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<br />
<br />October 2006
<br />
<br />MARKET REVIEW
<br />
<br />MARKET SUMMARY
<br />
<br />The FOMC took no action at its September 20th meeting, leaving its target for the
<br />fed funds rate at 5.25%.ln its accompanying statement, the FOMC noted that "the
<br />moderation in economic growth appears to be continuing," and that future
<br />interest rate changes would be "data dependent." The next FOMC meeting is on
<br />October 25th, and most market participants anticipate no action on interest rates.
<br />
<br />Economic data was mixed in September. On the strong side, consumer confidence
<br />measures increased, as the Conference Board Index rose to 104.5 from 100.2 in
<br />August and the University of Michigan Index rose to 85.4 from 82.0. On the flip
<br />side, both housing permits and housing starts declined, as did the ISM
<br />Manufacturing and Capacity Utilization measures. Lower oil prices contributed to
<br />some easing of inflationary fears, a factor that the FaMe also noted in the
<br />statement accompanying their interest rate decision. Lower energy prices also led
<br />to a decline in both the overall e PI and PPI, although core readings (ex. Food &
<br />energy) do remain elevated. Going forward, investors will continue to focus upon
<br />core inflation readings, while also searching for signs as to whether or not
<br />economic growth is indeed moderating.
<br />
<br />Bond prices extended their rally for a third consecutive month, with yields declining
<br />by between nine and sixteen basis points across the curve.
<br />
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<br />III'DI . AUG 06 . SEP 06 SEP OS
<br />
<br />The treasury yield curve shifted downward in September. with the yield on the three year
<br />treasury declining by 9 basis poInts and ten year treasury yields falling by 10 basis points.
<br />
<br />;Y:IELDS '" 9130106 8131/06 Change
<br />
<br />3 Month 4.87 5.03 (0.16)
<br />2 Year 4.68 4.78 (0.10)
<br />3 Year 4.61 4.70 (0.09)
<br />5 Year 4.58 4.69 (0.11 )
<br />1 0 Yea r 4.63 4.73 (0.10)
<br />30 Year 4.76 4.88 (0.12)
<br />
<br />YIELD SPREADS 9130/06 8/31106 Change
<br />
<br />Syr - 2yr T-Note
<br />1 Oyr - 2yr T-Note
<br />
<br />(0.10)
<br />(0.05)
<br />
<br />(0.09)
<br />(0.05)
<br />
<br />(0.01)
<br />0.00
<br />
<br />Source: Bloomberg
<br />
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