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MPSIF

MPSIF. Fixed Income November 3, 2003. October in Review. October 1 October 31 Change Dow Jones 9469.20 9801.12 +3.5% S&P 1018.22 1050.71 +3.2% Nasdaq 1832.25 1932.21 +5.5% 10 Year Note 3.94 4.30 +36bp $ / Euro 1.172 1.159 +1.1%

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MPSIF

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  1. MPSIF Fixed Income November 3, 2003

  2. October in Review October 1October 31Change • Dow Jones 9469.20 9801.12 +3.5% • S&P 1018.22 1050.71 +3.2% • Nasdaq 1832.25 1932.21 +5.5% • 10 Year Note 3.94 4.30 +36bp • $ / Euro 1.172 1.159 +1.1% • Yen / $ 110.67 109.96 +0.1% • Fed Fund Fut (Apr) 0.96 1.135 +70%

  3. Jobless No Longer? • October Payrolls • November extrapolation? • Reinforced by Claims • 4 weeks now at roughly 390,000 • Below critical 400,000 level

  4. This Week • ISM to reinforce Chicago PMI? • Claims: Do we hear 5? • Payrolls, payrolls, payrolls!

  5. Yield Curve 2003

  6. Outlook for Rates • Accommodative Fed • Risks once again focus on deflation • Asset Reallocation • Economic engine ‘Primed’ • Supply • Geopolitical Wild-Card • Flight to quality, Consumer confidence “Tethered” short end, steeper curve

  7. Concerns • One month aberration in payrolls • Continued jobless recovery • Productivity • Geopolitical • Which “V” word?

  8. Fixed Income Overview • 10 year was 3.97% at our 4/21 meeting. Current 4.30% level represents a 33bp widening. • After a turbulent summer, 10 yr has continued trend upward in yield. • Mortgages no longer as attractive, as summer events showed risks of being ‘short vol’. • Yield not as easy to come by • High Yield, Corporates have tightened significantly throughout 2003.

  9. Performance of Funds6 months, 4/21 – 10/21

  10. Current Holdings and trade ideas • CMHYX: High Yield Corporates LQD: Investment Grade Corporates • IEF: Treasuries, 7-10 year SHY: Treasuries, 1-3 year • MGDIX: Manager’s Mortgage Fund PTMDX: PIMCO Mortgage Fund • VSGBX: Vanguard Agency Fund

  11. Sector Weights vs. Index

  12. Actions taken to date: • Agreed to move to a short duration position versus index • Agreed to liquidate High Yield holdings, as they do not comply with our investment guidelines. Actions to be taken: • Research allocating money to a foreign bond fund. • More research into purchasing individual bonds ($5000/30?) • Better alternative funds • Research minimum risk portfolio using mutual fund return regressions

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