B. Craig Elder Director Senior Fixed Income Analyst WGFOA Fall Conference Title Slide B. Craig Elder Director Senior Fixed Income Analyst Please Note: Information in this presentation is as of September 9, 2014 or prior.

10-Year Interest Rates – from 1790 Source: Goldman Sachs 10 year taxable

Treasury Yield Curve Source: Bloomberg

Why Buy American Debt? Source: Bloomberg G7 Current 10-year Yields United States -2.49% Japan – 0.53% Germany – 1.00% France – 1.35% Canada – 2.17% United Kingdom – 2.48% Italy – 2.37%

Comparative Total Returns –September 5, 2014 Source: CreditSights

Corporate Bond Indices – August 29, 2014 Source: CreditSights

Source: Walt Handelsman - Newsday Economic Activity

Economic Indicators GDP Inflation Housing New Home Sales* Existing Home Sales* Consumer Personal Income Personal Spending* Retail Sales* Manufacturing Cap Utilization* Industrial Production* Inflation PCE Core* CPE Deflator Consumer Price Index Producer Price Index Average Hourly Earnings*

Economic Growth – 1980-2014 Source: Bloomberg

Single Family Existing Home Sales – 1980-2014 Source: Bloomberg

Single Family New Home Sales – 1980-2014 Source: Bloomberg

Industrial Production – 1980-2014 Source: Bloomberg

Capacity Utilization – 1980-2014 Source: Bloomberg

Personal Consumption – 2000-2014 Source: Bloomberg

Personal Consumption – 2000-2014 Source: Bloomberg

Inflation – 1980-2014 Source: Bloomberg

Average Hourly Earnings – 2007-2014 Source: Bloomberg

Key to Economy – Innovative New Jobs

Beneficiaries of Economic Innovation

Measures of Unemployment Source: Bureau of Labor Statistics U-1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force; U-2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force; U-3: Total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate); U-4: Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers; U-5: Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and U-6: Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

U.S. Unemployment Rate U-3 Source: Bloomberg

U.S. Under-Employment Rate (U6) Source: Bloomberg

U.S. Non-farm Payrolls 1990-Present Source: Bloomberg

U.S. Non-farm Payrolls 1939-Present Source: Bloomberg

The Federal Reserve What’s Next?

What’s the Fed Doing? Asset Purchases Interest Rate Policy Purchase of $15 billion of Treasury debt per month Purchase of $10 billion of MBS per month September 30 meeting – More Tapering? Will End in October Interest Rate Policy Extension of the 0-0.25% interest rate “guidance” No change since December 2008 Last raised rates in May 2006 To 5.25% from 5.00% Will raise rates in 2015 – question is when????? Market view is June or July

Security Holdings of The Fed Source: New York Federal Reserve Portfolio Holdings - $4.140 Trillion Treasury (9.80 WAL) – MBS & Agency Treasuries - $2.420 Trillion MBS (Fannie/Freddie/Ginnie) - $1.678 Trillion Fannie/Freddie/Ginnie Debt - $41.562 Billion

Foreign Holdings of U.S. T-Notes & Bonds SOURCE: Bloomberg

Fed’s Holdings of U.S. T-Notes & Bonds SOURCE: Bloomberg

Who’s on First? New Fed Chair - Janet Yellen Former Vice Chair & San Fran Fed President New Fed Vice Chair - Stanley Fischer Formerly Head of Israeli Central Bank Lael Brainard - Federal Reserve Board Formerly Under Secretary of the Treasury for International Affairs Loretta Mester – New Cleveland Fed President (June 1) Economist with Philadelphia Fed

2014 FOMC Voting Members Source: Federal Reserve Charles Plosser – Philadelphia Richard Fisher – Dallas Loretta Mester – Cleveland Jerome Powell – Governor Unfilled - Governor Daniel Tarullo – Governor Lael Brainard – Governor William Dudley – New York Stanley Fischer – Vice Chair, FRB Janet Yellen – Chairman Narayana Kocherlakota – Minneapolis

2014 FOMC Voting Members Source: Robert W. Baird

2015 FOMC Voting Members Source: Robert W. Baird

Source: Clay Bennett.com Economic & Interest Rate Forecast

U.S. Econ Forecasts – Street & Fed September 9, 2014 Source: Bloomberg

U.S. Interest Rate Forecast - Street September 9, 2014 Source: Bloomberg

Sources: Bloomberg Bank America Merrill Lynch Barclays Indices – Total Return Chart Bureau of Labor Statistics ritholz.com Business.cartoons.co.uk Claybennet.com CreditSights Federal Reserve Bank of new York– SOMA Account Holdings Goldman Sachs SNBCHF.com Walt Handelsman - Newsday

Disclaimers The opinions expressed are those of the presenters and not necessarily of Robert W. Baird & Co. Past performance is not a guarantee of future results. Robert W. Baird & Co., Inc. Member SIPC