Thursday, November 16, 2017
MANAGING DIRECTOR: Scott Carrithers   PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Robert Brickson • Kevin Doyle • Lonnie Harris •  Mark Tranckino • Robert Schuyler  Tom Toburen • Josh Kiefer • Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer • Chuck Honeywell

US Treasury Market
Date	1 mo	3 mo	6 mo	1 yr	2 yr	3 yr	5 yr	7 yr	10 yr	20 yr	30 yr
11/9/17	1.07	1.24	1.36	1.53	1.63	1.75	2.01	2.20	2.33	2.59	2.81
11/10/17	1.06	1.23	1.37	1.54	1.67	1.79	2.06	2.27	2.40	2.67	2.88
11/13/17	1.07	1.24	1.37	1.55	1.70	1.82	2.08	2.27	2.40	2.67	2.87
11/14/17	1.06	1.26	1.40	1.55	1.68	1.81	2.06	2.26	2.38	2.64	2.84
11/15/17	1.08	1.25	1.39	1.55	1.68	1.79	2.04	2.21	2.33	2.58	2.77

                                                                                                                                         Source: U.S. Department of the Treasury, as of 11/15/17  

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                                             Extraordinary Redemption Provisions (ERP)

Call options attached to fixed income instruments are as common as the sun rising in the east and setting in the west.  Nothing unusual about that.  However, certain call options are less common and have the potential to cause a stir.  Extraordinary Redemption Provisions (ERPs) are one such variety.  ERPs allow the bond issuer a right to call its bonds due to an unusual, one-time occurrence, as specified in the offering statement.  The investors are paid accrued interest, and, either face value (par) or greater than face value (premium) depending on the call provision specifics.  Common causes include the destruction of the financed project (eg: fire, flood) or a change in the issuers’ taxable status.

In 2013 Build America Bond (BAB) investors awoke to another ERP trigger.  Federal budget sequestration caused subsidies paid to municipal issuers for debt service on BABs to be cut.  This was a material event which BABs issuers immediately seized upon to exercise ERPs.  The unfortunate consequence for some BAB holders was an immediate loss which resulted for investors with BABs booked at a premium and called at par.

A letter to House Minority Whip Steny Hoyer from Congressional Budget Office Director Keith Hall indirectly suggests that the current tax bill, if passed in present form, is likely to trigger more ERPs on BABs.  As was the case in 2013, this has the potential to cause losses for investors carrying premium BABs with par ERPs (eg: BABs on your books at a premium with a par ERP).  For investors with premium ERPs, the risk is greatly diminished. 

We strongly urge you to review your municipal holdings for structures with large subsidies that could be impacted. Call your CCB rep to assess your risk to par ERPs.

This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

•Not FDIC Insured •No Bank Guarantee •May Lose Value