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January 1, 2006 <br />MARKET REVIEW <br />A MONTHLY REVIEW OF FIXED INCOME MARKETS <br />MARKET SUMMARY <br />The Federal Open Market Committee increased the federal funds rate <br />0.25% to 4.25% on December 13, 2005. The Federal Reserve's statement <br />continued to highlight several of their concerns. Although energy prices <br />remain elevated, economic activity appears to be solid. Core inflation has <br />remained relatively low in recent months and longer -term inflation <br />expectations remain contained. Resource utilization as well as higher <br />energy prices still hold the potential to add to inflation pressures. <br />The Committee maintains its belief that some further measured policy <br />firming will likely be needed to keep the risks to the attainment of both <br />sustainable economicgrowth and pricestability roughly in balance. <br />The next FOMC meeting is scheduled for January 31, 2006 where another <br />0.25% increase in the federal funds rate is generally expected. This will also <br />be the final meeting for Federal Reserve Chairman Alan Greenspan. <br />�.— <br />u�. <br />• / <br />4.0 <br />NOV3.0 <br />DEC 05 <br />2.0 1 <br />1.0 <br />DEC 04 <br />1 I <br />4- sUw.-e°- <br />The curve flattened as a pronounced decrease in medium and long rates compared to <br />very short rates actually caused the curve to invertin the 2yr to 10yrsector. <br />Month/ <br />0.14 <br />2 Year <br />4.40 <br />4.41 <br />(0.01) <br />• <br />(0.03) <br />10 <br />1 Year <br />4.39 <br />4.8 <br />I/• <br />/ Year <br />4.53 <br />4.69 <br />{ • <br />• <br />{{ <br />000 <br />// <br />Source. Bloomberg As of 12130105 <br />