Drew SimmonsVice President

Financial Strategies Group

dsimmons@gobaker.com

800.937.2257

The Baker Group

GoBaker.com

1601 NW Expressway

20th Floor

Oklahoma City, OK

800.937.2257

May 23, 2014

After much debate with a colleague on the appropriateness of the term “dinner” during your second meal of the day, I must admit defeat. Apparently, it is perfectly acceptable to have dinner at noon. As my father-in-law says, “The Internet Has Officially Killed the Beauty of Debate”. However silly that may sound, feel free to have your most significant meal of the day while reading this rare edition of Dinner with Drew. I must warn you however, it will be a far cry from the excellent musings of Lunch with Lester. As for my “dinner” plans, I intend to have a burger AND a hot dog, because…America!

As we head into the Memorial Day weekend, both equity and bond markets are slightly up. This morning, the UST 10yr remains near the 2.50% handle while the Euro slid 0.2% to $1.3627 amid speculation that the European Central Bank will boost stimulus efforts. Domestically, U.S. manufacturing PMI output is on the fastest pace in more than three years with continued payroll growth. However, overall labor markets continue to struggle with initial jobless claims 16K more than the survey, up nearly 30K this week to 326K.

The housing market received a much needed, albeit modest, boost over the last two weeks. According to Freddie Mac’s recent Primary Mortgage Market Survey 30yr mortgage rates fell to an 8 month low resulting in a 4% increase in refinance activity. Should this trend continue, we could see mortgage rates lower than the levels from last June. However, 30yr rates would need to breach 4% to materially impact origination volume. This morning’s New Home Sales report increased 6.4%, 8K higher than estimates at a 433K annualized rate. Yesterday’s Existing Home Sales also increased, up 1.3% to 4.65mm, although slightly less than the survey. However, the housing market is still in need for further improvement as overall housing turnover remains tepid as months-of-supply is just shy of 6 months, the highest since August 2012.

Next week is jam packed on the economic data front beginning with Durable Goods, S&P HPI, and PMI and rounding out with PCE, ISM and the University of Michigan Confidence Survey. Have a fun and safe Memorial Day Weekend!

Baker Market Update Week in Review

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Member: Financial Industry Regulatory Authority (FINRA) and Securities Investors Protection Corporation (SIPC)

Austin, TX | Birmingham, AL | Indianapolis, IN | Oklahoma City, OK | Salt Lake City, UT | Springfield, IL

Existing vs. New Home Sales with Housing Supply (in months) - Since 1999

Housing Months of Supply: 5.9Mo Existing Home Sales: 4.65mm

New Home Sales: 433m

Source: Bloomberg, LP

Cpn

* Interpolated

Index Current

Fed Funds

Primary Discount

2ndary Discount

Prime Rate

1 Month LIBOR

3 Month LIBOR

6 Month LIBOR

1 Year LIBOR

6 Month CD

1 Year CMT

REPO O/N

REPO 1Wk

CoF Federal

11th District CoF 0.97--

-- 0.35

0.11

0.35

10yr Am

0.42

7yr0.28

0.70

0.13

10yr

--

0.95

0.11

--

0.14

1.51

3.18

1.30

0.57

0.37

1.54 0.145

Mar-152.55

Jan-15

0.115

0.94

0.55 1.77

0.15

3.11 0.130

2.66--

5yr Am

3yr

0.69

0.24

0.96

0.06

0.23

0.53

Feb-15

2.24

Dec-14

Sep-14 0.105

0.17

0.11

0.27

4yr

-- 0.03 1.25

0.54

2.45

--

0.15

0.71

0.95

0.27

--

1.070.23

0.06

0.75

1.25

2.00

4.12

2.02 15yr

FHLB Fixed Advance Rates

Topeka0.25

1 Yr

0.03

7yr

1.382.07 2.64 3.163.08

(0.00)

7yr

6mo

0.08

2.29

0.84

0.39

2.06

June TBA MBS

5yr

0.51

2.20

2.72

15Yr -Yld/AL

0.46

2.15

0.34

1.63

2.20

1.67

(0.03)

(0.02)

3yr

May 23, 2014

Fixed Rate Market

C-Corp2

TaxN-Call

Swap

0.09

0.090.04

1.73

0.10

0.40

2.10

2.50

3.28

2Yr

Mty 3Mo

0.02

2.88

Treasury Market -- Historical

0.44

Maty Current1Wk Historical

1 Mo

1.67

0.05

1yr

2yr

US

0.01

6mo

AAA BQ Muni

AgencyChange

0.04

Maty

/AL

(0.02)

0.64

6 Mo

0.77

2.74

Agency Calls - Euro

1.74

0.500.46

1.89

0.11

1.64 10Yr

7Yr

5Yr 1.62

6mo 1Yr

0.41

0.86 0.85

0.32

10.4y5.5y

0.07

1 Yr6 Mo

0.80

-

2.82

2.30

1.64

0.320.75

0.33

0.320.75

3.44

Key Market Indices

3.39

2.52

3mo3mo

2.80

1.52 1.35

3Yr

2yr

2.390.89

0.12

3.78

0.25

4.02 3.81

1 Mo

30Yr -Yld/AL

0.090

0.10

--

1.81

3.25 4.540.04 3.83

Boston

S-Corp3

Muni

0.43

1.63

0.36

2.80

2Yr

0.90(0.03)

0.250.28

3.48

3.50

2.70

--

--

0.78

2.19

0.13

0.15

-- 3mo

3.00

9.6y

2.49 4.5y3.2y1Wk Historical

0.750.64

RateMaturity

Jun-14

0.087

0.100

5.5y

3.25

Maturity

0.19

0.0950.19

4.27

3.253.25 0.34

20yr

1.19

Dallas

0.41

(0.00) 2.24

2.50

2.79

Fed Fund Futures

Jul-14

3.06

3.19

1.25

0.25

0.75

1.25

0.18

6mo

3.5y

5.3y

0.25

0.21

Chicago

1.25

Change

3.71

3.8y 3.13

2.14

4.00 1.96

4.50 2.29

2.035yr

2.21

(0.00) 0.08

2.55

10yr

1.87

- -

5.0y 9.0y

3.22

3.22

8.6y

2yr

0.12

1.65

May-14

Nov-142.06

0.36

--0.09 3.34

0.28

Oct-14 0.105

0.120

0.160

0.98

1.43

0.82 0.90 0.84 0.89 0.96

1.03

3yr

10yr

3.25

5yr

30yr

--

0.32

1.23

1yr

1.68

Aug-14

2.30

2.80

2.330.270.15

Last, 0.73

Avg, 1.00

0.60

0.80

1.00

1.20

1.40

MBS Spreads FHLMC 15Yr TBA vs. 5Yr Treasuries

Baker Market Update

0.00

1.00

2.00

3.00

4.00Treasury Yield Curve - Current vs. 1-Month

5/23/2014 4/23/2014

Last, 2.13

Avg, 2.49

1.20

1.70

2.20

2.70

3.20

Municipal Spreads 10Yr BQ AAA Muni vs. 5Yr Treasuries

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Last, 0.09 Avg, 0.25

0.00

0.10

0.20

0.30

0.40

0.50

Agency Spreads 5Yr Bullet vs. 5Yr Treasuries

Type

FN 10y

FH/FN 15y

GN 15y

FH/FN 20y

FH/FN 30y

GN 30y

Type

FN 10y

FH/FN 15y

GN 15y

FH/FN 20y

FH/FN 30y

GN 30y

Index

CurrenciesJapanese Yen

Euro

Dollar Index

Major Stock IndicesDow Jones

S&P 500

NASDAQ

CommoditiesGold

Crude Oil

Natural Gas

Wheat

Corn

1 Call Agy = Maturity at left w/ a 1-Year Call at Par

2 Muni TEY (34% Fed, 0.5% COF)

3 S-Corp TEY Muni (39.6%, no TEFERA)

4 MBS Prepayments are provided by Bloomberg

1.3%

0.8%

--

05/27

Actual

05/21

05/27

05/27

--

--

--05/27

--05/27

11.8% 12.9%

May P 55.5

May 7.0

05/22

--

Date

05/22

4.59M

Continuing Claims 5/10 2675K

Apr 2.2%

Apr

--

--

Est.

20.0%

Existing Home Sales MoM

05/22

05/27

-0.2%

Durables Ex Transportation

Apr

2.9%

--

-0.6%

Existing Home Sales

05/23

05/22

05/22 8.0

3.0

May 23, 2014

8.8

13.49.3

3.3

4.0

11.3

11.6

Release

15.8

2.4

13.0

Durable Goods Orders

18.4

16.6 17.416.1

2.0

5.3

3.6

1.9

Apr 425K

0.4%

2.6%

16.4

3.0

5.3

10.1

5.1

3.5

4.52.5 4.0

297K

8.1

6.4

CPR Projections

7.1

2.0

7.905/22

3.6%

Weekly Economic Calendar

14.9

4.65M

05/22

6.9

3-Month CPR

MBS Prepayments4

5.1

13.3

3.7

13.7

2653K

Per.

384K

7.0

55.4

--

298K

34.0%

0.4%

Prior Revised

56.2 --

Leading Index

6 Mo

11.6

1Wk Historical

102.54

--

2.0% 13.4

8.0

1.36

Current

(0.01)

101.87

Chng 1 Yr

--

7.6

3.5%

1.0%

--

1.2%

10.4

1.29

Other Markets

7.0

--

55.0

16,502

80.37

4,157.0

7.4

1.8

6.0

-4.3

--

--

--

9.4

4,127.0

0.37

--

1,650.5

1,284.2 1,244.1

94.84

3,459.4

102.02

1 Mo

6.1

703.3

16,065

15.0

13.3 16.0

1.35

14.6

80.71

3,991.6

0.33

101.67

7.0

8.1

83.80

9.7

14.86.7

94.25101.44

1,391.80.6

1.38

2.02

662.0

18.7

4.26

15,295

Notes

U.S. to Sell USD29 Bln 7-Year Notes

Univ. of Michigan Confidence May F

05/30

--

05/30

05/30

05/30

--

1.2%

05/30 --

05/30

1.7%

0.2%

--

--

--

PCE Deflator YoY

Chicago Purchasing Manager

Apr

4.73

1Q S

4726.0%

05/30 --

05/30

--

05/29

05/30

--

82.5

MayISM Milwaukee

-- 63.0

479.3

Apr

1.1%

-7.4%

Apr

05/29

3.77

0.9%

81.8

05/30

PCE Core YoY

0.2%

--

May 60.5

--

Source for the aforementioned indices, rates, descriptions, & economic indicators: Bloomberg, LP. This report was printed as of: 05/23/2014 10:10AM

649.5

--

0.2%

104.04

0.00

--05/29 --Pending Home Sales YoY Apr -8.9%

--

--

Continuing Claims

Apr

PCE Core MoM

1.4%

PCE Deflator MoM

U.S. Fed To Purchase USD0.85-1.10 Bln Notes

0.5%

--

--

--

16,580

1,875.4

79.86

676.5

--

--

0.3%

1.3%

503.5 422.3

(0.02)

--

1,804.8

66.4

662.0--

4.40

89

0.1%

--

1,294.0

1,892.5

1.30%

--

3.1%

1.30%

-12.3

----

326K

05/29

1.0%05/29

2653K

3.4%Pending Home Sales MoM

05/29

----05/29

2655K

Initial Jobless Claims 5/24

1.3% --1Q S

GDP Price Index

05/28

05/28

5.0 --

-0.5% --

05/29

05/29

3.0%

0.9%

05/27

82.3 Consumer Confidence Index May 83.0 05/27

05/28

MayRichmond Fed Manufact. Index

MBA Mortgage Applications 5/23

U.S. to Sell USD35 Bln 5-Year Notes

----

Personal Consumption 1Q S

GDP Annualized QoQ

--

U.S. to Sell USD13 Bln 2-Year Floating Rate Notes Reopening

Markit US Composite PMI May P --

--

--

--

9.1 --

1Q -- --S&P/Case-Shiller US HPI YoY

11.7

11.3%

55.6

6.8

10.5

2.5

3.4

2.6

17.1

18.5

0.5%

--

4.7

14.27.9 17.8

5.0

9.3

4.5

-- 13.7

2.2%

10.3

10.0

4.8

2.2

15.9

1.5%

--

--

This Week & Next

3.5

15.3

3.5

15.1

Core PCE QoQ

1Q S

Apr 4.69M

--

Mar

05/27

05/27

MBA Mortgage Applications

Chicago Fed Nat Activity Index

Initial Jobless Claims

5/16

Apr

05/27

FHFA House Price Index MoM

House Price Purchase Index QoQ 1Q

Apr

05/27

05/27

2666K

1.0%

2.4%

2667K

MarS&P/CS 20 City MoM SA 0.7%

0.6%

New Home Sales

05/22

05/27

0.8%

--

05/27

Dallas Fed Manf. Activity May

--54.5

5/17

--

0.0%

310K

0.9%

-32.0%

326K

Apr

Apr

-0.3%

-0.1%

Cap Goods Orders Nondef Ex Air

Cap Goods Ship Nondef Ex Air

S&P/CS Composite-20 YoY Mar

AprPersonal Spending 0.2% --

Kansas City Fed Manf. Activity

Markit US Manufacturing PMI

U.S. to Sell USD31 Bln 2-Year Notes

--

5/17

315K

Apr

Personal Income

Markit US Services PMI May P

Apr -0.1% --

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Baker Market Update

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INTENDED FOR INSTITUTIONAL INVESTORS ONLY. The data provided in these reports is for informational purposes only and is intended solely for your private use. Information herein is believed to be reliable but The Baker Group LP does not guarantee its completeness or accuracy. Opinions constitute our judgment and are subject to change without notice. Past performance is not indicative of future results. The investments and strategies discussed here may not be suitable for all investors; if you have any doubts you should consult your Baker representative. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.