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December 2~7 <br />MARKET REVIEW <br />MARKET SUMMARY <br />Bond yields were slightly higher in December. The market's recent activity stems <br />from concerns that difficulties in the housing and mortgage market will result in <br />slower economic growth going forward. The global market volatility has <br />continued, and market participants remain extremely sensitive to signs of <br />housing, mortgage, and credit weakness. <br />The economy displayed slower growth in December. The Non-Farm Payroll <br />number was weaker than expected, showing an increase of only 18,000. <br />Housing data has continued to weaken. Inflation readings have moved slightly <br />higher, raising concerns that the recent decline in inflation may be ending. Going <br />forward, market participants will continue to look for signs as to whether or not <br />weakness in the housing and mortgage markets is reflected in the broader <br />economy. <br />The FOMC lowered the federal funds rate and the discount rate 25 basis points at <br />its December 11th meeting. The next scheduled FOMC meeting is on January <br />30`h <br />_ ~ ---g . _,_. W ~. _ _ <br />5.0- <br />4.0 - <br />~ ~ DEC 07 ®NOV 07 DEC O6 <br />Treasury yields were slightly higher in December and the yield curve retained a <br />normal sfiape as market participants attempted to ascertain the consequences <br />of financial market volatility and ahousing-led economic slowdown. <br />_a~~ ~ ra .. _ ' ~ ,~.. `,I <br />3 Month 3.22 3.14 0.08 <br />2 Year 3.06 3.04 0.02 <br />5 Year 3.45 3.41 0.04 <br />10 Year 4.03 3.97 0.06 <br />30 Year 4.45 4.40 0.05 <br />,,~ ~ <A, <br />Syr - 2yr T-Note "~ <br />0.39 A ,. <br />0.37 ,. <br />0.02 <br />10yr - 2yr T-Note 0.97 0.93 0.04 <br />Source: Bloomberg <br />