Session ii john mousseau

Municipal Bonds: Success and Failures Volatility Across the Muni Market Rocky Mountain Summit - Jackson Hole, WY July 2014 John R. Mousseau, CFA Executive Vice President & Director of Fixed Income John.Mousseau@Cumber.com

ŠCopyright 2014 Cumberland AdvisorsŽ. Further distribution prohibited without prior permission.

MMD Yield Curve 4.5

4

3.5

3

2.5

2

1.5

1

2-­‐Jan-­‐13

30-­‐Apr-­‐13

28-­‐Jun-­‐13

Source: Municipal Market Data and Cumberland Advisors ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

30-­‐Aug-­‐13

31-­‐Dec-­‐13

31-­‐Mar-­‐14

2043

2042

2041

2040

2039

2038

2037

2036

2035

2034

2033

2032

2031

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

0

2014

0.5

26-­‐Jun-­‐14

2

Comparison of Select MMD Yields 5.00

4.50

4.00

3.50

3.00

2.50

2.00

10-­‐Year MMD Yield Source: Municipal Market Data and Cumberland Advisors ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

6/26/14

6/6/14

5/17/14

4/27/14

4/7/14

3/18/14

2/26/14

2/6/14

1/17/14

12/28/13

12/8/13

11/18/13

10/29/13

10/9/13

9/19/13

8/30/13

8/10/13

7/21/13

7/1/13

6/11/13

5/22/13

5/2/13

4/12/13

3/23/13

3/3/13

2/11/13

1/22/13

1.00

1/2/13

1.50

30-­‐Year MMD Yield

3

Puerto Rico New Issue Price Volatility 8.00% Due 7/1/2035 Originally Issued @ 93.00/8.727 98 96 94 92 90 88 86 84 82

7/1/14

6/24/14

6/17/14

6/10/14

6/3/14

5/27/14

5/20/14

5/13/14

5/6/14

4/29/14

4/22/14

4/15/14

4/8/14

4/1/14

3/25/14

3/18/14

78

3/11/14

80

Puerto Rico New Issue -­‐ 8% Due 7/1/2035 Source: Bloomberg ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

4

30-day Volatility of Select Puerto Rico G/O Bonds 45.0000 40.0000 35.0000 30.0000 25.0000 20.0000 15.0000 10.0000

Uninsured G/O -­‐ 5.25% Due 7/1/2037 Source: Bloomberg ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

6/26/14

6/6/14

5/17/14

4/27/14

4/7/14

3/18/14

2/26/14

2/6/14

1/17/14

12/28/13

12/8/13

11/18/13

10/29/13

10/9/13

9/19/13

8/30/13

8/10/13

7/21/13

7/1/13

6/11/13

5/22/13

5/2/13

4/12/13

3/23/13

3/3/13

2/11/13

1/22/13

0.0000

1/2/13

5.0000

Insured G/O (AGM) -­‐ 5.75% Due 7/1/2037

5

30-day Volatility of Select Puerto Rico PREPA Bonds 100 90 80 70

PREPA restructuring legislaPon passed

60 50 40 30 20

Uninsured PREPA -­‐ 5.75% Due 7/1/2036 Source: Bloomberg ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

6/26/14

6/6/14

5/17/14

4/27/14

4/7/14

3/18/14

2/26/14

2/6/14

1/17/14

12/28/13

12/8/13

11/18/13

10/29/13

10/9/13

9/19/13

8/30/13

8/10/13

7/21/13

7/1/13

6/11/13

5/22/13

5/2/13

4/12/13

3/23/13

3/3/13

2/11/13

1/22/13

0

1/2/13

10

Insured PREPA -­‐ 5.25% Due 7/1/2035

6

Price Volatility of Select Puerto Rico Names 110.0000

100.0000

90.0000

80.0000

70.0000

60.0000

Uninsured G/O -­‐ 5.25% Due 7/1/2037 Uninsured PREPA -­‐ 5.75% Due 7/1/2036 Source: Bloomberg ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

6/26/14

6/6/14

5/17/14

4/27/14

4/7/14

2/26/14

2/6/14

1/17/14

12/28/13

12/8/13

11/18/13

10/29/13

10/9/13

9/19/13

8/30/13

8/10/13

7/21/13

7/1/13

6/11/13

5/22/13

5/2/13

4/12/13

3/23/13

3/3/13

2/11/13

1/22/13

1/2/13

40.0000

3/18/14

PREPA restructuring legislaPon passed

50.0000

Insured G/O (AGM) -­‐ 5.75% Due 7/1/2037 Insured PREPA -­‐ 5.25% Due 7/1/2035

7

30-day Volatility of Select Detroit Names 50

ß Trading suspended during liPgaPon à

45 40 35 30 25 20 15 10

Insured Detroit Water (AGM) -­‐ 5.00% Due 7/1/2034

Uninsured Detroit Water -­‐ 5.00% Due 7/1/2041

Insured Detroit (AGC) -­‐ 5.00% Due 4/1/2028

Uninsured Detroit -­‐ 5.25% Due 4/1/2023

Source: Bloomberg ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

6/26/14

6/6/14

5/17/14

4/27/14

4/7/14

3/18/14

2/26/14

2/6/14

1/17/14

12/28/13

12/8/13

11/18/13

10/29/13

10/9/13

9/19/13

8/30/13

8/10/13

7/21/13

7/1/13

6/11/13

5/22/13

5/2/13

4/12/13

3/23/13

3/3/13

2/11/13

1/22/13

0

1/2/13

5

8

Price Volatility of Select Detroit Names 110

ß Trading suspended during liPgaPon à

105

100

95

90

Insured Detroit Water (AGM) -­‐ 5.00% Due 7/1/2034

Uninsured Detroit Water -­‐ 5.00% Due 7/1/2041

Insured Detroit (AGC) -­‐ 5.00% Due 4/1/2028

Uninsured Detroit -­‐ 5.25% Due 4/1/2023

Source: Bloomberg ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

6/26/14

6/6/14

5/17/14

4/27/14

4/7/14

3/18/14

2/26/14

2/6/14

1/17/14

12/28/13

12/8/13

11/18/13

10/29/13

10/9/13

9/19/13

8/30/13

8/10/13

7/21/13

7/1/13

6/11/13

5/22/13

5/2/13

4/12/13

3/23/13

3/3/13

2/11/13

1/22/13

80

1/2/13

85

9

0

©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

10-­‐YR MMD VolaPlity 6/7/14

5/18/14

4/28/14

4/8/14

3/19/14

2/27/14

2/7/14

1/18/14

12/29/13

12/9/13

11/19/13

10/30/13

10/10/13

9/20/13

8/31/13

8/11/13

7/22/13

7/2/13

6/12/13

5/23/13

5/3/13

4/13/13

3/24/13

3/4/13

2/12/13

1/23/13

1/3/13

Select MMD Yield Volatility 0.0016

0.0014

0.0012

0.001

0.0008

0.0006

0.0004

0.0002

30-­‐YR MMD VolaPlity

10

Bond Buyer 40 vs. 30-yr Treasury

Source: Bloomberg and Cumberland Advisors ©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

11

Muni Bond Fund Flows Municipal Bond Fund Flows (All Municipal) Municipal Bond Fund Flows (All Municipal)

2 per. Mov. Avg. (Municipal Bond Fund Flows (All Municipal))

15,000

10,000

5,000

0

-­‐5,000

-­‐10,000

1/1/200 9 3/1/200 9 5/1/200 9 7/1/200 9 9/1/200 9 11/1/20 09 1/1/201 0 3/1/201 0 5/1/201 0 7/1/201 0 9/1/201 0 11/1/20 10 1/1/201 1 3/1/201 1 5/1/201 1 7/1/201 1 9/1/201 1 11/1/20 11 1/1/201 2 3/1/201 2 5/1/201 2 7/1/201 2 9/1/201 2 11/1/20 12 1/1/201 3 3/1/201 3 5/1/201 3 7/1/201 3 9/1/201 3 11/1/20 13 1/1/201 4 3/1/201 4 5/1/201 4

-­‐15,000

©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

12

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.

©Copyright 2014 Cumberland Advisors®. Further distribution prohibited without prior permission.

13