Microsoft PowerPoint - Dec 31_ 2008 Charts

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					Market Snapshot From IRM                                                                                           December 31, 2008
                        What’s New                                         U.S. Market Highlights                                 Data Highlight
U.S. Libor update: Today, 1-month Libor reached a record            1-month U.S. Libor: 0.43625%                   Mortgage applications at 5 year high:
low of 0.43625% and 3-month Libor reached its lowest level          3-month U.S. Libor: 1.42500%                   Applications for home mortgages in the
of ‘08, setting at 1.42500%. The all-time low for 3-month Libor                                                    U.S. reached their highest level in over 5
was 1.00%, set back on June 25, ‘03. For December, 1 & 3-           2-year U.S. Swap Rate: * 1.45%
                                                                    3-year U.S. Swap Rate: * 1.74%                 years amid lower mortgage rates. The
month Libor declined a respective 146.5 & 79.2 bps. For all of                                                     Mortgage       Bankers       Association’s
‘08, declines were significant with 1 & 3-month Libor falling       5-year U.S. Swap Rate: * 2.12%
                                                                                                                   applications index (captures activity to
416 & 328 bps respectively.                                        * Indicative rates, as of 5:00 pm (ET) today    buy or refi a home) rose to 1,245.7 for
Expectations for U.S. Libor: According to the Eurodollar                                                           the week ending Dec 26, the highest
futures market, 3-month Libor is expected to decline to a low             U.S. Swap Rate Changes for
                                                                                                                   since 2003 and fractionally above the
of 1.075% in Q1 ‘09 (implying a 35 bps decline from today’s                       2008 in bps
                                                                                                                   prior week’s level of 1,245.4.
setting) and gradually climb back to 2.13% by the end of ‘10.                                                              Mortgage Application Index
Expectations for fed funds: The fed funds futures market          (110)
                                                                                   (234) (214) (204) (210)              Mortgage Bankers Association
anticipates the current 0% to 0.25% funds target (range)          (220)    (328)                                                past 2 years
climbing to 0.65% by the end of ‘09 and to 1.20% by mid ‘10.      (330)                                            1250
Year-end assessment: The money markets are arguably                         3m     2 yr    3 yr     5yr    10 yr    950
better functioning now than at any time since mid-Sept
(failure of Lehman). The narrowing in the spread between          U.S. swap market update: 3 to 10-year             650
Libor and the fed funds effective rate (chart reflecting 3m       U.S. swap rates reached record lows
Libor) highlights the progress.                                   this month amid further declines in U.S.          350
                                                                  Treasury yields, extraordinary Fed                     Jan-07     Aug-07       Apr-08      Dec-08
           3-month U.S. Libor minus the Fed Funds
                                                                  accommodation (which established a
                   Effective Rate - in bps                        0% to 0.25% target range for the fed             The large drop in mortgage rates came
     410                                          Oct 10                                                           after the Federal Reserve’s decision on
                                                                  funds rate) and deepening economic
     260                      Since Sept           peak           concerns over unemployment and                   November 25 to initiate a program to
                                                                  falling retail sales, manufacturing &            purchase the direct obligations of
     110                                                          housing activity. The low in 2-year U.S.         Fannie Mae, Freddie Mac and the
                                                                  swap rates occurred June 2003 - this             Federal Home Loan Banks as well as
      -40                                                                                                          Mortgage-Backed Securities backed by
                                                                  week, 2-year swaps came within 15
        Jul-07       Dec-07        Jun-08       Dec-08            bps of that all-time low.                        Fannie, Freddie and Ginnie Mae.
                                                                  U.S. Treasurys: Record low yields for                  30-Year Fixed US Mortgage Rates
The FOMC’s aggressive rate cuts in Q4 ’08 combined with the       2-30-year Treasurys were established                       in percent - past 7 months
Fed’s introduction and expansion of extensive non-interest        on Dec 17 (2 & 5-year) and Dec 18 (10 &
rate liquidity mechanisms, has led to lower certificate of        30-year).                                        6.6                                       Since
deposit, commercial paper and money market rates as well          Yield curve: The spread between 2 &              6.2                                       Nov 25
as increased CP issuance (since mid-Oct) and non-bank             10-year U.S. Treasury yields ends ‘08 at         5.7
money market cash balances (since early Oct). This is just a      +145 bps, steeper than the ‘07 year-             5.3
                                                                                                                          composite rate
start, but with investment grade credit spreads narrowing a       end spread of +98 bps, reflecting very           4.9
bit in December, further progress toward better functioning       low short-term yields and expectations            May-08        Jul-08        Oct-08       Dec-08
credit markets should be anticipated in Q1.                       of higher rates beginning later next yr.

                               Please see the disclosure on page 2 of this report                                          Data sources for all charts: Bloomberg
                                                                                                                            Robert Podorefsky ( 617 ) 973 - 4091
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