Bloomberg, SIFMA The End of an Era? Everyone knew it was a unique time. In a recent Google search, the phrase historically low interest rates generated over 4.1 million results. For comparison s sake, historic stock market returns resulted in a mere 71,700 returns. Since the Federal Reserve first announced plans to provide liquidity to the financial markets in 2008 through efforts such as the continuation of various quantitative easing programs, interest rates had intentionally been pushed down to, yes historically low rates. The central banks objective has been to spur borrowing and financial flows in an effort to jump start the post-recession economy. After five years, it now appears that the Fed may be closing in on its stated dual goal of lowering the official unemployment rate and generating some modest level of inflation. Investors certainly believe so and have been selling off their bonds since June, forcing rates across sectors to increase rapidly. With the expected end of easy money on the horizon and rates well above their previous lows, we thought it would be interesting to try to provide some kind of context for where rates have been the last year or two. For what is arguably the most widely used benchmark bond, the 10-year U.S. Treasury bond, the phrase historically low is almost an understatement. Using weekly data from the Federal Reserve that goes back to the beginning of 1962, we find that the pre-great 2 Page

3 Recession low yield of 3.81 was reached in January of the next year in the aftermath of the Cuban Missile Crisis. s would not drop lower than that for exactly 45 years. When the Great Recession began the 10- year hit 3.72% on its way down to its recorded weekly low of 1.47% for the week of July 27, This weekly low was a full 234 basis points below the nuclear Armageddon inspired dip of the Kennedy era. Municipal bonds, however, have not experienced the same alltime low trajectory. Nominal yields on The Bond Buyer 20- Bond Index, (A high investment grade index comprising 20 bonds of approximately 20 years to maturity) hit their low point on September 1, 1954 at 2.26%. In contrast, the closest they have gotten to that since has been a comparatively high 3.46% on November 1, It should be noted, however, that one of the biggest drivers of municipal bond yields is the prevailing tax code at any point in time, so comparisons between eras for municipal bonds are much more specious than comparisons for Treasuries. In 1954 when that recorded low on the Bond Buyer 20-Bond Index was reached, the highest marginal income tax rate was 91% on income over $400,000. For those fortunate enough to be taxed at 91%, a 2.26% muni bond would have a tax equivalent yield of over 25%. Then again, recent research suggests that the majority of taxpayers who should have been in the highest tax brackets of the post-world War II economy were very successful in avoiding taxes and that those rates were rarely paid by anyone. Therefore, placing muni bond yields in a historical context is a tricky business at best with few lessons to be scientifically learned. Most market observers would agree, however, that the recent lows were a very rare occurrence and possibly won t be seen again for a very long time. Sources: Bloomberg, Fitch Ratings, Moody s Investor Service, Standard & Poor s, Wall Street Journal 3 Page

4 General Obligation & Lease Obligation 6/24/2013 $6.64 7/15/2013 $15.67 West View PN Municipal Johnson County KS ks & Recreation 8/12/2013 $5.70 Platte County, MO 8/13/2013 $10.13 Michigan State Comprehensive Transportation Current Refunding Water Utility Improvements Certificates of ticipation Refunding - Neighborhood IMPT kville Commons Bonds Essential Purpose 7/22/2013 $7.18 Appleton WI Water Utility Improvements 8/12/2013 $69.69 Grant County WA Utility District #2 Priest Rapids Hydro 8/13/2013 $15.79 Bellingham WA 8/19/2013 $9.98 Education Sector 7/15/2013 $ /15/2013 $ /22/2013 $5.51 7/22/2013 $59.39 Fremont NE Comb Utility Syst em Bonds Series A Water & Sewer Multiple Utility University of Massachusetts MA Building North Carolina State Capital Facilities Finance Agency Indiana State Finance Revenue New York State Dormitory August 2013 Selected Bond Issues Project Revenue Refunding - Senior Series 3 - Johnson & Wales University Project University of Indanapolis Project School Districts Bond Financing Series F /AA/ 11/15/ % 50 Aa2/ /AA 9/1/ % 63 Aa2/ / 2/1/ % 149 Aa2/AA+/ 11/15/ % 49 Aa2/ / 1/1/ % 89 Aa3/AA/AA 1/1/ % 71 Aa2/ / 8/1/ % 52 /AA-/ 7/15/ % 38 Aa2/AA-/AA 5/1/ % 42 A2/A-/ 4/1/ % 87 /A-/ 10/1/ % 110 /AA/A+ 10/1/ % 102 7/22/2013 $26.28 Source: Bloomberg Pennsylvania State Higher Educational Facilities 8/8/2013 $18.78 State University of Iowa 8/12/2013 $18.97 Massachusetts State Development Finance Agency St. Josephs University Series B - Academic Building /A-/A 11/1/ % 100 Aa1/AA/ 7/1/ % 21 Simmons College Baa1/BBB+/ 10/1/ % Page

5 August 2013 Selected Bond Issues Project, Development, & Improvement District Sector Bonds Series A Washington County Public - Facilities Series B 7/15/2013 $10.81 Fresno CA Airport 8/5/2013 $ /12/2013 $ /12/2013 $8.33 New York State Housing Finance Agency Iowa State Finance Affordable Housing Series B Multifamily Revenue Housing Younkers Building Project - Series A Baa1/AA/BBB 7/1/ % 143 Aa3/A+/ 12/1/ % 51 Aa2/ / 5/1/ % 92 /AA+/ 8/1/ % 68 June 2013 Selected Bond Issues Healthcare Sector 7/29/2013 $55.00 California State Municipal Finance South Central LA Regnional Center Project - Community Impact Developmetn Baa1/ / 12/1/ % 154 7/29/2013 $ /12/2013 $21.19 Source: Bloomberg Colorado State Health Facilities California State Health Facilities Financing Childrens Hospital CO Project Series A Bonds - Casa Colina A1/A+/ 12/1/ % 114 /BBB/ 4/1/ % Page