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NEWSLETTER CONTENT

MONTHLY INTEREST RATE COMMENTARY TABLE

Each month's newsletter features an update on interest rate trends and the most attractive relative values. Subscribers see the most recent table of interest rates, displayed in a format that allows them to compare yields on various types and qualities of fixed income securities. The table shows the change in rates for the month and year-to-date, as well as yield spreads. Spreads represent the differences in yield between the various security classes and 10-year U.S. Treasuries, at month-end and at the beginning of the year. The spreads are expressed in basis points (100 basis points = one percentage point). Changes in yields and spreads can help investors locate the best buying opportunities.

MONTHLY INTEREST RATE COMMENTARY TABLE

1 Rate for ten-year German government bonds.
2 Per Merrill Lynch.
3 Per the Income Securities Advisor Index.
4 Eligible for 15% tax rate. Yields shown at after tax % of US Treasuries rate.
5 Per Bloomberg. Yields shown at after tax % of US Treasuries rate.

EXPLANATION OF INTEREST RATE TABLE
The monthly table displays Current Yields for ten-year maturities of various debt instruments compared to the benchmark ten-year Treasuries. Note that preferred stocks often have no maturity or are callable in less than ten years.
The Net Change for the month- and year-to-date shows the change in basis points (100 basis points equals 1% in yield). A change in the U.S. Treasury rate is considered a change in the risk-free interest rate. The changes for the other securities reflect this same change plus whatever other risks investors perceive at the time.
The change in Spreads represents the difference between risk-free ten-year U.S. Treasuries and each security. A widening of spreads means an increased concern about credit quality. A sudden widening of spreads is considered a flight to quality. Spreads identify which securities are out of line with historical relationships and represent buying opportunities.
Since Municipal Bonds are tax exempt, their yields should be looked at in terms of their percentage of Treasury yields. Thus, if a muni yields 87% of Treasuries, it means it should be considered by anyone whose incremental tax rate is higher than the reciprocal of that number, or 13%. Hence, the higher the yield percentage, the lower your incremental tax needs to be, to make munis attractive or to look at them another way, more of their income is retained after taxes.