Fixed Income Monthly Market Update · • Robust labor market with a low unemployment rate of 3.6%...

© PFM 0

Fixed IncomeMonthly Market UpdateMay 2019

PFM Asset Management LLC

213 Market StreetHarrisburg, PA 17101

717.232.2723pfm.com

Prepared by the Portfolio Strategies Group

© PFM 1

Current Market Themes¥ U.S. economic conditions are characterized by:

• Above-trend GDP growth, with unusual contributing factors in Q1• Robust labor market with a low unemployment rate of 3.6%• Improving conditions in the housing market as mortgage rates have fallen• Potential imbalances, including a growing budget deficit, trade deficit, trade tensions, and challenges over border

security funding

¥ U.S. Treasury yields rose modestly in April and the yield curve steepened. But, yields remain lower on the year, and sharply lower from the cyclical peak levels from early November 2019.

¥ U.S. GDP grew at an annual rate of 3.2% in the first quarter of 2019, much stronger than expected. But, the strength was fueled by outsized growth in inventories, net exports, and state and local government expenditures. Consumer spending posted its 2nd lowest contribution in four years.

¥ The Federal Reserve reiterated its patient stance on monetary policy and held the fed funds target range at 2¼ to 2½%. Fed Chair Powell reaffirmed that the current “policy stance is appropriate,” remained optimistic on the economic outlook, and believed the underlying factors of keeping inflation low to be “transitory”.

¥ U.S equities continued their gains, with the S&P 500 and NASDAQ indices posting new record highs. Over the month, the S&P 500 advanced 4%, and is up 180% for the year, the strongest start to a year in decades. The Dow climbed 2.7% and the NASDAQ soared 4.8% in April.

¥ Global trade prospects remain in limbo, particularly as a trade and tariff war between the U.S. and China seemed imminent.

Commentary based on charts

© PFM 2

Current Economic Conditions

Source: Bloomberg, latest data available as of May 2019. SAAR is seasonally adjusted annualized rate. Wage growth is measured by average hourly earnings (YOY % change).

3.4%

2.2%

3.2%

-2%

0%

2%

4%

6%

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2014 2015 2016 2017 2018 2019 2020

U.S. Real GDP Forecast To Slow(QoQ, SAAR) Forecast

60

80

100

120

140

160

Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19

Consumer Confidence Remains High

3.2%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%


Wage Growth Has Improved

6.2%

5.4%5.0%

4.4%

3.9%3.6%

3%

4%

5%

6%

7%


Unemployment Rate Near 50-Year Lows

© PFM 3

2.6%

2.4%

1.7%

Personal Consumption,

0.8%

4.2%

3.4%

2.2%

3.2%

-4%

-2%

0%

2%

4%

6%

8%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

U.S. GDP Contributors and DetractorsPersonal Consumption Fixed Investment Private Inventories Net Exports Gov't Expenditures

First Quarter GDP Beats Expectations

Source: Bureau of Economic Analysis, as of May 2019. 1th quarter contributions are based on the 1st GDP growth estimate.

2014 2015 2016 2017 2018 2019

¥ 1st quarter GDP growth was higher than expected at 3.2%

¥ Personal consumption, which typically accounts for the majority of GDP growth, posted its 2nd lowest contribution in 4 years; business investment was also slower than in previous quarters

¥ Typically a detractor, net exports contributed positively to GDP as export growth increased and import growth slowed, likely to get ahead of potential new rounds of tariffs

¥ Inventory growth also contributed to GDP growth

© PFM 4

Retail Sales Up 1.6% in March, Largest Gain Since September 2017

Source (top): U.S. Census Bureau, as of 4/18/19. Source (bottom): Bloomberg.

retail+1.6%

auto and other motor vehicles+3.3%

clothing and clothing accessories+2.0%

furniture and home furnishings+1.7%

food and beverage stores+1.0%

restaurants and bars+0.8%

electronics and appliances+0.5%

0.1% 0.3%

1.2%

0.2%0.6%

-0.1% -0.2%

1.0%

0.0%

-1.6%

0.8%

-0.2%

1.6%

-2%

-1%

0%

1%

2%

Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19

Retail Sales

© PFM 5

But Consumer Expectations Are Weakening

Source: Bloomberg and Conference Board, as of 4/30/2019.

-100

-75

-50

-25

0

25

50

75

100

Apr '71 Apr '75 Apr '79 Apr '83 Apr '87 Apr '91 Apr '95 Apr '99 Apr '03 Apr '07 Apr '11 Apr '15 Apr '19

Consumer Assessments of Future Expectations Minus Views on Current Conditions

Expectations - Present Situation

Consumers optimistic about the future

Consumers less optimistic about the future

© PFM 6

3.0%

3.5%

4.0%

4.5%

5.0%

Apr-16 Apr-17 Apr-18 Apr-19

30 Year Fixed Rate Mortgage Average

Housing Market Rebounds on Lower Mortgage Rates

Source: Bankrate.com U.S. Home Mortgage 30 Year Fixed National Average; Bloomberg, as of 4/30/19.

425k

475k

525k

575k

625k

675k

725k

775k

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

Mar-16 Mar-17 Mar-18 Mar-19

(mill

ions

)

Housing SalesExisting Home Sales (LT, mil.) New Home Sales (RT, thous.)

¥ Decreasing mortgage rates may be a boon to the housing market

¥ According to the Federal Home Loan Mortgage Corporation, mortgage demand rose to the highest level since the fall of 2016 amid increasing refinancing activity

© PFM 7

Fed Indicates No Rate Hikes in 2019

Source: Federal Reserve and Bloomberg. Individual dots represent each Fed members’ judgement of the midpoint of the appropriate target range for the federal funds rate at each year-end. Fed funds futures as of 4/30/19.

0%

1%

2%

3%

4%

5%

Fed Participants’ Assessments of ‘Appropriate’ Monetary Policy

Mar-19 FOMC Projections

Mar-19 Median

Fed Funds Futures

2019 2020 2021

Fed expects no hikes in 2019History of Recent

Fed Rate Hikes

Dec ’18 2.25 - 2.50%

Sept ’18 2.00 - 2.25%

Jun ’18 1.75 - 2.00%

Mar ’18 1.50 - 1.75%

Dec ’17 1.25 - 1.50%

Jun ’17 1.00 - 1.25%

Mar ’17 0.75 - 1.00%

Dec ’16 0.50 - 0.75%

Dec ’15 0.25 - 0.50%

Longer Term

Market is pricing in a 67% chance of a rate cut

by year end

© PFM 8

“Core inflation unexpectedly fell… and as of March stood at 1.6%... We suspect that some transitoryfactors may be at work. Thus, our baseline view remains that, with a strong job market andcontinued growth, inflation will return to 2% over time and then be roughly symmetric around ourlonger-term objective.”

-Jerome Powell, Fed ChairMay 1, 2019

Fed Keeps Rates Steady at May Meeting

Source: Federal Reserve.

• Information received since the FOMC met in March indicates that thelabor market remains strong and that economic activity rose at asolid rate.

• Job gains have been solid, on average, in recent months, and theunemployment rate has remained low. Growth of household spendingand business fixed investment slowed in the first quarter.

• On a 12-month basis, overall inflation and inflation for items other thanfood and energy have declined and are running below 2 percent. Onbalance, market-based measures of inflation compensation haveremained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

May

1• In support of the Committee’s goals, the Committee decided to maintain the target range for the

federal funds rate at 2¼ to 2½ percent.

© PFM 9

-0.50%

-0.25%

0.00%

0.25%

0.50%

0.75%

Apr '18 Jun '18 Aug '18 Oct '18 Dec '18 Feb '19 Apr '19

But, the Market Expects a Rate Cut by Year End

Source: Bloomberg, as of 4/30/2019.

2019 Rate MovesPriced into the Futures Market

-0.23%

1

3

2

Hikes

1

2

Cuts

© PFM 10

Treasury Yields Continue to Fall


1.00%

1.25%

1.50%

1.75%

2.00%

2.25%

2.50%

2.75%

3.00%

3.25%

Apr '17 Oct '17 Apr '18 Oct '18 Apr '19

2-Year Treasury

1.00%

1.25%

1.50%

1.75%

2.00%

2.25%

2.50%

2.75%

3.00%

3.25%

Apr '17 Oct '17 Apr '18 Oct '18 Apr '19

10-Year Treasury

Highest since 2011

Highest since 2008

2 year: USGG2YR Index10 year: USGG10YR Index

© PFM 11

2.41%2.28%

2.50%

1.25%

1.50%

1.75%

2.00%

2.25%

2.50%

2.75%

3.00%

3.25%

3M

1Y

2Y

3Y

4Y

5Y

10Y

30Y

Yiel

d

Maturity

April 30, 2019

December 31, 2018

December 29, 2017

Yield Curve Remains Partially Inverted


U.S. Treasury Yield Curve

© PFM 12

0100200300400500600700

Corporate Yield Spreads1-5 Year A-AAA (OAS)

Market Indicators Not Pointing to an Imminent Recession


400600800

1,0001,2001,4001,600

Housing Starts (000s, saar)

-400

-200

0

200

400

600

Yield Curve (bps)10-year – 3-month

100k

200k

300k

400k

500k

600k

700k

Initial Jobless Claims

3035404550556065

ISM Manufacturing

-20%

-10%

0%

10%

20%

Index of Leading Indicators(SA, YoY)

© PFM 13

Leading Economic Index Improves for First Time in 5 Months

¥ The Leading Economic Index, a combination of various forward-looking economic metrics, improved in March after 5 months of declines. According to the Conference Board, the results “suggest that the expansion in economic activity should continue, but the pace of growth is likely to decelerate by year end.”

Source: LPL Research, Conference Board, latest data available as of May 3, 2019.

© PFM 14

Short-Term Yield Relationships Have Realigned

Source: Bloomberg and PFM Trading Desk, as of 4/30/2019. 3-Month CP yield spread based on A1/P1 rated CP index.

1.25%

1.50%

1.75%

2.00%

2.25%

2.50%

2.75%

3.00%

3.25%

Apr '18 Jul '18 Oct '18 Jan '19 Apr '19

2-year Treasury Effective Fed Funds 3-month CP

Prime MMF Assets: WMMFAMNA IndexGovt MMF Assets: WMMFAMAC Index

© PFM 15

Global Bonds Yielding Less Than 0% Hits $10 Trillion

Source: Bloomberg, as of 4/30/2019; Barclays.

$5

$6

$7

$8

$9

$10

$11

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19

Trill

ion

Negative Yielding Issues in the Bloomberg Barclays Global Bond Aggregate

© PFM 16

Yield Environment as of April 30, 2019

Source: Bloomberg BVAL yield curves for Treasury and Corporate. TradeWeb for Federal Agency yields. 3-month corporate yields from commercial paper; A-1+ for AA and A-1 for A. Yields are for indicative purposes only; actual yields may vary by issue.

Maturity Treasury FederalAgency

AA Corporate

A Corporate

BBBCorporate

3-Month 2.41% 2.41% 2.52% 2.64% 2.85%

1-Year 2.37% 2.30% 2.54% 2.65% 2.89%

2-Year 2.27% 2.29% 2.54% 2.68% 2.97%

3-Year 2.24% 2.26% 2.56% 2.70% 3.04%

5-Year 2.28% 2.29% 2.73% 2.88% 3.31%

10-Year 2.50% 2.66% 3.19% 3.41% 3.98%

Treasury Curve: YCGT0025 IndexAgency Curve: various sourcesAA Corporate Curve: BVSC0073 Index; 3mo CP: DCPA090Y Index; 6mo CP: DCPA180Y IndexA Corporate Curve: BVSC0074 Index; 3mo CP :DCPB090Y Index; 6mo CP: DCPB180Y IndexTaxable Municipal Curve: BVSC1074 Index

© PFM 17

Implied Forward Treasury Rates Show Little Expected Change

Maturity Current Yield 1-year Forward

2-year Forward

3-year Forward

5-year Forward

1 year 2.39% 2.15% 2.17% 2.32% 2.69%

2 year 2.27% 2.16% 2.24% 2.39% 2.69%

3 year 2.24% 2.21% 2.31% 2.48% 2.72%

5 year 2.29% 2.35% 2.46% 2.58% 2.76%

7 year 2.40% 2.45% 2.55% 2.65% 2.80%

10 year 2.51% 2.56% 2.64% 2.72% 2.84%

30 year 2.93% 2.97% 3.01% 3.06% 3.13%


© PFM 18

Agency and Supranational Yield Spreads Very Tight

¥ Federal agency bullet spreads remain compressed near historic lows, with some issues at the same yield as comparable Treasuries.

¥ The expected Q1 surge in supranational supply has not materialized keeping their yield spreads also remain narrow.

Source: Bloomberg, TradeWeb, as of 5/06/19.

-0.05%

0.00%

0.05%

0.10%

0.15%

1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Maturity (years)

Agency Yield Spreads

05/06/19 G Spreads 12 Mos Max

© PFM 19

Corporate Credit Spreads Return to Below Historical Averages

Source: Bloomberg, ICE BofAML Indices. OAS is option adjusted spread. As of 04/30/19.

0

100

200

300

400

500

600

700

Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Apr-13 Apr-15 Apr-17 Apr-19

Bas

is P

oint

s

Yield Spread (OAS) of 1-5 Year A-AAA Corporate Index

Post-Recession Avg = 87 bpsPre- Recession Avg = 79 bps

40

60

80

100

Apr '17 Apr '18 Apr '19

(bas

is p

oint

s)

© PFM 20

Asset-Backed Securities Present an Attractive Source of Relative Value


0

10

20

30

40

50

60

70

Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19

Bas

is P

oint

s

Yield Spread (OAS) on Asset-Backed Securities

AAA Auto ABS AAA Credit Card ABS

© PFM 21

Strong Fixed Income Returns Year-To-Date (1-5 Year Indices)

Source: ICE BofAML Indices. MBS and ABS indices are 0-5 year, based on weighted average life.

1.52%1.71%

0.82%

1.83%

1.16%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

U.S

. Tre

asur

y

Agen

cy

Agen

cy M

BS

ABS

(AAA

)

Cor

p (A

-AAA

)

1.38% 1.30%

1.94%

1.46%

2.55%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

U.S

. Tre

asur

y

Agen

cy

Agen

cy M

BS

ABS

(AAA

)

Cor

p (A

-AAA

)

2018 Returns 2019 YTD Returns(through 4/30/2019)

© PFM 22

Treasury Returns by Maturity

Source: ICE BofAML Indices.

0.89%1.19%

1.67%2.06%

2.41%2.64% 2.80%

0-1

Year

s

1-3

Year

s

3-5

Year

s

5-7

Year

s

7-10

Yea

rs

10-1

5 Ye

ars

15+

Year

s

2018 ReturnsYTD Returns

(through 4/30/2019)

1.92%1.58% 1.47% 1.43%

0.88%

0.14%

-1.74%

0-1

Year

s

1-3

Year

s

3-5

Year

s

5-7

Year

s

7-10

Yea

rs

10-1

5 Ye

ars

15+

Year

s

© PFM 23

Sector Our Investment Preferences Comments

C O M M E R C I A L P A P E R/ C D

• Commercial paper/negotiable CD spreads have narrowed modestly over the past few months. Short credit remains higher-yielding than some longer-dated Treasuries.

T R E A S U R I E S • Treasury Bill supply increased in March but slowed in April, putting downward pressure on rates.

• The 3-month to 10-year part of the yield curve briefly inverted in the past two months, renewing concerns about a possible recession. With a flat-to-inverted yield curve, there is little expected roll-down.

T-Bill

T-Note

F E D E R A L A G E N C I E S • Federal agency spreads remain very tight. The only value has been in certain new issue securities

• Given the flat yield curve, callable agencies are more attractive due to their incremental yield benefit.

Bullets

Callables

S U P R A N A T I O N A L S • In supranationals, we continue to wait for expected supply to drive spreads wider. Until then, we will generally remain on the sidelines.

C O R P O R A T E S • Corporate yield spreads have narrowed back significantly, settling in around longer-term, post-recession historical averages. While the sector is no longer “cheap”, we plan to maintain allocations.

• The corporate spread curve remains positively sloped, offering modest value for extending maturities.

Financials

Industrials

S E C U R I T I Z E D • The AAA-rated ABS sector continues to offer attractive incremental income vs. government alternatives and offers a defensive outlet to credit exposure.

• With an improving fundamental landscape, Agency MBS are an attractive alternative to other government sectors due to their incremental income potential.

Asset-Backed

Agency Mortgage-Backed

M U N I C I P A L S • Munis continue to be expensive vs. Treasuries amid limited supply.

Current outlook Outlook one quarter ago Negative Slightly Negative Neutral Slightly

Positive Positive

Fixed-Income Sector Outlook – May 2019

© PFM 24

Fixed-Income Index Returns

Source: ICE BofAML Indices. Returns greater than one year are annualized.

April 30, 2019 Effective Duration Yield YTD 1 Month 3 Month 1 Year 3 Years 5 Years

1-3 Year IndicesU.S. Treasury 1.79 2.33% 1.19% 0.20% 0.92% 3.08% 1.05% 0.99% Agency 1.61 2.34% 1.18% 0.21% 0.89% 3.15% 1.23% 1.12% Corp A-AAA 1.82 2.76% 1.92% 0.27% 1.24% 3.91% 1.89% 1.73% MBS (0 to 3 Years) 4.07 3.00% 1.86% (0.33%) 1.09% 3.87% 1.63% 1.57% ABS (0 to 3 Years) 1.11 2.69% 1.37% 0.28% 1.02% 3.24% 1.75% 1.45%

1-5 Year IndicesU.S. Treasury 2.54 2.32% 1.38% 0.16% 1.05% 3.66% 1.02% 1.27% Agency 1.91 2.31% 1.30% 0.19% 0.99% 3.45% 1.24% 1.33% Corp A-AAA 2.56 2.84% 2.55% 0.27% 1.55% 4.64% 2.03% 2.12% MBS (0 to 5 Years) 3.61 2.97% 1.94% (0.01%) 1.21% 3.86% 1.37% 1.86% ABS (0 to 5 Years) 1.34 2.71% 1.46% 0.29% 1.11% 3.43% 1.78% 1.56%

Master Indices (Maturities 1 Year and Greater)U.S. Treasury 6.31 2.46% 1.85% (0.32%) 1.38% 4.78% 1.00% 2.14% Agency 3.99 2.49% 1.83% 0.00% 1.45% 4.40% 1.56% 2.00% Corp A-AAA 7.09 3.33% 4.66% 0.21% 2.74% 6.18% 2.70% 3.40% MBS (0 to 30 Years) 4.52 3.16% 2.14% (0.12%) 1.29% 4.93% 1.71% 2.43% Municipals 6.67 2.46% 3.38% 0.42% 2.61% 6.08% 2.59% 3.64%

© PFM 25

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

Jan '18 Apr '18 Jul '18 Oct '18 Jan '19 Apr '19

S&P 500 Price Change

Stock Market Hits New Record High


2017 close

+25.3% since 12/24

-19.8%from Sept high

© PFM 26

U.S. Federal Budget Deficit Continues to Surge

Source: Bloomberg, as of 04/30/19. The fiscal year ends September 30, 2019.

-$439

-$587-$666

-$779

-1,600

-1,400

-1,200

-1,000

-800

-600

-400

-200

0

200

400

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

$ in

billi

ons

Fiscal Year (ending September 30th)

Fiscal Year

Fiscal Year To Date

-$691 FYTD

-$8962019 est.

© PFM 27

¥ The debt ceiling funds commitments that Congress has already approved and are obligated to pay for

¥ Congress suspended the debt limit from February 9, 2018 until March 1, 2019

• During this period, the unconstrained national debt rose from $20.5 trillion to $22.0 trillion – an all-time high

¥ The Treasury has now implemented “extraordinary measures” meant to free up room under the reinstated ceiling to allow the government to continue to fund day-to-day government operations

• Includes suspending the issuance of SLGS and investments in certain governmental retirement programs/trust funds

• These measures will allow the government to fund vital operations until sometime late summer

Sources: U.S. Department of the Treasury, Bipartisan Policy Center, Bloomberg, as of 4/30/19.

U.S. Federal Government Debt Ceiling Reinstated

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$22

$24

'91 '95 '99 '03 '07 '11 '15 '19

Trill

ions

U.S. Total Public Debt Outstanding

current debt ceiling: $22.0 trillion

© PFM 28

Geopolitical Risks Persist Around the Globe

North Korea tensions

South China Sea conflict

Russia – Ukraine tensions

Brexit, French protests, Italy’s budget woes, EU

fragmentation

Turkey currency crisis

U.S.- Iran Military

Escalation

US – Mexico border tensions

US – China trade tensions

Venezuela political crisis

Argentina currency crisis

US – Border Security Funding

Syria - US withdrawal

Indo-Pakistani Tensions

© PFM 29

New or Topical Material

© PFM 30

0

50

100

150

200

250

300

350

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Apr-17 Oct-17 Apr-18 Oct-18 Apr-19

Yiel

d

Flattening Yield Curve (10-Yr vs. 3-Mo)Spread 3-Month 10-Year

What We’re Watching…

Source: Bloomberg, yield spreads from ICE BofAML Indices, as of 04/30/19. Implied Fed rate hike probability, as of 04/30/2019.

5060708090

100110120130

Apr-17 Oct-17 Apr-18 Oct-18 Apr-19

Bas

is P

oint

s

1-5 Year Corporate Spreads

Spreads have narrowed as volatility has

subsided

Market Implied Fed Rate Hike Probability

Spreads widened on a stock market correction and concerns

about growth in Europe.

Target Rate

+9 bps

0%

20%

40%

60%

80%

100%

Jun '19 Sep '19 Dec '19

Impl

ied

Prob

abili

ty

Fed Meeting Dates

2.25-2.5%

2-2.25%

1.75-2%

1.5-1.75%

-1-1

-2-2 -3

Spreads widened dramatically due to

stock market volatility

00

0

-1

Maturity Treasury FederalAgency

AA Corporate

A Corporate

BBBCorporate

3-Month 2.41% 2.41% 2.52% 2.64% 2.85%

1-Year 2.37% 2.30% 2.54% 2.65% 2.89%

2-Year 2.27% 2.29% 2.54% 2.68% 2.97%

3-Year 2.24% 2.26% 2.56% 2.70% 3.04%

5-Year 2.28% 2.29% 2.73% 2.88% 3.31%

10-Year 2.50% 2.66% 3.19% 3.41% 3.98%

Yield Environment

© PFM 31

Housing Market

Source: Bloomberg, as of May 2019. SAAR is the seasonally adjusted annualized rate.

3,000

4,000

5,000

6,000

Mar '09 Mar '11 Mar '13 Mar '15 Mar '17 Mar '19

Existing Home Sales (000s, SAAR)

200

400

600

800


New Home Sales(000s, SAAR)

400

800

1,200

1,600


Housing Starts(000s, SAAR)

400

800

1,200

1,600


Building Permits(000s, SAAR)

Highest Since 2007

Highest Since 2007

Highest Since 2007 Highest Since 2007

Existing sales: ETSLTOTL IndexNew sales: NHSLTOT IndexStarts: NHSPSTOT IndexPermits: NHSPATOT Index

© PFM 32

Oil Up; Other Commodity Prices Mixed


$40

$50

$60

$70

$80

WTI Crude Oil (per barrel)

$1,150

$1,200

$1,250

$1,300

$1,350

$1,400

Gold (per oz.)

$8

$9

$10

$11

Soybeans (per bushel)

$12$14$16$18$20$22$24$26

Avocados (per 10 Kg)

© PFM 33

ISM Survey Indices Fall From Recent Strong Levels


45

50

55

60

65


ISM Manufacturing

45

50

55

60

65


ISM Non-Manufacturing

Highest Level Since Inception in 1997 Highest since 2004

© PFM 34

$0

$2

$4

$6

$8

$10

$12

$14

$16

(trill

ions

)

Total Household Debt

Mortgage HE Revolving Auto Loan Credit Card Student Loan Other

Consumer Debt Hits New Peak

Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax, as of Q4 2018

2008Q4 Total: $12.68 Trillion 2018Q4 Total: $13.54 Trillion$0.4

$1.5

$0.9

$1.3

$0.4

$9.1

© PFM 35

American Consumer Finances Are Strong

Source: Bloomberg, and Federal Reserve’s Financial Accounts of the United States - Z.1 (2018:Q4). Consumer balance sheet includes households and nonprofit organizations. Revolving credit includes overdraft plans on checking accounts and other loans without a fixed repayment schedule. All data, except the household debt service ratio is not seasonally adjusted.

Other Financial

Assets: 39%

Pension Funds: 21%

Deposits: 11%

Other tangible: 5%

Homes: 24%

Mortgages: 66%$0

$20

$40

$60

$80

$100

$120

$140

Total Assets Total Liabilities

Trill

ions

Consumer Balance Sheet - 4Q18

Total Assets: $120.4tn.

Total Liabilities: $16.1tn.

Other non-revolving: 1% Revolving: 7%Auto loans: 7%Other liabilities: 9%Student debt: 10%

4Q07:13.2%

4Q18:9.9%

9%

10%

11%

12%

13%

14%

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Deb

t Pay

men

ts a

s %

of

Dis

posa

ble

Per

sona

l Inc

ome

Household Debt Service Ratio

$0

$20

$40

$60

$80

$100

$120

Trilli

ons

Household Net Worth

© PFM 36

U.S. Federal Budget Deficit And Interest Cost Projected To Soar

Sources: Bureau of Fiscal Service, Congressional Budget Office. Data as of May 2019.

+$70B+26%

-$1,600

-$1,400

-$1,200

-$1,000

-$800

-$600

-$400

-$200

$0

$200

$400

1990 1995 2000 2005 2010 2015 2020 2025

Bill

ions

Federal Budget Deficit

CBO Forecast

2019:-$896 B

2025:-$1,189 B

$0

$100

$200

$300

$400

$500

$600

$700

$800

1990 1995 2000 2005 2010 2015 2020 2025

Bill

ions

U.S. Treasury Annual Interest Cost

CBO Forecast

2019:$382 B

2025:$721 B

© PFM 37

Archive

© PFM 38

Unemployment Rate Drops to 49-Year Low in April¥ The U.S. economy added 263,000 jobs in April, beating expectations of 190,000

• The unemployment rate edged lower to from 3.8% in March to 3.6% in April.• Average hourly earnings YoY remained at 3.2% in April, still near cyclical highs.

¥ So far in 2019, job gains have averaged a solid 205,000.

Source: Bloomberg, as of May 2019.

0k

100k

200k

300k

400k

Apr '14 Apr '15 Apr '16 Apr '17 Apr '18 Apr '19

Monthly Change in Nonfarm PayrollsNonfarm Payrolls 12-Month Moving Average

6.2%

5.4%5.0%

4.4%

3.9%

3.6%3%

4%

5%

6%

7%

8%


Unemployment Rate

Nonfarm payrolls: NFP TCH IndexUnemployment rate: USURTOT Index

© PFM 39

80%

81%

82%

83%

84%

85%

62%

63%

64%

65%

66%

67%

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Apr

-12

Apr

-13

Apr

-14

Apr

-15

Apr

-16

Apr

-17

Apr

-18

Apr

-19

Prim

e-ag

e

Tota

l

Labor Force Participation Rate

Employment Indicators

Source: Bloomberg, most recent data as of May 2019. BLS defines “prime-age” as individuals ranging from 25 – 54 years of age.

Prime Age (rt)

Total (lt)

3.2%

1.0%

2.0%

3.0%

4.0%

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Apr

-12

Apr

-13

Apr

-14

Apr

-15

Apr

-16

Apr

-17

Apr

-18

Apr

-19

Average Hourly Earnings(YoY %)

33.5

34.0

34.5

35.0

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Apr

-12

Apr

-13

Apr

-14

Apr

-15

Apr

-16

Apr

-17

Apr

-18

Apr

-19

Total Private Sector Average Weekly Hours

17.1%

7.3%

4%

8%

12%

16%

20%

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Apr

-12

Apr

-13

Apr

-14

Apr

-15

Apr

-16

Apr

-17

Apr

-18

Apr

-19

U-6 Underemployment Rate

LFPR Total: PRUSTOT IndexLFPR Prime-age: PRUSQNTS IndexU-6: USUDMAER IndexAHE: AHE YOY% IndexAvg Weekly hours: AWH TOTL Index

© PFM 40

Employment and Average Hourly Earnings By Industry

Source: Bloomberg, as of 04/30/2019. Employment and average hourly earnings by industry, seasonally adjusted. Bubble size represents employment level in thousands.

Construction

Manufacturing

Wholesale trade

Retail trade

Professional & business services

Education & health services

Leisure & hospitality

$10

$15

$20

$25

$30

$35

$40

$45

$50

-40 -20 0 20 40 60 80 100

Aver

age

Hou

rly E

arni

ngs

Employment Change MoM (thousands)

Natural Resources & Mining Construction ManufacturingWholesale trade Retail trade Transportation and warehousingUtilities Information Financial and InsuranceProfessional & business services Education & health services Leisure & hospitalityOther services

Total private: $27.77

© PFM 41

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

3M

1Y

2Y

3Y

4Y

5Y

10Y

30Y

Yiel

d

Maturity

April 30, 2019

December 31, 2018

September 28, 2018


Yield Curve Remains Partially Inverted

Tenor 04/30/19 Year-End12/31/18

Year-End09/28/2018

3 month 2.41% 2.35% 2.20%

1 year 2.37% 2.60% 2.56%

2 year 2.27% 2.49% 2.82%

3 year 2.24% 2.46% 2.88%

5 year 2.28% 2.51% 2.95%

10 year 2.50% 2.68% 3.06%

30 year 2.93% 3.01% 3.21%

U.S. Treasury Yield Curve

Inversion

© PFM 42© PFM 42© PFM 42

-600

-400

-200

0

200

400

600

1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

Yiel

d Sp

read

(bps

)

10-year to 3-month US Treasury Yield Spread

Yield Curve Inverts

-200

-150

-100

-50

0

50

100

150

200

1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

Yiel

d Sp

read

(bps

)

5-year to 2-year US Treasury Yield Spread

Yield Curve Inverts

Yield Curve Inversions Historically Precede Recessions


© PFM 43

Yields Fall So Far in 2019


0.98%0.86%

0.60%0.49%

0.30% 0.25% 0.28% 0.27%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

3-month 12-month 2-Year 3-Year 5-Year 7-Year 10-Year 30-Year

2018 Change (12/31/17- 12/31/18)

0.06%

-0.22% -0.22% -0.22% -0.23% -0.20% -0.18%

-0.09%

-0.40%

-0.20%

0.00%

0.20%

3-month 12-month 2-Year 3-Year 5-Year 7-Year 10-Year 30-Year

U.S. Treasury Yields2019 YTD Change(12/31/18-04/30/19)

© PFM 44

The Fed’s Latest (March) Economic Projections Less Optimistic

Source: Federal Reserve, as of March 2019. Green denotes an improved projection in March compared to December, red for lower projection.

Indicator2019 2020 2021 Longer run

Dec. Mar. Dec. Mar. Dec. Mar. Dec. Mar.

Real GDP (YoY) 2.3% 2.1% 2.0% 1.9% 1.8% 1.8% 1.9% 1.9%

Unemployment Rate 3.5% 3.7% 3.6% 3.8% 3.8% 3.9% 4.4% 4.3%

PCE Inflation (YoY) 1.9% 1.8% 2.1% 2.0% 2.1% 2.0% 2.0% 2.0%

Core PCE (YoY) 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% - -

Federal FundsRate (Median) 2.9% 2.4% 3.1% 2.6% 3.1% 2.6% 2.8% 2.8%

© PFM 45

$0

$1

$2

$3

$4

$5

(trill

ions

)

Fed's Total Balance Sheet Assets

Treasury Mortgage-Backed Federal Agency Other

QE3QE2

Fed’s Balance Sheet Normalization Plan

¥ The Fed has been reducing their balance sheet by about $50 billion per month by letting existing holdings of Treasuries and agency MBS roll off.

• Starting in May, the Fed will reduce that amount by $15 billion, concluding the reduction of the holdings in the System Open Market Account (SOMA) at the end of September 2019.

• After that, it will shift, in part, reinvestment from principal payments on agency MBS into Treasuries but keep the overall balance sheet size stable.

Source: PFM, Bloomberg, The Federal Reserve, FRB of St. Louis, as of 04/24/19. Projection is based on maturity schedule of Fed’s Treasury holdings and caps on reinvestments as described in FOMC’s June 2017 addendum to the Policy Normalization Principles and Plans. Dec 2017 refers to peak before normalization.

Projection(in billion) Treasury

HoldingsMBS

HoldingsTotal Fed

Assets

Dec 2017(Peak) $2,454 $1,765 $4,449

Apr 2019 $2,154 $1,583 $3,928

Dec 2019(Projected) $1,997 $1,423* $3,611

Difference:3/19-12/19 $(157) $(160)* $(317)

*MBS projection assumes that principal payments will always exceed the cap over the horizon period (i.e. the monthly run off amount is equal to the cap). The calculated difference equals projected value minus current standing.

© PFM 46

Fed Balance Sheet Normalization

¥ During the March meeting, the Fed also announced changes to their ongoing balance sheet reduction measures, which

have been part of their monetary policy normalization plan since 2017

• The Fed has been reducing their balance sheet by about $50 billion per month by letting existing holdings of

Treasuries and agency MBS roll off

• Starting in May, the Fed will reduce that amount by $15 billion, concluding the reduction of the holdings in the

System Open Market Account (SOMA) at the end of September 2019

¥ After that, it will shift, in part, reinvestment from principal payments on agency MBS into Treasuries but keep the overall

balance sheet size stable

© PFM 47

The Federal Reserve Board and Federal Open Market Committee (FOMC)

Source: The Federal Reserve.

JeromePowell(Chair)

Board of Governors

Regional Fed Presidents(2019 FOMC voters) John

Williams(New York)

EstherGeorge

(Kansas City)

EricRosengren

(Boston)

Charles Evans

(Chicago)

James Bullard

(St. Louis)

RichardClarida

(Vice Chair)

LaelBrainard

RandalQuarles

Michelle Bowman

Vacant Vacant

© PFM 48

Credit Spreads Narrow and Remain Low by Historical Standards


20

40

60

80

100

Apr '12 Apr '13 Apr '14 Apr '15 Apr '16 Apr '17 Apr '18 Apr '19

Bas

isi P

oint

s

Yield Spread (OAS) of 0-5 Year AAA Asset-Backed Securities Index

0

50

100

150

200

250

Apr '12 Apr '13 Apr '14 Apr '15 Apr '16 Apr '17 Apr '18 Apr '19

Bas

is P

oint

s

Yield Spread (OAS) of 1-5 Year Investment Grade Corporate Index

© PFM 49

Global Interest Rates Remain Low


-0.79% -0.59% -0.56% -0.57% -0.34% -0.36% -0.16%

0.48%0.76%

1.32%1.56%

2.27%

-1%

0%

1%

2%

3%

Sw

itzer

land

Ger

man

y

Fran

ce

Sw

eden

Spa

in

Por

tuga

l

Japa

n

Italy

U.K

.

Aus

tralia

Can

ada

U.S

.

2-Year Bond Yields

-0.32%-0.05%

0.01%0.30% 0.37%

1.00% 1.11% 1.18%

1.71% 1.79%

2.50% 2.55%

-1%

0%

1%

2%

3%

Sw

itzer

land

Japa

n

Ger

man

y

Sw

eden

Fran

ce

Spa

in

Por

tuga

l

U.K

.

Can

ada

Aus

tralia

U.S

.

Italy

10-Year Bond Yields

© PFM 50

Global Central Bank Policies Remain Generally Accommodative¥ The European Central Bank (ECB) sees rates “at their present levels at least through the end of 2019”. This extends the previous

soft end date of summer and suggests that monetary policy will remain loose for that much longer.

¥ The Bank of Japan (BOJ) also kept its ultra-loose monetary policy unchanged with a target short-term rate of -0.1% and 10-year rate of 0%. While the monthly bond purchases were maintained, BOJ governor expressed willingness to extend the trading ranges to keep implementing the yield curve control policy. Sluggish inflation remains a major concerns with the BOJ cutting itsforecast, indicating loose monetary conditions to persist for an extended period.


-1%

0%

1%

2%

3%

4%

5%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Central Bank Policy RatesECB BoJ

$0

$1

$2

$3

$4

$5

$6

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

(trill

ions

)

Central Bank Balance Sheet AssetsECB BoJ

Fed rate: FDTRFTRL IndexECB rate: EURR002W IndexBoJ rate: MUTKCALM IndexFed B/S: FARBAST IndexECB B/S: EBBSTOTA IndexBoJ B/S: BJACTOTL Index

© PFM 51

IMF Cuts Global Growth Forecasts Again

Source: IMF’s World Economic Outlook (WEO) April 2019, January’s Update, and WEO October 2018.

0% 1% 2% 3% 4% 5% 6% 7%

Emerging Markets

Developed Markets

UK

France

Germany

Japan

China

U.S.

World

IMF Growth Forecasts for CY 2019

Oct-18Jan-19Apr-19

© PFM 52

U.S. Equities Continue to Rebound

Source: Bloomberg, as of 04/30/19. Total Return is net of dividends.

-20%

0%

20%

40%

60%

80%

100%

120%


Cumulative 5-Year Total Return in Key U.S. Equity IndicesS&P 500 Dow Jones NASDAQ

Total Return as of 04/30/19

Index Year-to-Date 5-Year(Annualized)

S&P 500 18.2% 11.6%

Dow Jones 14.8% 12.6%

NASDAQ 22.4% 15.9%

© PFM 54

Oil Markets

*Forecasts are from the February 2019 EIA Short-Term Energy Outlook and start in 2019. U.S. crude oil inventories include the Strategic Petroleum Reserve. Active rig count includes both natural gas and oil rigs. WTI crude prices are monthly averages in USD using continuous contract NYM prices. Production and consumption

denoted in million barrels per day. Data as of 04/30/2019.

0

500

1,000

1,500

2,000

2,500

900

950

1,000

1,050

1,100

1,150

1,200

1,250

2014 2015 2016 2017 2018 2019

U.S. Crude Oil Inventories and Rig CountMillion barrels, number of active rigs

Inventories (Incl. SPR) Active rigs

Production 2015 2016 2017 2018 2019* Growth since '15

U.S. 15.1 14.8 15.7 17.9 19.8 29.8%

OPEC 36.4 37.4 37.3 37.3 35.9 2.4%

Global 97.0 97.4 98.0 100.5 101.6 5.1%

Consumption

U.S. 19.5 19.7 20.0 20.4 20.8 7.6%

China 12.4 12.8 13.4 13.9 14.3 16.2%

Global 95.9 96.9 98.5 99.9 101.4 6.5%

Inventory 1.10 0.45 1.33 0.56 0.17

$0

$20

$40

$60

$80

$100

$120

$140

$160

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Price of OilWTI crude, nominal prices, USD/barrel

© PFM 55

65

70

75

80

85

90

95

100

105

Apr-0

3

Apr-0

5

Apr-0

7

Apr-0

9

Apr-1

1

Apr-1

3

Apr-1

5

Apr-1

7

Apr-1

9

U.S. Dollar Index

-$80-$70-$60-$50-$40-$30-$20-$10

$0

Jan-

03

Jan-

05

Jan-

07

Jan-

09

Jan-

11

Jan-

13

Jan-

15

Jan-

17

Jan-

19

U.S. Trade Balance (Billions)

Factors Impacting the U.S. Dollar


-1%0%1%2%3%4%5%6%

Apr

-03

Apr

-05

Apr

-07

Apr

-09

Apr

-11

Apr

-13

Apr

-15

Apr

-17

Apr

-19

Sovereign Interest Rate DifferentialU.S. Treasury Germany Japan United Kingdom

© PFM 56

2018 U.S. Trade Deficit Jumps To Its Highest Level In Ten Years

Source: Bloomberg, as of 01/31/19. The fiscal year ends September 30, 2019.

-$709

-$552

-$621

-$800

-$700

-$600

-$500

-$400

-$300

-$200

-$100

$0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

(Bill

ions

)

Trade Deficit in Goods and Services

-$832-$807

-$891

-$1,000

-$900

-$800

-$700

-$600

-$500

-$400

-$300

-$200

-$100

$0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

(Bill

ions

)

Trade Deficit in Goods

© PFM 57

¥ Farmers are carrying the highest debt levels in over 30 years

¥ The trade war with China has hurt agricultural prices; soybean prices are approximately half of their 2012 prices

¥ In 2018, subsidies went into effect to ameliorate the negative consequences of the tariffs on farmers (soybean and hog exporters in particular); these subsidies are cut in the Administration's 2020 budget proposal

Source: Bloomberg, USDA, macrotrends.net.

Agricultural Debt at Highest Level Since 1984Farm Debt-to-Income Levels

14%

12%

10%

8%

6%

4%

2%

0%

6.5%

$8.51

$8

$10

$12

$14

$16

2014 2015 2016 2017 2018 2019

Soybean Prices (USD/bushel)

© PFM 58

2-Year U.S. Treasury Yield


2.97%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19

Average: 0.89%

42-year low: 0.15%

2.27%

© PFM 59



3.09%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%


Average: 1.69%

56-Year Low: 0.54%

2.28%

© PFM 60



3.24%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%


Average: 2.50%

56-Year Low: 1.36%

2.50%

© PFM 61

Key Inflation Indicators

Source: Bloomberg, most recent data as of May 2019. PCE, CPI,, PPI, hourly earnings, gold, oil, and euro are on a year-over-year basis.

Indicator 2016 2017 2018 Current YOY

PCE – Core 1.9% 1.6% 1.9% 1.6%

PCE – Aggregate 1.7% 1.8% 1.8% 1.5%

CPI – Core 2.2% 1.8% 2.2% 2.1%

CPI – Aggregate 2.1% 2.1% 1.9% 2.0%

PPI – Core 1.7% 2.2% 2.7% 2.4%

PPI – Aggregate 1.7% 2.5% 2.5% 2.2%

Gold 8.1% 13.5% -1.6% -2.4%

Crude Oil (WTI) 45.0% 12.5% -24.8% -6.8%

US$ per Euro -3.2% 14.1% -4.5% -7.1%

Avg. Hourly Earnings 2.7% 2.7% 3.3% 3.2%

© PFM 62

1-3 Year Index Returns



U.S. Treasury 1.79 2.33% 1.19% 0.20% 0.92% 3.08% 1.05% 0.99%

Agency 1.61 2.34% 1.18% 0.21% 0.89% 3.15% 1.23% 1.12%

Non-callable 1.71 2.36% 1.19% 0.21% 0.90% 3.16% 1.19% 1.10%

Callable 1.20 2.24% 1.13% 0.21% 0.85% 3.10% 1.35% 1.21%

U.S. Treasury/Agency 1.78 2.33% 1.19% 0.20% 0.92% 3.09% 1.06% 1.00%

Corp A-AAA 1.82 2.76% 1.92% 0.27% 1.24% 3.91% 1.89% 1.73%

Corp AAA 1.98 2.52% 1.47% 0.22% 1.05% 3.42% 1.40% 1.38%

Corp AA 1.78 2.68% 1.78% 0.25% 1.14% 3.83% 1.74% 1.60%

Corp A 1.83 2.79% 1.99% 0.28% 1.28% 3.95% 1.95% 1.78%

Corp BBB 1.81 3.11% 2.54% 0.40% 1.78% 4.46% 2.60% 2.19%

Corp/Govt 1.80 2.49% 1.46% 0.24% 1.07% 3.40% 1.37% 1.25%

MBS 0 - 3 4.07 3.00% 1.86% (0.33%) 1.09% 3.87% 1.63% 1.57%

ABS 0 - 3 1.11 2.69% 1.37% 0.28% 1.02% 3.24% 1.75% 1.45%

Corp/Govt/Mtge 1.81 2.49% 1.47% 0.24% 1.07% 3.41% 1.37% 1.26%

Supranationals 1.86 2.40% 1.30% 0.21% 1.02% 3.44% 1.34% 1.20%

© PFM 63

1-5 Year Index Returns



U.S. Treasury 2.54 2.32% 1.38% 0.16% 1.05% 3.66% 1.02% 1.27%

Agency 1.91 2.31% 1.30% 0.19% 0.99% 3.45% 1.24% 1.33%

Non-callable 2.08 2.36% 1.32% 0.18% 1.01% 3.45% 1.21% 1.32%

Callable 1.30 2.13% 1.22% 0.19% 0.92% 3.44% 1.35% 1.37%

U.S. Treasury/Agency 2.52 2.32% 1.37% 0.16% 1.05% 3.66% 1.04% 1.27%

Corp A-AAA 2.56 2.84% 2.55% 0.27% 1.55% 4.64% 2.03% 2.12%

Corp AAA 2.75 2.56% 1.93% 0.21% 1.24% 4.25% 1.45% 1.77%

Corp AA 2.40 2.71% 2.18% 0.20% 1.29% 4.37% 1.81% 1.96%

Corp A 2.60 2.89% 2.68% 0.30% 1.64% 4.73% 2.11% 2.18%

Corp BBB 2.68 3.27% 3.58% 0.51% 2.41% 5.37% 2.99% 2.64%

Corp/Govt 2.55 2.54% 1.87% 0.23% 1.32% 4.08% 1.47% 1.60%

MBS 0 - 5 3.61 2.97% 1.94% (0.01%) 1.21% 3.86% 1.37% 1.86%

ABS 0 - 5 1.34 2.71% 1.46% 0.29% 1.11% 3.43% 1.78% 1.56%

Corp/Govt/Mtge 2.69 2.60% 1.87% 0.20% 1.31% 4.06% 1.46% 1.64%

Supranationals 2.52 2.50% 1.71% 0.23% 1.30% 4.23% 1.52% 1.56%

© PFM 64

World Equity Index Returns

Source: Bloomberg. Returns greater than one year are annualized.

April 30, 2019 Country MTD QTD YTD 1 Month 3 Month 1 Year 3 Years 5 Years

AmericasDow Jones Industrial Average United States 2.7% 2.7% 14.8% 2.7% 7.0% 12.6% 17.1% 12.6% S&P 500 Index United States 4.0% 4.0% 18.2% 4.0% 9.5% 13.5% 14.9% 11.6% NASDAQ Composite Index United States 4.8% 4.8% 22.4% 4.8% 11.5% 15.8% 20.6% 15.9% Russell 2000 Index United States 3.4% 3.4% 18.5% 3.4% 6.5% 4.6% 13.6% 8.6% S&P/TSX Composite Index Canada 2.9% 2.9% 18.8% 2.9% 5.4% 4.8% 6.7% 1.4% BRAZIL IBOVESPA INDEX Brazil 0.0% 0.0% 7.8% 0.0% (8.4%) (1.0%) 16.2% 1.2%

EuropeEuro Stoxx 50 Pr Europe Union 5.4% 5.4% 16.0% 5.4% 9.9% (4.6%) 8.2% 1.2% FTSE 100 INDEX United Kingdom 2.7% 2.7% 14.6% 2.7% 7.4% (2.3%) 6.2% 0.6% CAC 40 INDEX France 4.9% 4.9% 16.5% 4.9% 10.4% (3.1%) 10.9% 3.4% DAX INDEX Germany 7.1% 7.1% 14.6% 7.1% 8.2% (9.3%) 6.4% 0.8% IBEX 35 INDEX Spain 4.5% 4.5% 11.5% 4.5% 4.6% (7.3%) 5.5% (1.9%)FTSE MIB INDEX Italy 3.3% 3.3% 18.2% 3.3% 9.2% (12.6%) 8.6% (0.9%)AEX-Index Netherlands 5.0% 5.0% 16.4% 5.0% 9.1% (1.3%) 12.2% 6.5% OMX STOCKHOLM 30 INDEX Sweden 6.6% 6.6% 15.5% 6.6% 8.4% 2.0% 5.3% 0.2% SWISS MARKET INDEX Switzerland 2.0% 2.0% 14.8% 2.0% 8.9% 10.0% 8.4% 3.2%

Asia / PacificNIKKEI 225 Japan 4.2% 4.2% 11.1% 4.2% 5.5% (1.1%) 11.2% 9.4% HANG SENG INDEX Hong Kong 2.3% 2.3% 15.2% 2.3% 6.7% (0.2%) 15.9% 9.7% S&P/ASX 200 INDEX Australia 1.7% 1.7% 14.1% 1.7% 6.4% 4.6% 9.9% 3.3%

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Disclosures

This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities.

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