Market Update John Braive Vice Chairman, CIBC Global Asset Management May 2010

1 1 Economy: Global Outlook Low growth High growth  While fiscal austerity is not an option, the timing could not be worse: Potential growth is set to slow markedly in the developed world.  Tightening efforts on the fiscal front will act as an additional source of drag on growth. Potential GDP Growth Over the Next 10 years (2010 to 2020) & Fiscal Drag

2 2 Economy: U.S. Personal Income  Income growth has been exceptionally weak.  This expansion faces structural headwinds.  The destruction of household wealth should act as a stimulant for household saving.  The consumer won’t be the engine of growth.

3 3 Economy: U.S. Industrial Production  The manufacturing sector is recovering from its near death expansion of a year ago.  Auto sales are starting to rise and are expected to rise 10% in the next year.  Capital equipment spending is also improving as corporations update their technology.

4 4  Unit labor costs are the best determinant of future inflation.  The huge overhang of U.S. unemployed will keep wage pressures contained.  Developed markets have little potential for sustained inflationary pressures. Inflation: U.S. Unit Labour Costs

5 5 Interest Rates: Fiscal Deficits Source: CIBC Wholesale Banking

6 6 Interest Rates: Canada 30 Year Gov’t Yield  Interest rates remain in their downward channel.  Rising rates would hurt the US housing market and the consumer.  Large supply will be a constant worry.  CIBC GAM forecasts a range of 3.50% to 4.50%.

7 7 Interest Rates: Consensus vs Reality  The consensus view calls for 10-year federal bond yields at 4.10% - well above our forecast.  For the last decade, consensus has always been too pessimistic on Canadian bonds. Canadian 10Y Bond Yields: 1Y Consensus Forecast vs. Realized Source: CIBC Global Asset Management Inc.

8 8 Yield Curve - 30yr less 2yr  The yield curve remains steep.  Good for financials and governments.  Central banks should be cautious raising administered rates.  European sovereign debt risks will remain high. Interest Rates: The Yield Curve Source: PC Bond, a business unit of TSX Inc.

9 9 Investment Outlook Conclusion: No dramatic change in bond yields  Secular Economic OutlookPOSProtracted deleveraging  Inflation OutlookPOSWage costs will remain low  Monetary PolicyNEG Policy will tighten, but gradually  Fiscal PolicyNEGDeficits, deficits, deficits  DemographicsPOSSociological shift to savings

10 Expected Returns: Yield Forecasts Mar 31 ’10 Economic Expansion Sluggish Recovery Failed Recovery %% Bank Rate Year Year Corporate Yield Corporate Spread RRB Yield

11 Expected Returns: Global Market Forecasts

12 –The default rates implied by current credit spreads are well above historical averages. –Corporate Canada came into the recession in good shape, and still is relatively healthy. Why Corporate Bonds Offer Good Value Source: Bank of Canada

13 Canadian mid-term corporate spreads over mid- term government bond yields (in basis points) –Despite having declined from their highs, credit spreads are still above their historical average, providing a good buying opportunity. Why Corporate Bonds Offer Good Value Source: PC Bond, a business unit of TSX Inc.. Dec’07 Credit Spreads at “crisis levels”

14  Spreads have spiked to new highs at each major crisis, but have consistently returned to historical averages afterwards.  High-yield bonds remain attractive, and we have added new issues.  Selection is key. We do rigorous credit research on each issuer Dot-Com /11 & Enron +995 Wcom/Tyco/ Actg/Mgmt Beginning of Sub- Prime Mortgage Crisis US Bank Bailout Plan +817 Russian Crisis Bear Stearns Bailout US Auto Bailout Plan Gov’t Liquidity HY Inflows SpreadSpread Year Source: Merrill Lynch and CIBC Global Asset Management Inc. Why Corporate Bonds Offer Good Value US High Yield Spread

15 Key Statistics DEX Government Bond Index DEX Universe Bond Index CBCY Fund Benchmark* Average Yield 3.27%3.49%4.86% Macaulay Duration 6.22 years6.03 years5.35 years Average Term 8.98 years8.76 years7.78 years Credit Rating Investment Grade 100% 80% High Yield 0% 20% As at April 30, 2010 * 100% hedged into Canadian dollars Bond Benchmarks Renaissance Corporate Bond Capital Yield Fund

16 Breakeven Inflation (Nominal yield – Real yield) Source: PC-Bond, a business unit of TSX Inc. Food inflation scare Deflation scare Buy nominals Buy RRBs Think of breakeven inflation as a hurdle rate for RRBs The current level is a bit high It’s attractive for RRBs at < 1.8% Interest Rates: Real Return Bonds

Thank You This material was prepared for investment professionals only and is not for public distribution. It is for informational purposes only and is not intended to convey investment, legal, or tax advice. The user agrees that TSX Inc. and the parties from whom TSX Inc. obtains data do not have any liability for the accuracy or completeness of the data provided or for delays, interruptions or omissions therein or the results to be obtained through the use of this data. The user further agrees that neither TSX Inc. nor the parties from whom it obtains data make any representation, warranty or condition, either express or implied, as to the results to be obtained from the use of the data, or as to the merchantable quality or fitness of the data for a particular purpose. PC-Bond, a business unit of TSX Inc. Copyright © TSX Inc. All rights reserved. The information contained herein may not be redistributed, sold or modified or used to create any derivative work without the prior written consent of TSX Inc. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management. ™ CIBC Asset Management is a registered trademark of Canadian Imperial Bank of Commerce. ™Renaissance Investments and "invest well. live better." are registered trademarks of CIBC Asset Management Inc. © 2010 CIBC Global Asset Management Inc. operates under the name of CIBC Asset Management in Canada and is a member of the CIBC Group of Companies.