1. Financial Markets Update March 2014
RBC Capital Markets, LLC
Paul M. Clancy, Director
Higher Education Finance Group
March 21, 2014

2. Section 1 Interest Rates Update - US Treasury Market
- Municipal Market

3. Interest Rates Update
US Treasury Market

4. US Treasury Market Update
The Treasury Yield curve has similarly increased, as economic data has generally improved
U.S. Treasury Yield Curve Changes
February 2014
February 2013
Source: Bloomberg as of February 20, 2014

5. US Treasury Market Update
US Treasury Yields reflect a gradual increase since lows in 2012
5, 10 and 30 year UST Rates: 2007 to Present
Source: Bloomberg as of February 20, 2014

6. Interest Rates Update
Municipal Market

7. Municipal Market Update
The tax-exempt variable rate demand note market has seen increased demand and lower yields; bank letters of credit required. LOC charges ranging from 50 – 300 bps depending on borrower credit quality. LOC may be replaced with SBPA for top rated universities; SBPA charges ranging below 75 bps.
SIFMA vs. LIBOR
Current SIFMA: % (4 bps)
Current 1M LIBOR: % (15.5 bps)
Average SIFMA: % (54.6 bps)
Average 1M LIBOR: % (64.5 bps)
Source: Bloomberg as of February 20, 2014

8. Municipal Market Update
The “AAA” MMD has increased relative to 2013 yields, due to a variety of technical factors, including the discussion of quantitative easing by the Federal Reserve and bond fund flows
Municipal GO “AAA” MMD Yield Curve Changes
February 2014
February 2013
Year of Maturity
Source: Muni DSS

9. Municipal Market Update
53 Year Historical Perspective
% of Time in Each Range Since 1961
Bond Buyer 20 GO Index since January 1961
Today’s 4.44% level is lower than 76.20% of historical rates since January 1961
Source: Bloomberg as of February 20, 2014 Weekly yields and indexes released by the Bond Buyer. Updated every Thursday at approximately 6:00pm EST. 20 Bond General Obligation Yield with 20 year maturity, rated AA2 by Moody's Arithmetic Average of 20 bonds' yield to maturity.

10. Municipal Market Update
35 Year Historical Perspective
% of Time in Each Range Since 1979
Bond Buyer Revenue Index since September 1979
Today’s 5.27% level is lower than 72.22% of historical rates since September 1979
Source: Bloomberg as of February 20, 2014 Weekly yields and indexes released by the Bond Buyer. Updated every Thursday at approximately 6:00pm EST. 25 Revenue Bond Yield with 30 year maturity, rated A1 by Moody's and A+ by S&P Arithmetic Average of 25 bonds' yield to maturity.

11. Municipal Market Update
While long-term interest rates have risen, floating rates remain extremely low
SIFMA vs. Revenue Bond Index
524
bps
Currently, SIFMA is trading at 4 basis points – 524 basis points difference between long term debt
Source: Bloomberg as of February 20, 2014

12. Municipal Market Update
The recent decline of current “AAA” MMD reflects a decline in supply and recent bond fund inflows
“AAA” MMD January 1, 2007 to Present
Shift in “AAA” MMD Since Feb 2013
Maximum
Minimum
Current
2007
2008
2009
2010
2011
2012
2013
0.250%
0.790%
-0.900%
0.520%
-1.130%
-0.740%
+1.330%
January 1, 2007 to Present
Shift in 30-year "AAA" MMD
10 Year
20 Year
30 Year
4.860%
5.740%
5.940%
1.470%
2.100%
2.470%
2.500%
3.520%
3.840%
3.730%
3.407%
2.381%
Average
2.790%
2.490%
1.660%
Minimum
4.510%
4.270%
3.040%
Maximum
30 Year
20 Year
10 Year
Feb 1, 2013 to Present
Source: TM3, Thomson Reuters
10, 20, and 30 year “AAA” MMD shown to represent different average lives of municipal transactions
Rates as of February 21, 2014

13. Municipal Market Trends Update

14. Municipal Market Trends Update
The diminished supply has resulted in tightening credit spreads between highly rated issuers and lower rated issuers
Credit Spreads for Municipal Issuers
Source: Bloomberg as of February 20, 2014

15. Municipal Market Trends Update
RBCCM’s forecast for 2014 reflects diminished municipal supply relative to previous years
Muni Bonds: 2014 Issuance versus Redemptions
Source: US Municipal Notes dated December 2, 2013
Available at:

16. Municipal Market Trends Update
Municipal issuance in 2014 has lagged the historical average
Municipal Weekly Issuance: 2013 to Present
Average: $6.1 billion
Source: Thomson SDC

17. Municipal Market Trends Update
RBCCM anticipates 2014 issuance to decline by 12% relative to 2013
Proportion of Higher Education Issuance to Total Municipal Issuance by Par Amount
Source: US Municipal Notes dated December 2, 2013; Thomson SDC
Available at:

18. Municipal Market Trends Update
Municipal bond funds reflect modest inflows, further increasing demand for the limited supply
Muni Bonds: 2014 Issuance versus Redemptions
Source: Lipper Fund Flow Data

19. Higher Education Financing Trends

20. Higher Education Financing Trends
Public Capital Markets

21. Public Capital Markets
Traditional Fixed Rate Bonds
Tax-Exempt Rates
Taxable Rates
Bond Insurance
Build America Mutual (NR / AA / NR)
Assured Guaranty Municipal (A3 / AA- / NR)
Municipal Assurance Corporation (NR / AA- / NR)
Variable Rate Demand Bonds
Bank Letter-of-Credit or Standby Bond Purchase Agreement
Self Liquidity
Commercial Paper Programs
Floating Rate Notes
Longer terms; fewer moving parts; less market risk

22. Higher Education Financing Trends
Private Financial Arrangements

23. Public Capital Markets
Becoming more popular as commercial banks and investment banks are utilizing their own balance sheets to provide “credit” to clients
Direct Purchases (Commercial Banks and Investment Banks)
Floating Rate Notes
Flexible Drawdown Bonds
Lines of Credit
Traditional Commercial Bank Loans
Construction Loans
Permanent Project Funding
Fixed Rate Loan, Long Term, Short Term
Derivative Arrangements
Interest Rate Swaps
Rate Caps
Rate Collars

24. Higher Education Finance Group
Contact Information
Paul M. Clancy
Higher Education Finance Group
(215)

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