Financial Literacy Day

A Registered Investment Advisory Firm

Financial Literacy Day February 14, 2020

John R. Mousseau, CFA President, Chief Executive Officer & Director of Fixed Income john.mousseau@cumber.com

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30yr Treasury Vs. Core CPI 30yr spread

Source: Bloomberg ©

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Bond Buyer 40 Yield Vs. Core CPI 30yr spread

Source: Bloomberg Š

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Bond Buyer 40 Taxable Equivalent Yield (TEY) 30 years

Source: Bloomberg, https://www.taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates Š

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Historical Gross Debt Outstanding

Source: Bloomberg, CBO.gov Š

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Net Interest Expense: Debt Outstanding

Source: CBO.gov Š

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Federal Deficit

Source: Bloomberg, CBO.gov Š

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Treasury Curves Post Brexit to Now

Jul. 06, 2016 Dec. 08, 2016 Nov. 08, 2018 Feb. 03, 2020

Source: Bloomberg Š

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2-yr vs. 10-yr Treasury Yields

Mid Price: 17.504 High on 12/31/19: 34.442 Average: 17.091 Low on 08/27/19: -5.331

Source: Bloomberg Š

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2-yr vs. 30-yr Treasury Yields

Mid Price: 64.928 High on 12/31/19: 81.731 Average: 62.447 Low on 08/27/19: 42.572

Source: Bloomberg Š

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Bond Buyer 40 Yield vs US Treasury 30 Yield

BBMY Index – Mid Price 2.360 GT30 Govt – Last Price 2.007

BBMY Index – GT30 Govt 0.3597

Source: Bloomberg ©

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10yr Treasury & Core CPI 1970 - 1980

Source: Bloomberg Š

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10yr Treasury & Core CPI 1980 - 2000

Source: Bloomberg Š

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10yr Treasury & Core CPI 2000 - Now

Source: Bloomberg Š

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10-yr Treasury vs. 10-yr German Bond

NIRP

GT10Y Govt Mid YTM: 1.596 GTDEM 10Y Govt Mid YTM: -0.405

Source: Bloomberg ©

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States Pension Burden Largest Burden: Moody’s Adjusted Net Pension Liability* Rating Mdy/S&P

ANPL

ANPL/Rev

Tread Water**

Illinois

Baa3/BBB-

$240 billion

505.1%

NO

Kentucky

Aa3/A

$45.9

308.7%

NO

Connecticut

A1/A

$62.1

285.8%

NO

New Jersey

A3/A-

$113.8

274.9%

NO

Least Burden North Carolina

Aaa/AAA

$9.4

31.4%

YES

Tennessee

Aaa/AAA

$6.4

32.3%

YES

North Dakota

Aa1/AA+

$1.8

32.6%

NO

New York

Aa1/AA+

$39.2

40.2%

YES

*Moody’s uses same discount rate for all pension assets and liabilities. ** Contribution to pension that keeps the ANPL flat ©

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Pension Funded Levels 2017 – State Median 56.8% Pew Charitable Trust report June 2019

©

State

Ratings Mdy/S&P

% Funded

Rank

Kentucky

Aa3/A+

33.9%

50

New Jersey

A3/A-

35.8%

49

Illinois

Baa3/BBB-

38.4%

48

Connecticut

A1/A

45.7%

47

Colorado

Aa1/AA

47.1%

46

Wisconsin

Aa1/AA

102.6

1

South Dakota

Aaa/AAA

100.1

2

Tennessee

Aaa/AAA

96.5

3

New York

Aa1/AA+

94.5

4

Idaho

Aa1/AA+

91.3

5

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Not Just States – Local Governments Too Largest Burden: Moody’s Adjusted Long Term Liabilities* (pension, OPEB, LTD) Cities

Rating Mdy/S&P

LT Liabilities

LT Liab/Rev

Tread Water**

Chicago

Ba1/BBB+

$51.3 billion

735%

NO

Honolulu

Aa1/AA+(Fitch)

$10.6

648%

NO

Houston

Aa3/AA

$15.1

608%

NO

Columbus

Aaa/AAA

$6.7

593%

YES

Least Burden DC

Aaa/AAA

$13.9

160%

YES

Denver

Aaa/AAA

$5.5

253%

YES

New York

Aa1/AA

$274.4

312%

YES

Philadelphia

A2/A

$14.9

328%

YES

*Moody’s uses same discount rate for all pension and OPEB assets and liabilities. ** Contributions that keeps liabilities flat ©

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Disclosure All material presented is compiled from sources believed to be reliable. However, accuracy cannot be guaranteed. Past performance is no guarantee of future results. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk.

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