BMO CAPITAL MARKETS RESEARCH Fixed Income Quarterly second quarter 2014 THIS REPORT WAS PREPARED BY ANALYSTS EMPLOYED BY BMO NESBITT BURNS INC., AND WHO ARE NOT REGISTERED AS RESEARCH ANALYSTS UNDER FINRA RULES. FOR DISCLOSURE STATEMENTS, INCLUDING THE ANALYST'S CERTIFICATION, PLEASE REFER TO THE APPENDIX. BMO Capital Markets Fixed Income Research Head OF FIxed InCOMe ReSeaRCH Canada _______ Jason Parker, CFA 416-359-5410 FIxed InCOMe StRategy ________________________ Jason Parker, CFA 416-359-5410 BankS _________________________________________ George Lazarevski, CFA 416-359-7488 InSuRanCe _____________________________________ George Lazarevski, CFA 416-359-7488 PIPelIneS ______________________________________ Mark Laing, CPA, CA, CFA 416-359-4601 utIlItIeS _______________________________________ Mark Laing, CPA, CA, CFA 416-359-4601 InFRaStRuCtuRe _______________________________ Jason Parker, CFA 416-359-5410 teleCOM/MedIa/CaBle __________________________ Trevor Bateman, CPA, CA, CFA 416-359-8238 RetaIl _________________________________________ Trevor Bateman, CPA, CA, CFA 416-359-8238 dIReCtOR OF CanadIan equIty ReSeaRCH _______ Aine O’Flynn, CFA 416-359-4212 dIReCtOR OF uS equIty ReSeaRCH ______________ Christine Farkas, CFA 212-885-4113 Real eState/ReItS______________________________ Trevor Bateman, CPA, CA, CFA 416-359-8238 aSSet-BaCked SeCuRItIeS ______________________ George Lazarevski, CFA 416-359-7488 MaPle BOndS __________________________________ George Lazarevski, CFA 416-359-7488 eCOnOMICS ____________________________________ Michael Gregory, CFA 312-845-5025/416-359-4747 Robert Kavcic 416-359-8329 CORPORate deBt ReSeaRCH aSSOCIateS ________ Asya Abramyan 416-359-4385 Kathryn Nixon, CFA 416-359-8108 geneRal InquIRIeS _____________________________ Corporate Debt Research 416-359-4385 Equity Research 416-359-4002 e-MaIl addReSSeS______________________________ To reach our staff via e-mail: firstname.lastname@bmo.com  A. Macro Commentaries Fixed Income Outlook Economics - Provinces Provincial Perspectives Benchmark Barometer Monthly Money Trail B. Sector Commentaries Financials – Banks Financials – Insurance Financials – Real Estate/REITs Asset-Backed Securities Utilities – Pipelines Utilities – Gas & Electric Utilities Infrastructure – Infrastructure Communications – Telecom/Media/Cable Consumer – Retail Canadian Fixed Income Issuers C. Appendix Disclosure Statement and Analyst's Certification Table of Contents  Fixed Income Viewpoint Outlook – April 2014 Credit Cycle Current View: We maintain our position that with a backdrop of range-bound yields, corporate bonds in Canada represent a sensible investment vehicle and we expect money to continue flowing into the asset class. Since GoC rates remain at paltry levels, we believe the incentive to add spread and juice returns is quite a palpable goal. In the current environment, we advise investors to improve credit quality when possible. That is not to say we are suggesting investors avoid higher-beta sectors; quite the contrary, we currently have both REITs and Tele- com rated Outperform. Within sectors, however, we believe investors should focus on their preferred issuers and look for opportunities where they can pick up bonds from those enti- ties by trading out of issuers perceived to be less desirable. Of course, this strategy is almost of the “no-brainer” ilk, but with many investors indiscriminately throwing cash at corporates and spreads at multi-year lows, the opportunity to upgrade should be pursued. Similarly, trades that reduce duration at flat or modest gives in spread, or that reduce duration and improve quality should be considered. Again, the above suggestions are not the most sophisticated, but rather ideas that we believe are being overlooked in the race to add bonds, any bonds. Economic Growth: BMO Capital Markets expects moderate GDP growth of 1.2% for Canada in Q1/14, modestly softer on weaker-than-expected data to start the year. The estimate for full-year 2014 growth of 2.3% is up from 2.0% in 2013 and suggests economic activity is expected to rise a touch throughout the year. Equity Markets: The heightened spectre of geopolitical risk so far this year, along with questions about U.S. economic strength and concerns about growth in China, has weighed on equity market performance. In addition, after posting a decent rally during 2013, there is lingering caution about possible over- valuation and further corrective activity. Although the equity markets managed to charge through a temporary pull-back in late January, conviction remains tepid as building tensions in Europe and mixed economic data in the U.S. have left investors looking for more concrete signs of forward direction. Default Rates: According to Moody’s, the global speculative grade default rate was 2.4% at the end of February 2014, down from 2.6% in January. These levels compare with the historical average of 4.7% since 1983. Moody’s expects the global speculative-grade default rate to be 2.1% by the end of 2014. New Issuance: We believe that last year’s total of $106 billion represents the recent high-water mark, with levels expected to slip modestly in 2014. At present, we fore- cast new issuance of $90–95 billion for full-year 2014, although the primary market started slower than we expect- ed largely due to the funding activities of the Big 6 Banks outside of Canada. GoC Yields: Softening yields to start the year gave way to a consistent bid on the emergence of geopolitical risks and economic concerns, keeping yields range-bound, which is consistent with our expectation. Mixed messages from the U.S. Fed during March about the duration of its accommodative monetary policies placed some upward pressure on yields, but geopolitical tensions in Europe and mixed U.S. economic signals have kept traders reasonably disciplined. We expect modest credit curve flattening to continue as spreads remain range-bound and the long end remains a viable option to add duration risk and increase returns. Relative Value Sector View: We believe Telecom will outperform due to im- proved clarity over regulatory and competitive risks. We also rate the REIT sector Outperform, based on our view that the sector’s solid fundamentals will remain intact in 2014 and offset another likely year of active new issuance. At the same time, we believe Retail will underperform due to heightened risks for competition and shareholder-friendly management decisions. In terms of the Utility sector, the basis for our Underperform rating is two-fold: 1) in a rising interest environment (even moderately) it will be very difficult for the total return of the utility sector to match the broader market given the sector’s naturally long duration; and 2) we do not believe Utility spreads will tighten more than the broad market index, especially given long Utility spreads are beginning to break through their recent trading floor. We refer readers to each sector comment for a more detailed description of the recommendations and top picks. Jason Parker, CFA BMO Nesbitt Burns Inc. jason.parker@bmo.com (416) 359-5410 Page 2 Fixed Income Quarterly—Outlook Spreads Marching to Their Own Drummer After one of the slowest starts in several years, the corporate new issue market in Canada stepped it up a notch during March, posting the second busiest deal volume on record for that month, at $9.9 billion. March 2014 represented the most active month so far this year, and returned the primary market to monthly levels more consistent with those in 2013. However, the rise in primary market action during March 2014 should be taken with a grain of salt when determining whether ongoing monthly new issuance trends have finally ratcheted back up to year-ago levels. To begin, the pace of deals in January and February this year was reasonably slow versus the previous few years in part due to the periodic interference of exogenous risk (e.g., geopolitical, economic and financial). As a result, a building number of new issues were progressively delayed into March, especially from February, which likely distorted the total transaction volume for last month to the upside. When examined on an average monthly basis, for example, there was roughly $6.8 billion brought to market in Q1/14. That figure is reasonably soft compared with the $8 billion, $7.4 billion, and $9.6 billion of average monthly issuance during the first quarter of 2013, 2012 and 2011, respectively. While the chasm of average monthly Q1 activity between 2014 and the previous several years does not in and of itself seem exceedingly monumental, there were other factors percolating beneath the surface that suggested a permanent return to the $8.8 billion of average monthly issuance in 2013 may be some time in coming. At the top of the list is a building tension between investors and issuers that simmered with growing ferocity as the weeks passed by to begin 2014. It did not take issuers long to real- ize that the relative paucity of deals in January and February was shifting the balance of pricing power in their favour. They were well aware of the considerable bounty of investor cash that remained on the sidelines and needed to be put to work, a fact that was no doubt pounded into their psyche by an incessant stream of investment banker calls about copious reverse inquiries. The minute amount of issuance, coupled with a strong purchasing of deposit notes and tightening spreads in December 2013, also pointed to the fact that investors were poised to kick off 2014 with a buying frenzy. When the pace of the primary market was fairly inert to start the year and spreads tightened further, investment bankers scrambled to convince issuers that the time was ripe to hit up investors for cash. Chart 1: 5-Year Canadian Corporate Indicative Spreads 700 AA A BBB 600 500 400 300 200 100 0 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source: BMO Capital Markets Chart 2: 10-Year Canadian Corporate Indicative Spreads 700 600 500 400 300 200 100 AA A BBB 0 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source: BMO Capital Markets Chart 3: 30-Year Canadian Corporate Indicative Spreads 700 600 500 400 300 200 100 AA A BBB 0 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source: BMO Capital Markets Spread (bps) Spread (bps) Spread (bps) Fixed Income Quarterly—Outlook Page 3 However, issuers could plainly see that investors were pursu- ing corporate bonds of all sorts with seemingly indiscriminate fervour through the opening weeks of 2014. As the demand/ supply imbalance became perceptibly exacerbated, issuers were increasingly incented to hold steadfast on pricing discipline and work new deal spread concessions to lower and lower levels, especially since tangible results were being achieved. We have seen this dynamic surface a few times in the post-credit crisis environment, when either investors or issuers draw a pro- verbial collective line in the sand to enhance their bargaining position. Given the relatively small domestic corporate bond market, the ability of even small blocks of market participants (issuers or investors), whether purposeful or not, to influence deal outcomes is endemic to the natural to-and-fros of new issuance. While this dialectical posturing between issuers and investors at points has involved covenant structures, it has more often than not revolved around price, and in particular new issue spread concessions. Numerous iterations of concession battles have occurred over the past several years, with the onset of exogenous risks, or the lack thereof, frequently functioning as the key catalyst for determining who gains the upper hand. When risk emerges, bargaining leverage favours investors. If risk remains placated, issuers claw back their cost of funds. Ch-Ch-Ch-Ch-Changes That dynamic changed at the beginning of 2014. The emer- gence of new participants in the Canadian corporate bond market during 2013, such as international investors and short- term bond funds, meaningfully exacerbated the demand/supply imbalance to the point where there has been a perpetual bid for corporate bonds ever since. Admittedly, we experienced points this year when exogenous risk temporarily delayed primary market activity, but investors continued to buy bonds in the secondary market regardless. Moreover, there may have been brief pauses in the narrowing of spreads, but the overall direction in 2014 has been decidedly inward. Unremitting demand for corporates induced several trans- formations in the functioning of the primary market so far in 2014. For instance, a number of higher-quality non-financial issuers were able to fragment the investor base and piece out deals in increments, securing $20 million here and $40 million there. In aggregate, the issuer ultimately achieved its targeted deal size, but by restricting access to its bonds the desired Chart 4: Canada Yield Curve 31-Dec-13 31-Mar-14 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3 mo 6 mo 1 yr 2 yr 3 yr 4 yr 5 yr 6 yr 7 yr 8 yr 9 yr 10 yr 15 yr 20 yr 30 yr Source: BMO Capital Markets, Bloomberg Chart 5: U.S. Yield Curve 31-Dec-13 31-Mar-14 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 30 yr Source: BMO Capital Markets, Bloomberg Chart 6: Canadian Corporate Debt Issuance 1999–YTD 2014 Q1 Q2 Q3 Q4 120.0 100.0 80.0 60.0 40.0 $22.3 20.0 $88.3 $105.6 $20.5 $75.9 $73.9 $75.6 $77.8 $60.8 $61.4 $49.7 $51.3 $54.9 $35.7 $33.3 $27.4 0.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Note: Includes All Corporates as at March 31, 2014 settlement date Source: BMO Capital Markets C$ billions Page 4 Fixed Income Quarterly—Outlook spread and term were also ensured. That strategy was driven by the reverse inquiry process, and saw a plethora of investors either tripping over themselves or relenting to issuer demands in order to simply obtain investable product. Furthermore, the dearth of transactions from traditional financial issuers meant greater receptivity for lower-rated and infrequent issuers. Issuance from the Big 6 Banks is down almost $4.4 billion so far this year to $8.5 billion, while ABS is lower by $1.3 billion and Other Financials reduced by $1.7 billion to $2.4 billion. This pronounced decline in transaction volumes, combined with ongoing intrinsic demand for corpo- rates, paved the way for issuance from sectors such as REITS (which has transacted $1.6 billion year to date). Much of the demand exhibited by the troika of international investors, short-term bond funds and asset swappers resides largely in the realm of financials given their trade size require- ments (i.e., $20+ million). With spreads from the financial sectors being bid to recent multi-year lows, more traditional Chart 7: 2-Year Q1/14 Spread Changes investors were forced down the credit quality spectrum in order to find spread and any semblance of relative value. However, since almost all sectors are now at multi-year lows for spreads, the incentive of late has been more just to add spread (dis- regarding relative value) and to find any product at all. This process has been distorted by reluctance from investors to sell bonds since they are finding it hard to get them back, and by very thin inventory positions held at the dealer level, leading to more and more agency trading. Still, investors who are not benchmarked, such as asset liabil- ity matchers, are endeavouring to be more disciplined in the current frenzied market, holding out for price and looking to hold credit in the form of provincial bonds and agencies. This strategy, which is underpinned by the luxury of being able to take a longer-term view, is not conducive to the current reali- ties of the corporate market for most other investors, who are constantly being directly judged based on performance. As a consequence, most investors are feeling compelled to source Chart 8: 5-Year Q1/14 Spread Changes 5-Year Q1/14 Spread Changes -19 Retail -16 Telecom -15 Real Estate Banks - Sub Oil and Gas -10 -8 -7 -7 -7 -7 -2 Infrastructure Pipelines Utilities Banks - Senior Life Insurers - Senior 0 -5 -10 -15 -20 -25 2-Year Q1/14 Spread Changes -19 Real Estate -18 Banks - Sub -18 Retail Telecom Oil and Gas Pipelines Infrastructure Banks - Senior Utilities Life Insurers - Senior -9 -8 -6 -5 4 - -4 -1 0 -5 -10 -15 -20 -25 Source: BMO Capital Markets Chart 9: 10-Year Q1/14 Spread Changes Source: BMO Capital Markets Chart 10: 30-Year Q1/14 Spread Changes 10-Year Q1/14 Spread Changes -28 Real Estate Retail -23 -18 Telecom Oil and Gas Utilities Infrastructure Life Insurers - Senior Pipelines Banks - Senior Banks - Sub -13 -8 -7 -6 -5 -4 -4 0 -5 -10 -15 -20 -25 -30 30-Year Q1/14 Spread Changes -35 Retail -16 Telecom -15 Life Insurers - Senior -10 Infrastructure -10 Utilities -9 Pipelines 0 -5 -10 -15 -20 -25 -30 -35 -40 Source: BMO Capital Markets Source: BMO Capital Markets  Fixed Income Quarterly—Outlook Page 5 bonds by any means possible, after witnessing external demand siphon significant corporate product from the market. Managing a corporate bond fund generally entails buying corporate bonds, not money market instruments. Whether investors like it or not, the hard reality of the situation dictates that there is intensifying competition for corporate bonds. A multitude of investors need product: investable product that generates decent returns. In the competition for corporate bonds, some investors are willing to concede a few basis points in order to get the product. And that is where we are at right now. It should be to no one’s surprise or consternation that issuers are taking advantage. What to Do, What to Do? First and foremost in the current environment, we advise investors to improve credit quality when possible. That is not to say we are suggesting investors avoid higher-beta sectors; quite the contrary, we currently have both REITs and Tele- com rated Outperform. Within sectors, however, we believe investors should focus on their preferred issuers and look for opportunities where they can pick up bonds from those enti- ties by trading out of issuers perceived to be less desirable. Of course, this strategy is almost of the “no-brainer” ilk, but with many investors indiscriminately throwing cash at corporates and spreads at multi-year lows, the opportunity to upgrade is something that should be pursued. Similarly, trades that re- duce duration at flat or modest gives in spread, or that reduce duration and improve quality should be considered. Again, the above suggestions are not the most sophisticated, but rather ideas that we believe are being overlooked in the race to add bonds, any bonds. We also observe that investors with the internal capacity to do so are adding U.S. bonds from cross-border issuers, sometimes on less favourable pricing just to add product in the size needed. Unfortunately, this option is not available to most investors, who are mandated to own Canadian bonds. Interestingly, we are now seeing investors buy secondary bonds ahead of new issues since many primary market transactions are being priced with negative concessions. Oh how times have changed when anticipating new issues means buying bonds instead of selling; however, with negative concessions re-pricing entire curves and spreads narrowing further on the break, such a strategy has proved to be beneficial. The fact we are seeing negative concessions is profoundly indicative of the market distorting capabilities of the current demand/ supply disequilibrium. Has New Issuance Turned a Corner to the Upside? It remains to be seen whether monthly new issuance volumes around the $8–9 billion level will continue into April and be- yond. At this point, we are highly sceptical. There is very little in the pipeline on the road show calendar, and many investors have resigned themselves to expectations for a strong second half of the year. Furthermore, the volume of deals from non- financials so far in 2014, at almost $11 billion, is $3.3 billion ahead of last year’s level, suggesting primary market activity for those sectors is running at full tilt, with little more upside possible. At the same time, issuance from the financial sectors is down quite substantially from year-ago levels. Since a host of is- suers from these sectors can easily come to market with a $500 million to $1+ billion deal, we believe the ability of the primary market in Canada to overcome a slow start to 2014 is meaningfully mitigated. Nevertheless, much of this deci- sion making will be based on factors beyond the control of Canadian investors, such as swap spreads, or foreign demand for bonds from domestic financial issuers. For full-year 2014, we reiterate our expectation of issuance between $90 billion and $95 billion. Investors Getting Higher – Quality and Beta Along with the indiscriminate buying noted above, it has been difficult to discern any sector trends in buying from a spread perspective. On a year-to-date basis, there has been mate- rial tightening for both high quality (e.g., Banks, Pipelines, Infrastructure) and high beta (e.g., Oil and Gas, Industrials). However, of the several sectors that have really knocked per- formance out of the park, all are from the high beta arena Real Estate, Retail and Telecom. What’s more, these three sectors have also experienced material bull flattening, indicating inves- tors, just like last year, are adding risk in terms of both credit and duration. Overall, the 2s-30s credit curve has flattened by about 6 bps so far this year, with spread narrowing by roughly 7–9 bps in the short end, 9 bps in mids and 13 bps in longs. Much like last year, demand for corporates is across all sectors and segments of the curve.  Page 6 Fixed Income Quarterly—Outlook The current environment remains a seller’s market, both in terms of the primary and secondary activity. The disruption to new deal flow has translated straight into a positive spread performance. Add in the traditional surge in risk-taking to start the year, and the buying interest has really been sprayed across the full spectrum of credit quality in Canada. We believe the rampant demand/supply disequilibrium in Canadian corpo- rates, to a large degree, has insulated the domestic market from the short-term vagaries transpiring at the global level. We believe the domestic corporate market will continue to be driven by conditions on the primary side of the equa- tion. As noted above, investors are well positioned for supply, with market dynamics having adjusted accordingly (e.g., new meaningful players, a faster new issue approval process, greater risk tolerance and new conceptions of relative value). We believe any disruption to a steady flow of bonds no doubt will exacerbate the conditions of the current demand/ supply disequilibrium. We maintain our position that with a backdrop of range- bound yields, we believe corporate bonds in Canada represent a sensible investment vehicle and we expect money to continue flowing into the asset class. Since GoC rates remain at paltry levels, we believe the incentive to add spread and juice returns is quite a palpable goal.  Fixed Income Quarterly—Outlook Page 7 Table 1: Total Returns (March 2014) Table 2: Total Returns (Q1 2014) Sector Short Mid Long Broad Composite 1.06% 3.22% 5.12% 2.77% All Government 0.86% 2.99% 4.84% 2.68% Canada Agencies Provincials Municipals 0.67% 0.94% 1.14% 1.34% 2.99% 3.09% 2.97% 3.03% 4.93% 5.18% 4.76% 5.37% 2.24% 1.73% 3.42% 3.23% All Corporates 1.39% 3.85% 6.06% 2.95% Corporate AA Corporate A Corporate BBB 1.31% 1.35% 1.65% 3.60% 3.52% 4.16% 5.51% 5.83% 6.56% 1.58% 3.35% 3.80% Sector Short Mid Long Broad Composite -0.01% -0.24% -0.41% -0.19% All Government -0.07% -0.37% -0.62% -0.33% Canada Agencies Provincials Municipals -0.05% -0.10% -0.07% -0.04% -0.29% -0.47% -0.39% -0.25% -0.43% -0.54% -0.72% -0.56% -0.20% -0.24% -0.48% -0.29% All Corporates 0.07% 0.11% 0.29% 0.13% Corporate AA Corporate A Corporate BBB 0.01% 0.11% 0.17% 0.02% -0.01% 0.23% 0.08% 0.11% 0.65% 0.01% 0.08% 0.31% Source: PC Bond, a business unit of TSX Inc. As of March 31, 2014 Table 3: Total Returns (Month over Month) Source: PC Bond, a business unit of TSX Inc. As of March 31, 2014 Sector 30-Apr-13 31-May-13 28-Jun-13 31-Jul-13 30-Aug-13 30-Sep-13 31-Oct-13 29-Nov-13 31-Dec-13 31-Jan-14 28-Feb-14 31-Mar-14 Broad Composite 1.1% -1.5% -2.0% 0.2% -0.6% 0.5% 1.1% -0.2% -0.4% 2.6% 0.3% -0.2% All Government Canada Agencies Provincials Municipals 1.2% 1.0% 0.6% 1.6% 1.4% -1.6% -1.7% -0.9% -1.9% -1.5% -2.1% -1.7% -1.1% -2.8% -2.3% 0.1% 0.1% 0.3% 0.0% 0.1% -0.6% -0.5% -0.2% -0.9% -0.6% 0.6% 0.4% 0.5% 0.7% 0.7% 1.0% 0.8% 0.9% 1.2% 1.1% -0.3% -0.4% 0.1% -0.5% -0.2% -0.5% -0.6% -0.5% -0.4% -0.3% 2.7% 2.3% 1.8% 3.4% 3.0% 0.3% 0.1% 0.2% 0.5% 0.5% -0.3% -0.2% -0.2% -0.5% -0.3% All Corporates Corporate AA Corporate A Corporate BBB 1.0% 0.5% 1.2% 1.3% -1.0% -0.6% -1.2% -1.1% -1.9% -0.9% -2.1% -2.5% 0.5% 0.6% 0.4% 0.5% -0.5% -0.2% -0.6% -0.7% 0.4% 0.4% 0.3% 0.5% 1.2% 0.8% 1.2% 1.5% 0.0% 0.2% -0.2% 0.0% -0.3% -0.1% -0.3% -0.4% 2.4% 1.2% 2.8% 3.0% 0.4% 0.4% 0.4% 0.5% 0.1% 0.0% 0.1% 0.3% Short Composite 0.4% -0.4% -0.6% 0.4% -0.1% 0.4% 0.6% 0.2% -0.1% 0.9% 0.2% 0.0% All Government Canada Agencies Provincials Municipals 0.3% 0.3% 0.3% 0.5% 0.5% -0.4% -0.4% -0.4% -0.4% -0.4% -0.5% -0.4% -0.5% -0.6% -0.7% 0.3% 0.3% 0.3% 0.3% 0.4% -0.1% -0.1% -0.1% 0.0% 0.0% 0.4% 0.3% 0.4% 0.5% 0.5% 0.6% 0.4% 0.7% 0.7% 0.7% 0.2% 0.1% 0.2% 0.2% 0.3% -0.1% -0.1% -0.2% -0.2% -0.2% 0.8% 0.7% 1.0% 1.1% 1.2% 0.1% 0.0% 0.1% 0.1% 0.2% -0.1% 0.0% -0.1% -0.1% 0.0% All Corporates Corporate AA Corporate A Corporate BBB 0.4% 0.4% 0.4% 0.5% -0.4% -0.5% -0.3% -0.3% -0.7% -0.7% -0.7% -0.8% 0.5% 0.5% 0.5% 0.5% -0.1% -0.2% -0.1% -0.1% 0.4% 0.3% 0.3% 0.5% 0.7% 0.8% 0.7% 0.8% 0.3% 0.3% 0.3% 0.3% 0.0% -0.1% 0.0% 0.0% 1.0% 1.0% 1.0% 1.2% 0.3% 0.3% 0.2% 0.3% 0.1% 0.0% 0.1% 0.2% Mid Composite 1.2% -1.8% -2.3% 0.4% -0.7% 0.8% 1.3% -0.1% -0.8% 3.0% 0.5% -0.2% All Government Canada Agencies Provincials Municipals 1.2% 1.2% 1.1% 1.3% 1.2% -1.9% -2.2% -2.0% -1.7% -1.5% -2.3% -2.3% -2.2% -2.3% -1.9% 0.3% 0.2% 0.2% 0.3% 0.4% -0.7% -0.7% -0.6% -0.6% -0.4% 0.8% 0.8% 0.8% 0.8% 0.9% 1.3% 1.1% 1.2% 1.3% 1.3% -0.1% -0.4% 0.1% 0.0% 0.2% -0.9% -1.1% -1.0% -0.8% -0.7% 2.9% 3.0% 3.1% 2.8% 2.7% 0.4% 0.3% 0.5% 0.5% 0.5% -0.4% -0.3% -0.5% -0.4% -0.3% All Corporates Corporate AA Corporate A Corporate BBB 1.3% 1.2% 1.2% 1.3% -1.5% -1.7% -1.6% -1.4% -2.4% -2.2% -2.2% -2.7% 0.7% 0.7% 0.7% 0.7% -0.7% -0.7% -0.6% -0.7% 0.6% 0.6% 0.5% 0.7% 1.5% 1.5% 1.4% 1.6% 0.0% 0.1% 0.1% 0.0% -0.6% -0.6% -0.6% -0.7% 3.1% 2.8% 2.9% 3.3% 0.6% 0.7% 0.6% 0.6% 0.1% 0.0% 0.0% 0.2% Long Composite 2.2% -2.8% -4.0% -0.3% -1.4% 0.6% 1.5% -1.1% -0.6% 5.0% 0.5% -0.4% All Government Canada Agencies Provincials Municipals 2.2% 2.4% 2.2% 2.2% 2.3% -3.0% -3.8% -2.7% -2.6% -2.6% -4.0% -4.0% -3.1% -4.0% -4.0% -0.4% -0.5% 0.0% -0.4% -0.5% -1.4% -1.4% -1.1% -1.4% -1.2% 0.7% 0.4% 0.9% 0.8% 0.7% 1.3% 1.4% 1.5% 1.3% 1.3% -1.3% -1.7% -0.9% -1.1% -1.2% -0.5% -1.4% -1.2% -0.1% 0.0% 5.0% 5.3% 5.5% 4.8% 5.1% 0.5% 0.1% 0.3% 0.7% 0.8% -0.6% -0.4% -0.5% -0.7% -0.6% All Corporates Corporate AA Corporate A Corporate BBB 2.2% 1.7% 2.2% 2.2% -2.0% -2.8% -2.2% -1.6% -4.3% -3.5% -4.0% -4.8% 0.1% 0.4% 0.0% 0.2% -1.4% -1.0% -1.4% -1.3% 0.3% 0.6% 0.2% 0.4% 2.0% 1.4% 1.8% 2.3% -0.7% -0.7% -0.8% -0.4% -0.6% -1.1% -0.5% -0.7% 5.2% 4.1% 5.2% 5.2% 0.6% 1.3% 0.5% 0.6% 0.3% 0.1% 0.1% 0.6% Source: PCBond, a business unit of TSX Inc. As of March 31, 2014  Page 8 Fixed Income Quarterly—Outlook Table 4: Modified Duration Matrix Sector 30-Apr-13 31-May-13 28-Jun-13 31-Jul-13 30-Aug-13 30-Sep-13 31-Oct-13 29-Nov-13 31-Dec-13 31-Jan-14 28-Feb-14 31-Mar-14 Broad Composite 6.91 6.80 6.82 6.74 6.67 6.68 6.67 6.60 6.72 6.83 6.87 6.84 All Government Canada Agencies Provincials Municipals 7.30 6.28 4.14 9.49 7.92 7.19 6.23 4.10 9.31 7.87 7.29 6.36 4.24 9.32 7.92 7.18 6.22 4.15 9.23 7.90 7.13 6.24 4.12 9.09 7.87 7.15 6.14 4.24 9.17 7.89 7.12 6.08 4.18 9.18 7.92 7.05 6.08 4.16 9.03 7.74 7.25 6.19 4.72 9.15 7.93 7.34 6.21 4.71 9.33 8.07 7.41 6.40 4.69 9.30 8.16 7.39 6.31 4.77 9.28 8.06 All Corporates Corporate AA Corporate A Corporate BBB 5.93 3.31 7.01 6.72 5.81 3.22 6.88 6.64 5.70 3.23 6.79 6.50 5.68 3.24 6.77 6.51 5.57 3.18 6.67 6.39 5.57 3.13 6.73 6.35 5.59 3.12 6.88 6.30 5.57 3.15 6.85 6.24 5.52 3.13 6.78 6.25 5.64 3.17 6.91 6.34 5.63 3.19 6.87 6.33 5.61 3.23 6.81 6.30 Short Composite 2.67 2.64 2.78 2.72 2.69 2.71 2.66 2.65 2.78 2.72 2.71 2.72 All Government Canada Agencies Provincials Municipals 2.56 2.34 2.70 2.95 2.99 2.51 2.32 2.61 2.88 2.95 2.73 2.52 2.92 2.99 3.18 2.64 2.43 2.83 2.90 3.10 2.61 2.45 2.75 2.82 3.02 2.67 2.47 2.81 3.01 2.97 2.60 2.40 2.74 2.97 2.94 2.57 2.38 2.66 2.90 2.98 2.77 2.42 3.08 3.12 3.26 2.70 2.35 3.01 3.05 3.20 2.70 2.38 2.93 3.02 3.13 2.72 2.43 2.97 3.07 3.04 All Corporates Corporate AA Corporate A Corporate BBB 2.89 2.99 2.80 2.85 2.87 2.93 2.78 2.90 2.88 2.89 2.83 2.95 2.87 2.89 2.79 3.00 2.83 2.86 2.72 2.98 2.78 2.80 2.67 2.95 2.76 2.77 2.70 2.85 2.80 2.81 2.75 2.83 2.79 2.80 2.71 2.88 2.76 2.79 2.66 2.83 2.73 2.75 2.62 2.85 2.73 2.78 2.55 2.87 Mid Composite 6.27 6.17 6.42 6.35 6.26 6.32 6.27 6.21 6.33 6.28 6.21 6.17 All Government Canada Agencies Provincials Municipals 6.39 6.21 6.57 6.44 5.98 6.27 6.06 6.46 6.34 5.88 6.59 6.80 6.63 6.50 5.93 6.49 6.64 6.54 6.42 5.85 6.38 6.49 6.45 6.34 5.76 6.48 6.61 6.42 6.46 6.01 6.42 6.54 6.35 6.41 5.97 6.34 6.39 6.35 6.33 5.93 6.51 6.38 6.93 6.47 6.15 6.45 6.28 6.88 6.43 6.17 6.37 6.15 6.81 6.38 6.10 6.32 6.23 6.56 6.31 6.08 All Corporates Corporate AA Corporate A Corporate BBB 5.91 5.47 5.92 5.96 5.87 5.72 5.82 5.94 5.90 6.00 5.85 5.93 5.91 5.85 5.93 5.90 5.88 5.86 5.87 5.89 5.84 5.79 5.79 5.90 5.83 5.87 5.76 5.88 5.80 5.79 5.78 5.81 5.80 5.77 5.78 5.82 5.81 5.80 5.78 5.83 5.79 5.75 5.77 5.82 5.77 5.64 5.74 5.83 Long Composite 13.82 13.56 13.67 13.59 13.38 13.53 13.53 13.41 13.55 13.72 13.67 13.58 All Government Canada Agencies Provincials Municipals 14.07 14.22 11.00 14.05 15.06 13.77 13.91 10.25 13.79 14.84 14.02 14.61 10.06 13.88 14.63 13.91 14.52 10.00 13.74 14.64 13.67 14.23 9.49 13.57 14.48 13.90 14.15 10.50 13.85 14.58 13.87 13.99 10.47 13.89 14.55 13.72 13.88 10.54 13.71 14.40 13.91 13.99 14.64 13.85 14.55 14.07 14.14 14.95 14.00 14.76 14.00 14.01 13.71 14.02 14.82 13.88 13.92 13.58 13.88 14.68 All Corporates Corporate AA Corporate A Corporate BBB 12.95 8.97 13.19 12.91 12.80 8.81 13.05 12.74 12.49 8.68 12.78 12.35 12.52 8.66 12.86 12.29 12.41 8.55 12.71 12.25 12.34 8.56 12.59 12.23 12.44 8.50 12.70 12.32 12.41 8.40 12.69 12.24 12.37 8.33 12.66 12.19 12.57 8.41 12.88 12.37 12.54 8.35 12.88 12.31 12.57 8.42 12.91 12.32 Source: PCBond, a business unit of TSX Inc. As of March 31, 2014  Fixed Income Quarterly—Outlook Page 9 Canadian Corporate Debt Issuance Table 1.1 Canadian Corporate New Issuance Activity – 3 Month Trailing Size Issuer Sector (C$ mm) Term Spread 1 Issue Date 2 Coupon Maturity Instrument Bank of Nova Scotia AltaGas Ltd. AltaGas Ltd. Canadian Western Bank Manulife Bank of Canada Cominar Real Estate Investment Trust Algonquin Power Co. John Deere Canada Funding Inc. First Capital Realty National Bank of Canada Dundee Real Estate Investment Trust RioCan REIT BANK - Big 6 1,500 7 UTIL - Gas/Elec 100 30 UTIL - Gas/Elec 200 10 FIN 300 5 FIN 100 2 REIT 100 7 UTIL - Gas/Elec 200 8 FIN 300 4 REIT 150 11 BANK - Big 6 750 3 REIT 150 6 REIT 150 6 IND 500 12 UTIL - Gas/Elec 50 50 FIN 1,250 7 TEL 300 2 TEL 500 10 INFRA 322 7 REAL ESTATE 350 10 REAL ESTATE 550 10 REIT 250 7 REIT 200 10 REIT 150 7 MAPLE 600 7 REIT 75 11 INFRA 250 7 AUTO 500 5 INS - Big 4 500 5+5 UTIL - Gas/Elec 299 19 BANK - Big 6 750 5 BANK - Big 6 1,750 7 MAPLE 700 7 REIT 100 7 TEL 50 6 REIT 100 6 TEL 250 3 TEL 400 5 TEL 600 10 FIN 150 5 REIT 75 10 PIPE 500 3 PIPE 400 7 PIPE 500 30 BANK - Big 6 1,250 5 AUTO 350 2 UTIL - Gas/Elec 125 5 INFRA 115 32 AUTO 400 4 AUTO 200 3 AUTO 300 5 REIT 125 5 FIN 125 3 PIPE 130 50 RETAIL 450 5 101.0 195.0 159.0 112.0 3M BA+40 275.0 230.0 75.0 207.0 73.0 210.0 160.0 220.0 132.0 107.0 3M BA + 185.0 150.3 188.0 183.0 160.0 190.0 175.0 162.0 205.0 82.0 125.0 114.0 190.0 79.0 97.0 128.0 195.0 n/a 260.0 3M BA + 120.0 165.0 230.0 184.0 3M BA + 114.0 155.0 79.0 3M BA + 3M BA + 170.0 83.0 63.0 78.0 200.0 3M BA + 160.0 115.0 10-Jan-2014 13-Jan-2014 13-Jan-2014 14-Jan-2014 14-Jan-2014 16-Jan-2014 17-Jan-2014 17-Jan-2014 20-Jan-2014 20-Jan-2014 21-Jan-2014 23-Jan-2014 28-Jan-2014 29-Jan-2014 30-Jan-2014 31-Jan-2014 31-Jan-2014 03-Feb-2014 04-Feb-2014 04-Feb-2014 06-Feb-2014 06-Feb-2014 11-Feb-2014 12-Feb-2014 18-Feb-2014 18-Feb-2014 23-Dec-3724 21-Feb-2014 28-Feb-2014 03-Mar-2014 04-Mar-2014 05-Mar-2014 05-Mar-2014 05-Mar-2014 07-Mar-2014 10-Mar-2014 10-Mar-2014 10-Mar-2014 11-Mar-2014 11-Mar-2014 11-Mar-2014 11-Mar-2014 11-Mar-2014 14-Mar-2014 18-Mar-2014 21-Mar-2014 21-Mar-2014 26-Mar-2014 26-Mar-2014 26-Mar-2014 27-Mar-2014 27-Mar-2014 28-Mar-2014 28-Mar-2014 3.27% 11-Jan-2021 5.16% 13-Jan-2044 Deposit Notes Medium Term Note Medium Term Note Deposit Notes Senior Unsecured Senior Unsecured Debentures (Re-open) Senior Unsecured Debentures Medium Term Note Senior Unsecured Debentures Deposit Notes Senior Unsecured Debentures Senior Unsecured Debentures Medium Term Notes Medium Term Notes Medium Term Notes Sr Unsecured Note Sr Unsecured Note Senior Secured Debentures 1st Mortgage Bond 1st Mortgage Bond Senior Unsecured Debenture Senior Unsecured Debenture Senior Unsecured Debentures Maple Bond Senior Unsecured Debentures (Re-open) Senior Unsecured Notes Senior Unsecured Notes Subordinated Fixed Floater Senior Secured Debentures Deposit Notes Deposit Notes Maple Bond Senior Unsecured Notes Senior Unsecured Notes Senior Unsecured Debentures (Re-open) Senior Notes Senior Notes Senior Notes Senior Secured Notes Senior Unsecured Debentures (Re-open) Medium Term Notes Medium Term Notes Medium Term Notes Deposit Notes Senior Unsecured Notes Medium Term Notes Senior Unsecured Notes Senior Unsecured Senior Unsecured Senior Unsecured Senior Unsecured Senior Unsecured Medium Term Notes Senior Unsecured Brookfield Asset Management Hydro One Inc. Wells Fargo Canada Corp. Shaw Communications Inc. Shaw Communications Inc. LeisureWorld Senior Care LP West Edmonton Mall Property West Edmonton Mall Property Choice Properties Real Estate Choice Properties Real Estate Calloway REIT 69 4.40% 3.077% 3M BA+40 4.94% 4.65% 2.3% 4.79% 2.02% 4.07% 3.62% 4.82% 4.29% 3.04% 3M BA + 69 4.35% 3.47% 4.31% 4.06% 3.50% 4.29% 3.75% 3.55% 4.790% 2.75% 2.94% 2.81% 4.47% 2.43% 2.86% 3.19% 3.96% 6.00% 4.94% 3M BA + 60 2.80% 4.00% 3.96% 4.79% 3M BA + 45 3.16% 4.57% 2.46% 3M BA + 55 3M BA + 35 4.62% 2.27% 1.73% 2.33% 3.75% 3M BA + 40 4.56% 2.85% 15-Mar-2024 14-Jan-2019 18-Jan-2016 27-Jul-2020 15-Feb-2022 17-Jan-2018 30-Aug-2024 13-Apr-2017 21-Jan-2020 01-Jun-2020 28-Jan-2026 29-Jan-2064 29-Jan-2021 01-Feb-2016 31-Jan-2024 03-Feb-2021 13-Feb-2024 13-Feb-2024 08-Feb-2021 08-Feb-2024 11-Feb-2021 12-Feb-2021 30-Aug-2024 18-Feb-2021 19-Feb-2019 21-Feb-2024 31-Mar-2033 04-Mar-2019 04-Mar-2021 05-Mar-2021 01-Jun-2021 05-Mar-2020 27-Jul-2020 13-Mar-2017 13-Mar-2019 13-Mar-2024 11-Mar-2019 30-Aug-2024 13-Mar-2017 11-Mar-2021 11-Mar-2044 14-Mar-2019 18-Mar-2016 21-Mar-2019 31-Mar-2046 26-Mar-2018 26-Sep-2016 26-Sep-2018 27-Mar-2019 27-Mar-2017 28-Mar-2064 01-Apr-2019 Inc. Inc. Investment Trust Investment Trust Goldman Sachs Group, Inc. First Capital Realty Canadian National Railway Company Ford Credit Canada Ltd. Manufacturers Life Insurance Company InPower BC General Partnership Bank of Montreal Royal Bank of Canada JP Morgan Chase & Co. Crombie REIT Cogeco Inc. Cominar Real Estate Investment Trust Rogers Communications Inc. Rogers Communications Inc. Rogers Communications Inc. MCAP Commercial LP First Capital Realty Enbridge Inc. Enbridge Inc. Enbridge Inc. Bank of Nova Scotia Ford Credit Canada Ltd. Hydro One Inc. Plenary Justice Okanagan LP Daimler Canada Finance BMW Canada Inc. BMW Canada Inc. Artis Real Estate Manulife Bank of Canada Enbridge Inc. Tim Hortons Inc. 60 45 55 35 40 Total $20,541 New issuance with settlement dates in Q1 2014 Notes: (1) Indicative spread versus curve; (2) First settlement date Source: BMO Capital Markets, Bloomberg Industry: ABS: Asset-Backed Security, AUTO: Auto, BANK: Bank, CABLE: Cable, FIN: Financial Services & Other Financials, IND: Industrial Products, INFRA: Infrastructure, INS: Insurance, MAPLE: Maple Issuer, M&M: Metals and Mining, O&G: Oil and Gas, OTHER: Other, PIPE: Pipeline, PFA: Pension Fund Agency, PP: Printing and Publishing, REAL ESTATE: Real Estate, RETAIL: Retailer, TEL: Telecom, UTIL: Gas/ Elec: Gas and Electric Utility  Page 10 Fixed Income Quarterly—Outlook U.S. Corporate Debt Issuance U.S. Investment Grade Debt Offerings 1995 to YTD 2014 Chart 1.1 U.S. Investment Grade Issuance $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 Issuance Qty. of Issues 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 $0                      0 As at March 31, 2014 Source: BMO Capital Markets (NY) USD billions 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 $136 $144 $202 $305 $312 $360 $548 $407 $472 $468 $548 $595 $843 $839 $1,257 $962 $1,194 $1,249 $1,315 YTD 2014 $407 Fixed Income Quarterly—Outlook Page 11 Canadian Corporate Debt Issuance Table 1.2 Top 25 Canadian Corporate Issuers 1999 – YTD 2014 Issuer Amount (C$ mm) Bank of Nova Scotia Royal Bank of Canada Canadian Imperial Bank of Commerce Bank of Montreal Toronto-Dominion Bank GE Capital Canada Funding Company Citigroup Finance Canada Inc. Bell Canada HSBC Bank Canada Wells Fargo Financial Canada Corp. Hydro One Inc. DaimlerChrysler Canada Finance National Bank of Canada Ford Credit Canada Limited Greater Toronto Airports Authority Capital Desjardins Inc. 407 International Inc. TELUS Corporation Manufacturers Life Insurance Company Cards II Trust Golden Credit Card Trust Rogers Cable Inc. Enbridge Inc. Master Credit Card Trust General Motors Acceptance Corp. of Canada 65,448 58,918 48,561 46,426 27,600 22,108 19,265 17,610 17,345 15,125 14,052 13,340 12,657 11,198 11,135 10,810 10,177 9,900 9,800 9,536 8,434 8,350 7,680 7,650 7,489 Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets Chart 1.2 Annual Corporate Net Issuance New Issuance Maturities Net New Issuance 120.0 100.0 80.0 60.0 40.0 20.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0                  0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD 2014 Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets, Bloomberg C$ billions $27.4 $8.1 $35.7 $11.5 $33.3 $17.1 $49.7 $23.2 $51.3 $26.2 $60.8 $35.4 $39.5 $75.9 $73.9 $44.2 $61.4 $56.8 $54.9 $49.2 $75.6 $49.4 $77.8 $54.1 $44.7 $56.0 $88.3 $105.6 $20.5 $43.1 Page 12 Fixed Income Quarterly—Outlook Canadian Corporate Debt Issuance Table 1.3 Maturity Schedule for Q2 2014 Issuer April Amount (C$ mm) May Amount (C$ mm) Issuer June Amount (C$ mm) BMW Canada Inc Capital Desjardins Inc* Daimler Canada Finance Inc Royal Bank of Canada Bank of Nova Scotia* NIF-T Nova Scotia Power Finance Corp Data & Audio Visual Enterprises Wireless Inc* Bank of Montreal 04/01/2014 400 04/01/2014 500 04/14/2014 500 04/15/2014 275 04/15/2014 1,000 04/23/2014 300 04/27/2014 200 04/29/2014 195 04/30/2014 525 OMERS Realty CTT Holdings Two Inc Loblaw Cos Ltd Gloucester Credit Card Trust Xplornet Communications Inc/CA* Xplornet Communications Inc/CA* Glacier Credit Card Trust Empire Life Insurance* Kellogg Canada Inc Savanna Energy Services Corp* British Columbia Ferry Services Inc Pricoa Global Funding I TransAlta Corp 05/05/2014 180 05/08/2014 350 05/15/2014 254 05/15/2014 230 05/15/2014 75 05/20/2014 239 05/20/2014 200 05/22/2014 300 05/25/2014 125 05/27/2014 250 05/29/2014 400 05/29/2014 200 Nova Gas Transmission Ltd GE Capital Canada Funding Co American International Group Inc Manulife Financial Corp Royal Bank of Canada American Express Canada Credit Corp Canadian Imperial Bank of Commerce Manitoba Telecom Services Inc Nederlandse Financierings GE Capital Canada Funding Co Newfoundland & Labrador Hydro Pembina Pipeline Corp Metropolitan Life Global Funding I Royal Bank of Canada TransCanada PipeLines Ltd Sirius XM Canada Holdings Inc* John Deere Financial Inc Industrial Alliance Insurance & Financial Services Inc* TOTAL 06/01/2014 53 06/01/2014 450 06/02/2014 400 06/02/2014 1,000 06/05/2014 750 06/06/2014 325 06/06/2014 1,300 06/10/2014 200 06/10/2014 100 06/11/2014 200 06/15/2014 125 06/15/2014 175 06/17/2014 325 06/18/2014 600 06/20/2014 125 06/21/2014 131 06/23/2014 150 06/30/2014 150 13,255 *Call date falls within Quarter Source: BMO Capital Markets, Bloomberg Table 1.4 Maturity Schedule for Q3 2014 Issuer July Amount (C$ mm) Issuer August Amount (C$ mm) Issuer September Amount (C$ mm) Canadian Imperial Bank of Commerce Bank of Nova Scotia Veresen Inc 07/11/2014 625 07/16/2014 1,250 07/28/2014 200 InnVest Real Estate Investment Trust Toronto-Dominion Bank/The National Bank of Canada Plenary Properties LTAP LP 08/01/2014 70 08/04/2014 150 08/11/2014 100 08/18/2014 167 Aimia Inc Daimler Canada Finance Inc Bank of Montreal FortisBC Holdings Inc Trans Quebec & Maritimes Pipeline Inc Bank of America Corp Citigroup Finance Canada Inc Enbridge Gas Distribution Inc Aecon Group Inc 09/02/2014 150 09/12/2014 200 09/12/2014 355 09/15/2014 125 09/15/2014 75 09/17/2014 92 09/22/2014 350 09/24/2014 200 09/30/2014 173 4,282 TOTAL *Call date falls within Quarter Source: BMO Capital Markets, Bloomberg Table 1.5 Maturity Schedule for Q4 2014 Issuer October Amount (C$ mm) Issuer November Amount (C$ mm) Issuer December Amount (C$ mm) Canadian Imperial Bank of Commerce American Express Canada Credit Corp North American Palladium Ltd Central 1 Credit Union* Bank of Montreal Commonwealth Bank of Australia John Deere Financial Inc Emera Inc GE Capital Canada Funding Co InterPipeline Ltd. First Capital Realty Inc Canadian Imperial Bank of Commerce FortisAlberta Inc 10/02/2014 190 10/03/2014 800 10/04/2014 70 10/09/2014 150 10/10/2014 150 10/14/2014 550 10/14/2014 200 10/20/2014 250 10/22/2014 300 10/28/2014 289 10/30/2014 100 10/31/2014 250 10/31/2014 200 Wells Fargo Canada Corp Canadian Western Bank Royal Bank of Canada Bear Stearns Cos LLC/The Royal Bank of Canada CU Inc Bank of Nova Scotia Canadian Imperial Bank of Commerce Hydro One Inc Central 1 Credit Union Athabasca Oil Corp* FortisBC Inc Enbridge Income Fund 11/03/2014 1,000 11/04/2014 150 11/10/2014 750 11/12/2014 400 11/14/2014 200 11/18/2014 100 11/18/2014 1,500 11/19/2014 1,000 11/19/2014 750 11/19/2014 270 11/19/2014 550 11/28/2014 140 11/28/2014 200 Thomson Reuters Corp Cooperatieve Centrale Raiffeisen-Boerenleenbank BA Westpac Banking Corp First Place Tower Brookfield Properties Inc Manulife Bank of Canada Caisse Centrale Desjardins du Quebec Maple Leaf Foods Inc CI Financial Corp Royal Bank of Canada Enbridge Income Fund Canadian Imperial Bank of Commerce National Bank of Canada* BMO Capital Trust* TOTAL 12/01/2014 600 12/01/2014 75 12/01/2014 675 12/01/2014 310 12/03/2014 250 12/04/2014 500 12/08/2014 105 12/16/2014 200 12/22/2014 500 12/22/2014 90 12/22/2014 700 12/22/2014 350 12/31/2014 600 15,464 *Call date falls within Quarter Source: BMO Capital Markets, Bloomberg  Fixed Income Quarterly—Outlook Page 13 Canadian Corporate Debt Issuance Chart 1.3 Issuance by Sector (1999 – YTD 2014) Communications Infrastructure 6% Utilities 7% ABS 7% Maple 7% Other Financials 14% 6% Autos 5% Pipelines 3% Insurance - Big 4 2% Retail 2% Other 1% Industrials 1% Metals and Mining 1% Universities 0% Real Estate 1% Media 1% Pension Funds & Agencies 2% Other 8% Oil & Gas 2% Banks - Big 6 30% REIT 1% Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets Chart 1.4 Issuance by Sector 35% 30% 25% 20% 15% 10% 5% 0% 1999-2014 Q1 2014 Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets Banks - Big 6 30% 29% Other Financials 14% 11% Maple 7% 6% ABS 0% 7% Utilities 7% 5% Communications 6% 10% Infrastructure 6% 3% Autos 5% 9% Pipelines 3% 7% Insurance - Big 4 2% 2% Retail 2% 2% Pension Funds & Agencies 2% 0% Oil & Gas REIT Media Industrials Other Real Estate Metals and Mining Universities 2% 0% 1% 8% 1% 0% 1% 2% 1% 0% 1% 4% 1% 0% 0% 0% Page 14 Fixed Income Quarterly—Outlook Canadian Corporate Debt Issuance Chart 1.5 Issuance by Sector (Q1 2014) Industrials 2% Insurance - Big 4 2% Infrastructure Real Estate 3% 4%Utilities 5% Maple 6% Pipelines 7% Retail 2% REIT 8% Autos 9% Communications 10% Banks - Big 6 30% Other Financials 12% Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets Chart 1.6 Issuance by Term (1999 – 2014 YTD) 20-30 Years 6% 10-20 Years 5% 5-10 Years 31% 30+ Years 3% < 5 Years 55% Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets  Fixed Income Quarterly—Outlook Page 15 Canadian Corporate Debt Issuance Chart 1.7 Issuance by Term (Q1 2014) >10-20 Years 5% >20-30 Years 3% 30+ Years 1% <= 5 Years 37% >5-10 Years 54% Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets  Page 16 Fixed Income Quarterly—Outlook Canadian Corporate Debt Issuance Chart 1.8a Issuance by Ratings (1999 – 2014 YTD) AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- Non-Investment 102,369 131,730 10,238 121,364 105,746 77,748 71,021 46,320 19,877 24,950 0 50,000 100,000 C$ millions 150,000 202,988 200,000 250,000 Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets Chart 1.8b Issuance by Rating (1999 – 2014 YTD) Non-Investment 3% BBB 5% BBB+ 8% A- 9% A 12% A+ 13% BBB- 2% AAA 11% AA+ 1% AA 14% AA- 22% Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets  Fixed Income Quarterly—Outlook Page 17 Canadian Corporate Debt Issuance Chart 1.9 Issuance by Rating (Q1 2014) BBB- 12% AA- 26% A+ 14% BBB 8% BBB+ 11% A- 17% A 12% Note: Includes all Corporates with settlement date on or before March 31, 2014 Source: BMO Capital Markets  Page 18 Fixed Income Quarterly—Outlook Rating Agency Activity Canadian Corporate Debt: Ratings Trends 2002 – YTD 2014 70 60 50 40 30 20 10 0 10 20 30 40 50 60 70 80 90 Upgrades Pos CW - Pos. CW - Dev. Chart 2.1 Upgrades Pos CW - Pos. CW - Dev. Downgrades Neg CW - Neg. 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-Q3-Q4-Q1-Q2-Q3-Q4-Q1-Q2-Q3-Q4-Q1-Q2-Q3-Q4-Q1-Q2-Q3-Q4-Q1-Q2-Q3-Q4-Q1- 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 7 3 2 4 3 2 5 2 2 4 1 2 3 6 8 6 20 8 5 32 30 14 9 3 3 10 4 1 5 5 5 4 2 4 3 13 1 7 3 4 2 3 1 4 3 2 1 4 1 154 6115 817134 3 711105 41312159151310510512132 4 510104145 3 3 6 9 7 2 3 1 5 5 6 7 4 5 4 2 2 5 1 0 3 1 0 2 0 1 1 6 4 8 1 5 2 10 11 7 7 2 2 0 1 4 2 0 0 0 3 0 1 5 0 0 2 1 3 0 4 0 0 0 0 2 2 7 0 0 0 0 1 2 0 2 0 0 0 0 0 0 4 1 1 2 1 1 0 0 2 1 0 6 4 3 0 0 0 1 0 0 1 0 0 0 0 1 0 0 0 0 0 1 0 0 Downgrades2028222731191210115 1221111120161015127121016139 3 727152 7 8 6 7 6 2 3 8135126 7104 2122 Neg 1010102710118 3 3 7 2135201417184 9 6 3 3 620131461821183 4112 7 2 3 5 6117108 1 5 9 5 5 1 CW - Neg. 12 8 8 28 26 12 3 1 3 7 12 16 2 11 12 19 18 15 14 7 5 18 10 10 1 13 6 9 17 10 2 8 1 1 3 6 0 9 0 3 8 4 5 8 2 4 9 1 0 Source: BMO Capital Markets, DBRS, S&P, Moody’s As at March 31, 2014  Fixed Income Quarterly—Outlook Page 19 Rating Agency Activity YTD 2014 Canadian Corporate Debt Rating Changes by Sector Chart 2.2 6 4 2 0 2 4 CW-Negative CW-Positive Negative Positive Downgrade Upgrade CW-Developing INFRA TEL UTIL - Gas/Elec 1 0 0 Upgrade 1 1 3 Positive 2 0 0 CW-Positive 0 0 0 CW-Developing 2 0 0 Downgrade 0 0 1 Negative 0 0 0 CW-Negative As at March 31, 2014 Source: BMO Capital Markets Industry: ABS: Asset-Backed Security, AUTO: Auto, BANK: Bank, CABLE: Cable, FIN: Financial Services & Other Financials, IND: Industrial Products, INFRA: Infrastructure, INS: Insurance, M&M: Metals and Mining, O&G: Oil and Gas, OTHER: Other, PIPE: Pipeline, PFA: Pension Fund Agency, PP: Printing and Publishing, REAL ESTATE: Real Estate, RETAIL: Retailer, TEL: Telecom, UTIL: Gas/Elec: Gas and Electric Utility  Page 20 Fixed Income Quarterly—Outlook Rating Agency Activity Canadian Fixed Income Universe – Credits with Positive/Negative Outlooks Chart 2.3 25 20 15 10 5 0 22 9 5 1 1 Negative Under Review Negative Positive Under Review Positive Under Review Developing Note: Under Review also incorporates S&P CreditWatch trends Source: BMO Capital Markets, DBRS, Standard and Poor’s and Moody’s As at March 31, 2014  Fixed Income Quarterly—Outlook Page 21 Rating Agency Activity Canadian CreditWatch List – Canadian Fixed Income Issuers Table 2.1 Issuer Industry DBRS S&P Moody's Rating Outlook Rating Outlook Rating Outlook 407 East Development Group General Partnership1 INFRA AL Negative A- Stable nr BAC Canada Finance Company BANK AL Stable A- Negative Baa2 Stable Brookfield Corporation (BAM) REAL ESTATE AL Negative A- Stable Baa2 Stable Brookfield Office Properties REAL ESTATE BBB Stable BB+ CW-Developing nr Brookfield Renewable Energy Partners LP UTIL - Gas/Elec BBBH Stable BBB Positive nr Canadian Natural Resources Ltd. O&G BBBH UR-Developing BBB+ Stable Baa1 Stable Canadian Pacific Railway Company INFRA BBBL Positive BBB- CW-Positive Baa3 UR-Positive Citigroup Finance Canada BANK AL Stable A- Negative Baa2 Stable Edmonton Regional Airports Authority1 INFRA AH Stable A Positive A1 Stable Emera Inc. UTIL - Gas/Elec BBBH UR-Developing BBB+ Negative nr Encana Corporation O&G BBB Stable BBB Negative Baa2 Stable EPCOR Utilities Inc. UTIL - Gas/Elec AL Stable BBB+ Positive nr Fortis Inc. UTIL - Gas/Elec AL UR-Developing A- Negative nr FortisAlberta Inc. UTIL - Gas/Elec AL Positive A- Negative Baa1 Stable FortisBC Energy Inc. UTIL - Gas/Elec A Stable nr A3 Negative FortisBC Holdings Inc. UTIL - Gas/Elec BBBH Stable nr Baa2 Negative FortisBC Inc. UTIL - Gas/Elec AL Stable nr Baa1 Negative Granite REIT REAL ESTATE BBB Stable nr Baa3 Positive HSBC Bank Canada BANK AAL Stable AA- Negative nr Hydro One Inc. UTIL - Gas/Elec AH Stable A+ Negative A1 Stable Laurentian Bank of Canada BANK BBBH Positive BBB Stable nr Leisureworld Senior Care LP1 INFRA A Stable A- Negative nr Molson Coors Brewing Co. RETAIL BBB Stable BBB- Positive Baa2 Stable Nova Scotia Power Inc. UTIL - Gas/Elec AL Stable BBB+ Negative nr Ontario Power Generation UTIL - Gas/Elec AL Stable A- Negative nr Shaw Communications Inc. CABLE BBB Stable BBB- Positive Baa3 Stable Shoppers Drug Mart Corp.3 RETAIL AL UR-Negative BBB+ CW-Negative nr SNC-Lavalin Group Inc.4 INFRA BBB Negative BBB Negative nr Sobeys Inc. RETAIL BBBL Stable BBB- Negative nr Talisman Energy Inc. O&G BBBH Stable BBB Negative Baa2 Negative Teranet Holdings LP1 INFRA BBB Stable BBB+ Negative nr TransAlta Corporation UTIL - Gas/Elec BBB Stable BBB- Stable Baa3 Negative Viking Rideau1 REAL ESTATE AH UR-Developing nr nr Wells Fargo Canada Corporation BANK AA Stable A+ Negative A2 Stable As at March 31, 2014 Notes: * Ratings are those of senior unsecured obligations or long-term corporate family rating 1 Ratings are those of senior secured debt 2 Ratings are those of subordinated debt 3 Shoppers Drug Mart was downgraded by DBRS to BBB (Stable) on April 1, 2014 and by S&P to BBB (Stable) on April 3, 2014. 4 SNC Lavalin Group was revised to Stable from Negative by S&P on April 1, 2014 Industry: ABS: Asset-Backed Security, AUTO: Auto, BANK: Bank, CABLE: Cable, FIN: Financial Services & Other Financials, IND: Industrial Products, INFRA: Infrastructure, INS: Insurance, M&M: Metals and Mining, O&G: Oil and Gas, OTHER: Other, PIPE: Pipeline, PFA: Pension Fund Agency, PP: Printing and Publishing, REAL ESTATE: Real Estate, RETAIL: Retailer, TEL: Telecom, UTIL: Gas/Elec: Gas and Electric Utility Table 2.2 Canadian Rating Actions (Q1 2014) As at March 31, 2014 Notes: *Ratings are those of senior unsecured obligations or long-term corporate family rating Industry: ABS: Asset-Backed Security, AUTO: Auto, BANK: Bank, CABLE: Cable, FIN: Financial Services & Other Financials, IND: Industrial Products, INFRA: Infrastructure, INS: Insurance, M&M: Metals and Mining, O&G: Oil and Gas, OTHER: Other, PIPE: Pipeline, PFA: Pension Fund Agency, PP: Printing and Publishing, REAL ESTATE: Real Estate, RETAIL: Retailer, TEL: Telecom, UTIL: Gas/Elec: Gas and Electric Utility Issuer Sector Date Rating Agency Rating Action New Rating Former Rating Rating Outlook Rating Outlook Winnipeg Airport Authority Inc. AltaLink L.P. British Columbia Ferry Services Shaw Communications Inc. Canadian Pacific Railway Company Canadian Natural Resources Ltd. TransAlta Corporation FortisAlberta Inc. Teranet Holdings LP Canadian Pacific Railway Company British Columbia Ferry Services Brookfield Renewable Energy Partners LP INFRA UTIL - Gas/Elec INFRA TEL INFRA O&G UTIL - Gas/Elec UTIL - Gas/Elec INFRA INFRA INFRA UTIL - Gas/Elec 13-Jan-14 Moody’s 17-Jan-14 S&P 24-Jan-14 S&P 27-Jan-14 S&P 30-Jan-14 DBRS 19-Feb-14 DBRS 24-Feb-14 Moody's 24-Feb-14 DBRS 11-Mar-14 DBRS 12-Mar-14 S&P 17-Mar-14 S&P 31-Mar-14 S&P Downgrade Outlook Change Outlook Change Outlook Change Outlook Change Outlook Change Outlook Change Outlook Change Downgrade Outlook Change Upgrade Outlook Change A2 Stable A1 A- Stable A- A+ CW-Positive A+ BBB- Positive BBB- BBBL Positive BBBL BBBH UR-Developing BBBH Baa3 Negative Baa3 AL Positive AL BBB Stable BBBH BBB- CW-Positive BBB- AA- Stable A+ BBB Positive BBB Negative Negative Stable Stable Stable Stable Stable Stable Negative Stable CW-Positive Stable  Page 22 Fixed Income Quarterly—Outlook Relative Value 300 250 200 150 100 50 0 Source: BMO Capital Markets As at March 31, 2014 Chart 3.1 Relative Spread Graph for Selected 5-Year Indicative Spreads Relative Spreads (5-Year) 2 0 12 2 0 13 2 0 14 V I K R ENMA X P C T N P C C O REF H&R COS TA C CUF CPX A QN CRR CWT RIOCA N BIP A LPU T CNQ PPL SNC BA M C C D A BNNP LB A I L P S F W Y HSBCSUB SLFSUB ALP F CW N CWBTOC ENBIF CHPU SJR.B PF IGI SLA SUB DESJ NA NFPR CIF BELL EME RCI.B MBT THI TA P HSE TERA L MLISUB MFCI BNS CM TQM CWBsredghwy SU IPL GWL CL TD RY MFC SFL IPF BMO ENBI CTR A XP V W DCX EMA SDM CPR RYCOV CCDJ HSBCSNR WF GECC TM LOWMA T HDB BMW UNG EPCOR 407Sub JD ATLK FTBC DPTD DPRY DPBMO DPNA BCF GZM TH ETRENBP TER TRP FTA NAVSnr VAA NAVsub HYO CUI GTAA ENBG AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- Issuer Bank of Montreal (Snr) Bank of Nova Scotia (Snr) CIBC (Snr) GE Capital Canada Great West Lifeco NAV CANADA (Snr) Royal Bank of Canada (Snr) Toronto Dominion Bank (Snr) AA Rated Sector Banks Banks Banks Diversified Financials Diversified Financials Infrastructure Banks Banks Ratings Spread AA- 76 alp AA- 78 desj AA- 76 cui AA 79 enbg AA- 89 enbi AA 64 ter AA- 78 gzm AA 74 gtaa Issuer Alliance Pipeline Capital Desjardins CU Inc. Enbridge Gas Distribution Enbridge Inc. FortisBC Energy Inc. Gaz Metro GTAA 5 Year A Rated Sector Pipelines Banks Utilities Utilities Pipelines Utilities Utilities Infrastructure Utilities Diversified Financials Diversified Financials Banks Diversified Financials Pipelines Utilities Banks Ratings Spread A- 126 407Sub A+ 104 baun A+ 68 bell A 66 cnq A- 92 ctr A- 69 eca A+ 73 wn A 67 l A+ 66 mbt A+ 110 ema A+ 104 su A+ 79 t A+ 92 toc A- 74 tac A- 80 A+ 86 Issuer 407 International Inc. (Sub) Bell Aliant Bell Canada Canadian Nat. Resources Canadian Tire EnCana Corp. George Weston Loblaw Manitoba Telecom Nova Scotia Power Suncor TELUS Corp. Thomson Corp. TransAlta Corp. BBB Rated Sector Infrastructure Communications Communications Oil & Gas Retail Oil & Gas Retail Retail Communications Utilities Oil & Gas Communications Media Utilities Ratings Spread BBB 83 BBB 122 BBB+ 106 BBB+ 101 BBB+ 95 BBB 114 BBB 123 BBB 108 BBB 119 BBB+ 83 BBB+ 98 BBB+ 100 BBB+ 118 BBB- 228 hyo Hydro One igi IGM Financial mfci Manulife Financial DPNA National Bank (Snr) sfl Sun Life trp TransCanada Pipelines ung Union Gas Ltd. wf Wells Fargo Source: BMO Capital Markets bps Fixed Income Quarterly—Outlook Page 23 Relative Value Chart 3.2 Relative Spread Graph for Selected 10-Year Indicative Spreads 400 350 300 250 200 150 100 50 0 2012 Relative Spreads (10-Year) STLFAS UOIT MNE SLFSUB LW 2013 2014 CL RY NFPR BMO GECCCCDJ HSBCSNR WF IPF HZNHLD ENBI TA C CPX AQN REF BIP BAM BNNP CWT H&R SNC MLISUB PC IGI HSBCSUB CCDA CCO A LPU SFWY CWB FC MBT RIOCAN A LP TERA BAUNCCA SJR.B EME RCI.B CHPU METRO PF MFCI SLASUB DESJ SFL BNS CM BELL T IPL TRP EMA UNG EPCOR FTBC L THI CTR ENBIF ALG ECA 407Sub NA CWBsr INTACT GWL TD edghw yFIN HSE PPL CPR RY COV DPTD NAVSnr DPRY DPBMO DPNA LOWMA T HY OHI A TLK BCF TH GZM ENBP SU WE VAA NAVsub HYO CUI GTAA ETR ENBG TER AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- Source: BMO Capital Markets As at March 31, 2014 AA Rated Issuer Sector Ratings Spread A Rated Issuer Sector Ratings Spread Bank of Montreal (Snr) Bank of Nova Scotia (Snr) CIBC (Snr) GE Capital Canada Great West Lifeco NAV CANADA (Snr) Royal Bank of Canada (Snr) Toronto Dominion Bank (Snr) Banks AA- Banks AA- Banks AA- Diversified Financials AA Diversified Financials AA- Infrastructure AA Banks AA- Banks AA 119 alp 119 desj 119 cui 120 enbg 130 enbi 96 ter 119 gzm 114 gtaa Alliance Pipeline Capital Desjardins CU Inc. Enbridge Gas Distribution Enbridge Inc. FortisBC Energy Inc. Gaz Metro GTAA 10 Year Pipelines A- Banks A+ Utilities A+ Utilities A Pipelines A- Utilities A- Utilities A+ Infrastructure A Utilities A+ Diversified Financials A+ Diversified Financials A+ Banks A+ Diversified Financials A+ Pipelines A- Utilities A- 109 Banks A+ 126 407 International Inc. (Sub) Bell Aliant Bell Canada Canadian Nat. Resources Canadian Tire EnCana Corp. George Weston Loblaw Manitoba Telecom Nova Scotia Power Suncor TELUS Corp. Thomson Corp. TransAlta Corp. Infrastructure Communications Communications Oil & Gas Retail Oil & Gas Retail Retail Communications Utilities Oil & Gas Communications Media Utilities BBB 121 BBB 168 BBB+ 150 BBB+ - BBB+ 149 BBB 139 BBB - BBB 159 BBB 181 BBB+ 115 BBB+ 128 BBB+ 143 BBB+ - BBB- 295 158 407Sub 147 baun 100 bell 101 cnq 130 ctr 101 eca 106 wn 100 l hyo Hydro One igi IGM Financial mfci Manulife Financial DPNA National Bank (Snr) sfl Sun Life trp TransCanada Pipelines ung Union Gas Ltd. wf Wells Fargo 99 mbt 160 ema 155 su 122 t 143 toc 110 tac BBB Rated Issuer Sector Ratings Spread Source: BMO Capital Markets bps Page 24 Fixed Income Quarterly—Outlook Relative Value Chart 3.3 Relative Spread Graph for Selected 30-Year Indicative Spreads 500 400 Relative Spreads (30-Year) Relative Spreads (10-Year) 450 350 400 300 350 300 250 2012 2 0 11 2013 2 0 12 2014 C u r r e n t T A C CPX TA C AQN H&R 250 BIP CHPU CWT BAM BIP RIOCAN CCA TERA SNC SOBEY CCDBA M BNNP BA UNSFWY 2 0 0 MNE P C S T L F A S CCO BNNP THI SJR.BSJR.B U O I T C W B A L P U B A U ML N B T MLISUB NFPR LW HSBCSUB SLFSUB ALP CCO CTR ENBIF BELL RCI.B WN METRO SFWY ECA EME IGI MFCI INTACT T RCI.B PPL MAELTGRO L 2 0 0 150 150 100 100 50 50 0 PC IGI MFCI S L A S IUPSBFL F S U B IPL N A C W B s r C T R T E R A ALG C P R P F GECC GWL TD BELLSU HSE HSBCSNR DESJ SLA SUB CM BRNYS ENBI FIN edghw y T DPGTDECCDPRY DPGBMWOL DPNA LOWMAT THGZM HYOHI ENBP ENBI SUEMA WE CCDJ CL WF DPBNS DPCIBC CL SFL NFPR HZNHLD TRP INTUANCGT PPL CPR PF SFL BMO edghw y WE IPL A A-- BBBB++ 407Sub BCF CU 407Sub RYCOV AAA NAVSnr NAVsub CUI PWRSTM TERP FETPSCOR EMA BCF HALFX CUI ENBPATLK VAA AERMOHNYO TH GTAA ETRATLEKNBG UNG NAVsub HYO GZM ETR ENBGTER FTA FTBC NAVSnr VAA GTA A AAA++ AA A-- AA++ BBBB BBB-- Source: BMO Capital Markets As at March 31, 2014 AA Rated Issuer Sector Ratings Spread A Rated Issuer Sector Ratings Spread BBB Rated Issuer Sector Ratings Spread 30 Year Bank of Montreal (Snr) Bank of Nova Scotia (Snr) CIBC (Snr) GE Capital Canada Great West Lifeco NAV CANADA (Snr) Royal Bank of Canada (Snr) Toronto Dominion Bank (Snr) Banks AA- Banks AA- Banks AA- Diversified Financials AA Diversified Financials AA- Infrastructure AA Banks AA- Banks - alp - desj - cui 143 enbg 151 enbi 125 ter Alliance Pipeline Capital Desjardins CU Inc. Enbridge Gas Distribution Enbridge Inc. FortisBC Energy Inc. Gaz Metro GTAA Pipelines Banks A+ Utilities A+ Utilities A Pipelines A- Utilities A- Utilities A+ Infrastructure A Utilities A+ Diversified Financials A+ Diversified Financials A+ Banks A+ Diversified Financials A+ Pipelines A- Utilities A- 137 Banks A+ - 407 International Inc. (Sub) Bell Aliant Bell Canada Canadian Nat. Resources Canadian Tire EnCana Corp. George Weston Loblaw Manitoba Telecom Nova Scotia Power Suncor TELUS Corp. Thomson Corp. TransAlta Corp. Infrastructure Communications Communications Oil & Gas Retail Oil & Gas Retail Retail Communications Utilities Oil & Gas Communications Media Utilities BBB 156 BBB 238 BBB+ 189 BBB+ - BBB+ 195 BBB - BBB 220 BBB 195 BBB - BBB+ 142 BBB+ 163 BBB+ 183 BBB+ - BBB- 365 - gzm AA- gtaa 131 bell 128 cnq 154 ctr 132 eca 131 wn 129 l 129 mbt 184 ema 192 su hyo Hydro One igi IGM Financial mfci Manulife Financial DPNA National Bank (Snr) sfl Sun Life trp TransCanada Pipelines ung Union Gas Ltd. wf Wells Fargo - t 176 toc 142 tac A-- 407Sub - baun Source: BMO Capital Markets bps bps Fixed Income Quarterly—Outlook Page 25 Data Tables Table 4.1 Indicative Spread Changes – Q1 2014 Indicative 2-Year (bps) Indicative 5-Year (bps) 31-Mar-14 Cash BA Absolute Change Cash BA 31-Mar-14 Cash BA Absolute Change Cash BA Cash Thresholds* Lower Upper Cash Thresholds* Lower Upper Canada Yield Provinces Province of B.C. Province of Ontario Province of Quebec ABS** Big Candian Banks Credit Card Glacier Credit Card Banks (Senior) BMO CIBC National Bank Royal Bank Scotiabank TD Bank Banks (Sub debt) BMO CIBC National Bank Royal Bank Scotiabank TD Bank Diversified Financials GE Capital Great-West LifeCo. IGM Financial Manulife Financial Sun Life Financial Infrastructure 407 International GTAA NAV Canada (Senior) Oil & Gas Canadian Natural Resources EnCana Suncor Pipelines Alliance Pipeline Limited Partnership Enbridge Inc. Enbridge Income Fund Enbridge Pipelines TransCanada Pipelines Westcoast Energy REITs Calloway REIT First Capital Realty H&R REIT RioCan REIT Retail Canadian Tire Loblaw METRO Inc. Molson Coors Telecom/Media Bell Canada TELUS Thomson Utilities Brookfield Renewable Power CU Inc. Enbridge Gas Distribution EPCOR Utilities FortisAlberta Gaz Metropolitan Hydro One Nova Scotia Power TransAlta Corp. Union Gas 1.07% -- -- -- 62 31 69 38 59 28 59 28 62 31 60 29 61 30 55 24 77 46 78 47 82 51 77 46 77 46 74 43 62 31 59 28 76 45 77 46 69 38 53 22 52 21 50 19 62 31 93 62 62 31 106 75 71 40 96 65 51 20 56 25 64 33 93 62 81 50 101 70 86 55 65 34 78 47 -- -- 72 41 72 41 75 44 103 72 50 19 48 17 60 29 -- 55 24 50 19 62 31 166 135 58 27 1.70% 31 - 50 - 53 - 71 37 79 45 76 42 76 41 79 44 78 43 78 43 74 39 97 62 99 64 107 72 97 62 98 63 94 59 79 44 89 54 110 75 104 69 92 57 70 35 67 32 64 29 101 66 114 79 98 63 126 91 92 57 117 82 67 32 74 39 100 65 143 108 131 96 157 122 136 101 95 61 108 74 113 79 115 81 106 72 100 66 118 83 136 101 68 33 66 31 75 40 72 37 73 38 66 31 83 48 228 193 80 45 -- -- -- (7) (12) (8) (13) (5) (10) (5) (10) (4) (9) (4) (9) (4) (8) (5) (10) (19) (23) (19) (23) (21) (26) (19) (23) (19) (23) (16) (20) (4) (9) (1) (6) (1) (6) (1) (6) (1) (6) 0 (5) (1) (6) 0 (5) (16) (20) 94 (12) (16) (8) (13) 0 (5) 50 0 (5) (8) (13) (9) (14) (18) (22) (19) (23) (26) (30) (17) (21) (17) (22) (17) (22) -- -- (5) (10) (6) (11) (16) (21) (10) (15) (1) (6) 0 (5) (1) (6) -- (1) (6) (1) (6) (1) (6) (8) (13) (8) (13) -- -- -- 28 143 68 293 25 136 28 146 24 184 18 110 18 110 25 126 24 153 25 166 30 187 24 145 24 144 25 145 20 154 26 147 31 179 55 200 32 195 23 99 31 111 22 93 36 144 28 144 27 135 37 169 28 126 92 258 25 114 26 120 33 124 102 242 89 242 112 251 70 350 69 220 74 270 -- -- 28 315 40 185 26 175 55 315 23 92 25 114 35 135 -- 24 101 20 86 35 119 51 282 29 115 4- 9- 10 - (12) (13) (12) (13) (7) (8) (8) (9) (7) (7) (8) (8) (6) (7) (5) (5) (11) (11) (11) (11) (7) (7) (11) (11) (11) (11) (11) (11) (8) (8) (4) (4) (3) (3) (2) (2) (1) (1) (4) (4) (8) (8) (3) (3) (9) (9) (7) (7) (12) (12) (5) (5) (7) (7) 32 (5) (5) (7) (7) (12) (12) (22) (22) (19) (19) (25) (25) (17) (17) (21) (22) (21) (22) (8) (9) (19) (20) (18) (19) (12) (13) (8) (8) (1) (1) (4) (4) (2) (2) (4) (4) (5) (5) (4) (4) (5) (5) (4) (4) (6) (6) (10) (10) 12 59 13 63 19 66 28 135 30 174 35 163 37 174 39 220 27 135 28 134 35 150 36 185 37 195 43 216 36 182 36 182 37 182 30 190 38 173 46 195 72 244 44 238 35 120 44 126 31 106 51 180 40 175 39 165 53 191 42 156 53 252 36 139 38 150 46 148 156 289 115 525 175 294 99 400 101 256 106 315 102 300 121 275 42 350 60 207 37 208 70 360 33 109 36 139 48 161 42 119 33 118 30 98 50 139 66 306 41 130 Domestic Corporate Avg. (Excluding Maples) (7) (9) * Thresholds are based on the historical 10th (Lower) and 90th (Upper) percentile of daily spreads; ** ABS spreads are 3- and 5-Year. R - Restricted Source: BMO Capital Markets  Page 26 Fixed Income Quarterly—Outlook Data Tables Table 4.2 Indicative Spread Changes – Q1 2014 Indicative 10-Year (bps) Indicative 30-Year (bps) 31-Mar-14 Cash BA Absolute Change Cash BA Cash Thresholds* Lower Upper 31-Mar-14 Cash BA Absolute Change Cash BA Cash Thresholds* Lower Upper Canada Yield Provinces Province of B.C. Province of Ontario Province of Quebec Banks (Senior) BMO CIBC National Bank Royal Bank Scotiabank TD Bank Banks (Sub Debt) BMO CIBC National Bank Royal Bank Scotiabank TD Bank Diversified Financials GE Capital Great-West LifeCo. IGM Financial Manulife Financial Sun Life Financial Infrastructure 407 International GTAA NAV Canada (Senior) Oil & Gas EnCana Suncor Energy Pipelines Alliance Pipeline Limited Partnership Enbridge Inc. Enbridge Pipelines TransCanada Pipelines Westcoast Energy REITs Calloway REIT First Capital Realty H&R REIT RioCan REIT Retail Canadian Tire Loblaw METRO Inc. Telecom/Media Bell Canada TELUS Utilities Brookfield Renewable Power CU Inc. Enbridge Gas Distribution EPCOR Utilities FortisAlberta Gaz Metropolitan Hydro One Nova Scotia Power TransAlta Corp. Union Gas 2.46% 65 - 82 - 92 - 119 81 119 81 122 84 119 81 119 81 114 76 140 102 143 105 149 111 140 102 141 103 137 99 120 82 130 92 160 122 155 117 143 105 103 65 100 62 96 58 139 101 128 90 158 120 130 92 103 65 110 72 129 91 188 150 178 140 205 167 181 143 149 111 159 121 167 129 150 112 143 105 192 154 100 62 101 63 109 71 -- 106 68 99 61 115 77 295 257 109 71 4- 3- 5- (4) 0 (4) 0 (4) 0 (4) 0 (4) 0 (4) 0 (4) 0 (4) 0 (3) 1 (4) 0 (4) 0 (4) 0 (4) 0 (6) (2) (7) (3) (6) (2) (5) (1) (3) 1 (5) (1) (1) 3 (14) (9) (14) (9) (1) 3 (3) 1 (1) 3 (1) 3 (12) (8) (32) (27) (27) (22) (33) (28) (27) (22) (26) (22) (26) (22) (11) (7) (16) (12) (13) (9) (10) (6) (3) 1 04 (3) 1 -- (3) 1 (3) 1 (3) 1 (31) (27) (7) (3) 21 88 28 99 38 110 50 181 54 195 62 256 46 157 47 158 50 168 58 218 60 228 66 243 57 215 58 216 59 215 47 238 59 205 72 237 93 303 69 274 57 144 68 152 48 125 67 220 65 205 76 239 68 195 57 158 61 182 70 175 212 384 193 322 230 369 195 290 158 321 163 375 160 365 71 400 90 260 100 490 52 131 57 158 73 200 -- 51 145 47 123 77 167 100 400 62 159 2.96% 79 - 93 - 107 - -- -- -- -- -- -- -- -- -- -- -- -- 143 100 151 108 184 141 192 149 176 133 131 88 129 85 125 81 -- 163 119 -- 154 110 130 86 142 98 157 113 -- -- -- -- 195 152 195 152 215 172 189 146 183 140 259 215 131 87 128 84 138 94 132 88 131 87 129 85 142 98 365 322 137 93 2- 1- 3- -- -- -- -- -- -- -- -- -- -- -- -- (9) (9) (13) (13) (12) (12) (15) (15) (16) (16) (6) (6) (7) (7) (7) (7) -- (11) (11) -- (11) (11) (4) (4) (3) (3) (9) (9) -- -- -- -- (35) (35) (37) (37) (15) (15) (9) (9) (10) (10) (27) (27) (4) (4) (4) (4) (8) (8) (10) (10) (4) (4) (5) (5) (5) (5) (24) (24) (2) (2) 33 96 46 104 56 119 -- -- -- -- -- -- -- -- -- -- -- -- 87 288 96 254 115 281 123 341 102 319 92 168 117 180 73 156 -- 116 245 -- 123 231 99 175 115 215 125 202 -- -- -- -- 234 390 237 420 230 430 131 415 150 285 158 525 86 158 99 176 127 250 104 177 89 170 79 154 130 204 171 471 114 178 Domestic Corporate Avg. (Excluding Maples) (9) (14) * Thresholds are based on the historical 10th (Lower) and 90th (Upper) percentile of daily spreads. R - Restricted Source: BMO Capital Markets  Fixed Income Quarterly—Outlook Page 27 Data Tables Table 4.3 Spread Changes by Sector – Quarterly (2s and 5s) 2 Yr. Indicative Spreads 5 Yr. Indicative Spreads Average Spread as of 31-Mar-14 Mean Absolute Change Q1/14 Mean Percentage Change Q1/14 Mean Lower Threshold Mean Upper Threshold Average Spread as of 31-Mar-14 Mean Absolute Change Q1/14 Mean Percentage Change Q1/14 Mean Lower Threshold Mean Upper Threshold Banks - Senior Banks - Sub Industrial Infrastructure Life Insurers - Senior Oil and Gas Pension Funds & Agencies Pipelines Real Estate Retail Telecom Utilities 59 77 84 77 68 88 46 84 115 80 -18 -18% 73 206 80 -9 -10% 61 243 76 -4 -5% 46 163 -4 -7% 23 135 -18 -19% 25 157 -5 -5% 40 168 -5 -6% 47 156 -1 -1% 38 180 -8 -8% 32 148 0 0% 37 108 -6 -7% 55 146 -19 -14% 105 259 76 -7 98 -10 104 -5 96 -7 95 -2 104 -8 65 -11 103 -7 198 -15 111 -19 114 -16 101 -7 -8% 33 163 -9% 37 190 -4% 55 187 -7% 59 187 -2% 51 218 -7% 47 164 -14% 44 132 -6% 61 168 -7% 141 343 -15% 105 252 -12% 89 284 -6% 55 168 * Thresholds are based on the historical 10th (Lower) and 90th (Upper) percentile of daily spreads; ** ABS spreads are 3- and 5-Year R - Restricted Source: BMO Capital Markets Table 4.4 Spread Changes by Sector – Quarterly (10s and 30s) 10 Yr. Indicative Spreads 30 Yr. Indicative Spreads Average Spread as of 31-Mar-14 Mean Absolute Change Q1/14 Mean Percentage Change Q1/14 Mean Lower Threshold Mean Upper Threshold Average Spread as of 31-Mar-14 Mean Absolute Change Q1/14 Mean Percentage Change Q1/14 Mean Lower Threshold Mean Upper Threshold Banks - Senior Banks - Sub Industrial Infrastructure Life Insurers - Senior Oil and Gas Pension Funds & Agencies Pipelines Real Estate Retail Telecom Utilities 119 -4 142 -4 162 -9 149 -7 143 -6 135 -13 101 -7 141 -5 206 -28 167 -23 164 -18 139 -8 -3% 52 186 -3% 60 222 -5% 85 220 -4% 98 236 -4% 74 261 -8% 76 202 -6% 63 165 -4% 88 206 -12% 200 320 -12% 162 313 -10% 141 325 -5% 77 200 NA NA NA NA NA NA 163 -10 173 -15 NA NA NA NA 155 -9 NA NA 214 -35 212 -16 155 -10 NA NA NA NA NA NA NA NA NA -6% 130 240 -8% 107 305 NA NA NA NA NA NA -6% 116 206 NA NA NA -14% 241 391 -7% 195 367 -6% 115 227 * Thresholds are based on the historical 10th (Lower) and 90th (Upper) percentile of daily spreads R - Restricted Source: BMO Capital Markets  Page 28 Fixed Income Quarterly—Outlook Data Tables Provinces Banks (Sub Debt) Diversified Financials Infrastructure Oil & Gas Retail Telecom/Media Utilities Brookfield Renewable Power Nova Scotia Power FortisBC Energy Inc. TransAlta Corp. Union Gas Table 4.5 Curve Spreads by Company 2s - 5s Curve 5s - 10s Curve 10s - 30s Curve 2s-5s spreads as of *Historical Thresholds 5s-10s spreads as of *Historical Thresholds 10s-30s spreads as of *Historical Thresholds 31-Mar-14 31-Dec-13 Narrow Wide 31-Mar-14 31-Dec-13 Narrow Wide 31-Mar-14 31-Dec-13 Narrow Wide Province of B.C. Province of Ontario Province of Quebec Banks (Senior) BMO CIBC National Bank Royal Bank Scotiabank TD Bank -- -- -- 18 20 17 20 17 19 18 21 17 20 19 18 20 12 21 13 25 11 20 12 21 13 20 15 17 20 30 32 34 35 27 27 23 22 17 20 15 21 14 16 39 32 21 36 36 36 -- -- -- 9 52 9 50 12 49 8 46 8 46 9 46 34 34 32 38 39 44 43 40 44 40 44 41 42 38 42 40 41 40 44 37 45 38 43 39 44 37 44 37 44 37 42 38 42 44 51 55 52 56 52 56 34 33 34 31 33 31 -- 25 32 30 32 7 38 10 41 15 47 15 42 15 43 22 43 15 41 15 42 15 43 14 16 12 13 15 17 -- -- -- -- -- -- -- -- -- -- -- -- 23 28 21 28 24 29 37 46 33 44 28 31 29 30 29 34 -- -- 35 32 - 16 -1 21 5 22 -- -- -- -- -- -- BMO CIBC National Bank Royal Bank Scotiabank TD Bank 10 42 10 43 11 42 10 42 10 43 10 42 20 47 20 46 20 48 19 46 19 46 19 47 -- -- -- -- -- -- GE Capital Great-West LifeCo. IGM Financial Manulife Financial Sun Life Financial 9 47 10 37 11 45 11 53 11 41 12 56 19 50 22 59 16 76 20 56 8 37 18 51 22 52 24 54 16 72 407 International GTAA NAV Canada 10 33 12 31 7 31 19 37 21 39 13 35 14 40 15 53 16 44 Canadian Natural Resources EnCana Suncor Inc. 13 41 12 36 11 36 28 56 25 50 23 50 30 61 23 55 25 55 Pipelines Alliance Pipeline Limited Partnership Enbridge Inc. Enbridge Income Fund Enbridge Pipelines TransCanada Pipelines Westcoast Energy REITs Calloway REIT 20 16 21 27 21 23 16 20 18 16 36 38 50 54 11 30 11 34 14 47 9 33 9 30 10 32 47 55 33 29 39 35 39 47 37 33 37 31 30 30 45 55 22 45 25 43 31 63 17 37 22 47 20 38 50 96 -- 24 31 -- 27 29 32 33 28 24 -- -- 30 65 -- 18 44 32 61 21 57 -- First Capital Realty H&R REIT RioCan REIT 50 50 56 55 50 50 43 60 43 58 29 56 47 55 48 56 45 55 54 59 51 56 54 57 44 42 43 44 -- 57 66 33 32 36 34 35 34 34 33 34 32 33 32 33 30 68 93 30 27 50 75 50 75 50 60 -- -- -- -- -- -- Canadian Tire Loblaw METRO Inc. 30 34 30 34 -- 34 47 28 34 43 34 33 23 18 20 18 19 15 17 18 20 16 19 21 23 16 19 62 59 22 23 26 53 25 48 -- 45 75 50 75 50 72 46 55 36 47 48 52 39 32 40 37 -- 67 83 31 31 27 30 29 33 25 25 30 31 27 28 31 31 70 63 28 22 45 94 45 94 40 90 Bell Canada TELUS Thomson Corp. 12 48 15 42 11 35 24 65 30 65 -- 10 77 20 75 -- 15 45 30 67 45 126 CU Inc. Enbridge Gas Distribution EPCOR Utilities Gaz Metropolitan Hydro One 8 31 9 32 11 32 7 34 7 30 15 34 18 37 23 42 15 37 14 35 21 40 19 45 26 56 20 43 21 40 11 32 9 31 14 59 9 29 22 37 18 36 30 86 17 40 25 56 23 61 41 93 16 56 Simple Avg (ex-Provincials/Maples) 26 28 15 42 43 44 26 52 35 40 28 66 Note: Thresholds are based on the historical 10th (Lower) and 90th (Upper) percentile of daily spreads. Source: BMO Capital Markets  Fixed Income Quarterly—Outlook Page 29 Data Tables Table 4.6 Curve Spreads by Sector 2s - 5s Curve 5s - 10s Curve 10s - 30s Curve 2s-5s spreads as of Historical Thresholds* 5s-10s spreads as of Historical Thresholds* 10s-30s spreads as of Historical Thresholds* 31-Mar-14 31-Dec-13 Narrow Wide 31-Mar-14 31-Dec-13 Narrow Wide 31-Mar-14 31-Dec-13 Narrow Wide Banks - Senior Banks - Sub Infrastructure Life Insurers - Senior Oil and Gas Pipelines Real Estate Retail Telecom Utilities 17 20 21 13 22 24 26 27 32 35 20 20 53 53 30 33 34 40 26 30 9 48 10 42 12 37 11 44 13 37 13 35 43 59 26 48 20 61 12 37 42 40 44 38 41 41 48 52 30 34 36 35 51 60 54 57 49 52 41 43 16 42 20 47 24 46 18 61 27 52 24 45 49 75 49 74 21 78 21 44 -- -- 37 41 30 39 35 32 30 33 -- 46 59 53 50 32 36 -- -- 23 61 19 59 27 61 28 59 -- 47 98 33 92 25 57 Corporate Avg (ex-Provincials/Maples) 26 28 15 42 43 44 26 52 35 40 28 66 Note: Thresholds are based on the historical 10th (Lower) and 90th (Upper) percentile of daily spreads. Source: BMO Capital Markets  Page 30 Fixed Income Quarterly—Outlook Data Tables Sector Rating and Corporate Rankings Table 5.1 Corporate Value Rankings Relative Value 5-Years ---------------------Technical---------------------|------BMO View------ Relative Value 10-Years --------------------Technical-------------------------BMO View----- Relative Value 30-Years --------------------Technical-------------------------BMO View----- Implied Credit Indicative Implied Rating Issuer Implied Credit Rating Issuer Implied Credit Issuer Rating Value Value Average Spread Spread From Value on Spread Spread From Value on Spread Spread From Value on Indicative Indicative Implied Value Implied Credit Rating for for Rating Indicative within 31-Mar-14 Category Spread Sector plus = Strong, blank = Average, minus = Weak Market Perform Credit Curve + + + + + + + + + + + + for for Rating Indicative 31-Mar-14 Category Spread Market Perform na na na 119 113 AA- 119 113 AA- na na na na na na na na na Market Perform na na na na na na na na na na na na na na na na na na Market Perform 164 A 164 A- 164 BBB+ 176 BBB 176 BBB 189 BBB 176 BBB+ Market Perform 113 A+ 126 A- 126 A Underperform 99 126 AA 101 139 AA 104 139 AA 100 126 AA na na na 102 126 AA 109 151 AA- 106 126 AA Market Perform 100 139 AA 103 139 AA 96 101 AA Market Perform within Credit Sector Curve na na na na na na na na na na na na na na na na na na na na + + + + + + + + + + na na + + + + for for Rating Indicative 31-Mar-14 Category Spread Market Perform within Credit Sector Curve Banks (Deposit Note spreads) - Market Perform TD Bank AA Royal Bank AA- Bank of Montreal AA- Scotiabank AA- National Bank A+ CIBC AA- Banks (Sub Debt spreads) - Market Perform TD Bank A+ Royal Bank A Bank of Montreal A Scotiabank A National Bank A- CIBC A Communications - Outperform TELUS Corp. BBB+ Bell Canada BBB+ Rogers Communications BBB+ Cogeco Cable BBB Manitoba Telecom BBB Shaw Communications BBB- Bell Aliant BBB Insurance - Market Perform Great-West LifeCo AA- Manulife Financial A+ Sun Life Financial A+ Gas and Electric Utilities - Underperform Hydro One A+ Enbridge Gas Distribution A AltaLink LP A CU Inc. A+ FortisAlberta A- Toronto Hydro A+ Union Gas A- Gaz Metro inc. A+ Infrastructure - Market Perform GTAA A 407 International A NAV CANADA (Senior) AA Pipelines - Market Perform Enbridge Pipelines A Enbridge Inc. A- TransCanada PipeLines A- REITs - Outperform Calloway REIT BBB First Capital Realty BBB+ H&R REIT BBB RioCan REIT BBB Retail - Underperform Loblaw BBB Metro BBB Canadian Tire BBB+ Source: BMO Capital Markets 74 64 78 75 76 75 78 75 79 86 76 75 AA- - AA- + AA- + AA- + AA- + AA- + na na na na na na na na na na na na na na na na na na na na na na na na na na na na na na Market Perform 94 86 A 97 96 A 97 96 A 98 96 A 107 107 A- 99 96 A Market Perform na na na na na na na na na na na na na na na na na na na na na na na na na na na na na na Outperform 199 190 BBB + 189 190 BBB+ + 207 190 BBB + na na na na na na na na na na 241 223 BBB- + 238 207 BBB- + Market Perform 151 125 A na na na na na na na na na na Underperform 129 141 AA- + 128 157 AA- + 132 157 AA- + 131 141 AA- 132 174 AA- + 132 141 AA- 137 174 A+ 131 141 AA- Market Perform 129 157 AA- + + 131 157 AA- + 125 108 AA- + Market Perform 130 157 AA- 154 174 A + 142 174 A+ NA Outperform 100 118 106 118 114 118 na na 119 128 123 139 122 128 A + 143 A- 150 BBB+ 161 na 173 BBB+ 181 BBB + + 173 BBB+ + 168 Market Perform 89 75 A+ 130 104 86 A- + + 155 92 86 A + 143 Underperform 66 86 AA + 66 96 AA + 70 96 AA + 68 86 AA 72 107 AA- 69 86 AA 80 107 AA- 73 86 AA- Market Perform 67 96 AA 70 96 AA + 64 64 AA Market Perform 67 96 AA 92 107 A + 74 107 AA- Outperform 143 128 BBB- 131 118 BBB + 157 128 BBB- 136 128 BBB- - Underperform 108 128 A- + 113 128 BBB+ 103 139 AA 130 151A++ + 110 151 AA- + Outperform 188 176 178 164 205 176 181 176 + BBB- + BBB + + BBB- + BBB - + na na na na na na na na na na na na na na na na na na na na NA Underperform 195 207 BBB+ + + 215 207 BBB- + 195 190 BBB+ 159 176 na na na na na BBB+ 95 118A nanana na na  Fixed Income Quarterly—Outlook Page 31 Data Tables Sector Rating and Corporate Rankings Banks - Market Perform TD Bank Royal Bank Bank of Montreal Scotiabank - National Bank CIBC --+ Table 5.2 Corporate Rankings and Credit Scorecard Risks M&A External Regulatory Issuance   Liquidity  Other  Credit Profile Financial Fundamental Ratings plus = Improving, blank = Stable, minus = Weakening New plus = Low, blank = Average, minus = High - - + Trading Credit - - + - - + - - + - - + - - + Communications - Outperform - - + TELUS Corp. - - + Bell Canada - - + Rogers Communications - - + Cogeco Cable - - - + Manitoba Telecom - - Shaw Communications - - + Bell Aliant - - + Insurance - Market Perform - - + Great-West LifeCo - - + Manulife Financial - - + Sunlife Financial - - + Gas and Electric Utilities - Underperform + + - Hydro One + + - Enbridge Gas Distribution + AltaLink LP - - + - CU Inc. + + - FortisAlberta + + Toronto Hydro + Union Gas + Gaz Metro inc. + Infrastructure - Market Perform + - Greater Toronto Airports Authority + - 407 International + - NAV CANADA + - Pipelines - Market Perform - Enbridge Pipelines Inc. - Enbridge Inc. - TransCanada PipeLines - REITs - Outperform Calloway REIT First Capital Realty H&R REIT RioCan REIT Retail - Underperform - - + + + + - - + - + + + + - - - + + + + + - - + + + + + + + + + + + + - + - + - - - - - - - - - - + - - - - - - + + + + + + - - + + + + + - Loblaw Metro Canadian Tire Source: BMO Capital Markets -++- ------ - - + + - + -  Page 32 Fixed Income Quarterly—Outlook Dex Universe Corporate Bond Index Table 6.1 Total Return and Spread Change: YTD 2014 Short Mid Long Broad Sector Return Spread (bps) Return Spread (bps) Return Spread (bps) Return Spread (bps) MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD All Corporates 0.07% 1.39% -1.90 -8.59 0.11% 3.85% -4.99 -13.90 0.29% 6.06% -3.31 -9.33 0.13% 2.95% -2.98 -8.68 Communication - Media Communication - Telecommunication Energy - Distribution Energy - Exploration Energy - Generation Energy - Pipelines Financial - Auto Finance Financial - Bank Financial - Insurance Financial - Services Infrastructure - Health Infrastructure - Transportation Infrastructure - Utility Other Real Estate Retail Securitization 0.15% 0.16% 0.04% 0.15% 0.23% 0.11% 0.07% 0.03% 0.16% 0.08% 0.20% 0.05% 0.07% 0.17% 0.31% 0.18% 0.07% 0.99% 1.42% 1.31% 1.69% 1.95% 1.34% 1.50% 1.32% 1.55% 1.44% 1.04% 1.27% 1.53% 1.72% 2.31% 1.58% 1.10% -3.67 -4.98 -2.41 -2.24 -7.87 -4.61 -3.53 -0.60 -5.74 -2.14 -8.38 -2.81 -3.51 -3.00 -12.72 -3.30 -2.31 -14.23 -13.09 -4.69 -9.89 -9.15 -4.10 -5.99 -8.07 -13.61 -8.11 -12.89 -8.15 -6.87 -15.15 -19.57 -12.39 -9.70 0.24% 0.20% -0.07% 0.25% 0.19% 0.00% 0.01% 0.19% 0.09% -0.01% -0.09% -0.10% 0.31% 0.15% 0.47% 4.11% 4.05% 3.56% 3.32% 4.42% 3.69% 0.42% 3.48% 3.73% 3.40% 0.39% 3.23% 3.83% 4.17% 4.37% 4.84% -7.22 -5.16 -1.12 -8.70 -5.63 -1.51 -6.75 -6.67 -5.87 -4.45 -3.26 -1.92 -7.29 0.03 -2.74 -17.11 -13.82 -3.95 -12.56 -18.17 -5.01 -22.01 -15.61 -10.31 -8.33 -7.43 -18.69 -6.50 -14.43 1.75% 0.83% 0.11% 0.33% -0.02% 0.21% 0.35% 0.44% 0.57% 0.12% 0.06% 0.06% 0.76% -0.65% 1.10% 8.72% 6.48% 5.97% 5.55% 5.32% 5.70% 6.12% 6.21% 5.96% 5.83% 5.42% 6.15% 7.05% 4.82% 7.94% -14.23 -7.34 -2.20 -4.80 0.10 -2.31 -3.25 -5.08 -6.22 -0.67 -0.71 -1.87 0.62 6.04 -10.75 -28.20 -13.21 -5.58 -4.49 -14.29 -7.18 -12.81 -10.60 -8.55 -11.48 -6.12 -6.00 -10.46 -4.14 -26.26 0.52% 0.35% 0.07% 0.22% 0.11% 0.10% 0.07% 0.04% 0.22% 0.13% 0.12% 0.03% 0.03% 0.30% 0.15% 0.54% 0.07% 4.17% 3.75% 4.92% 2.79% 4.40% 3.87% 1.51% 1.70% 3.05% 2.33% 5.12% 4.22% 4.83% 3.60% 3.53% 4.58% 1.10% -7.15 -6.13 -2.60 -3.49 -3.86 -2.22 -3.53 -1.18 -5.86 -3.15 -2.02 -1.65 -2.22 -9.75 -5.15 -9.25 -2.31 -17.24 -13.30 -5.43 -8.28 -16.97 -5.69 -5.99 -8.06 -13.96 -7.20 -6.56 -6.73 -5.22 -17.80 -8.98 -20.22 -9.70 Short Mid Long Broad Bank Debt Return Spread (bps) Return Spread (bps) Return Spread (bps) Return Spread (bps) MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD Bank - Covered Bank - Senior Bank - Sub Bank - Tier 1 Bank - Tier 2A 0.00% -0.01% 0.13% 0.06% 0.20% 1.43% 1.31% 1.16% 1.71% 1.50% 9.29 0.34 -3.92 -3.06 -6.97 -0.24 -7.07 -12.88 -9.88 -13.21 -0.02% 0.00% 0.05% 3.62% 3.47% 3.31% -5.82 -4.56 -5.37 -12.09 -17.03 -15.60 0.15% 0.25% 0.52% 5.98% 4.92% 6.41% -2.09 -2.96 -5.24 -15.79 -8.82 -12.89 0.00% 0.00% 0.11% 0.13% 0.20% 1.43% 1.56% 1.62% 3.11% 1.50% 9.29 -0.06 -4.02 -4.25 -6.97 -0.24 -6.17 -13.46 -11.69 -13.21 Source: PC Bond, a business unit of TSX Inc. As at March 31, 2014  Fixed Income Viewpoint Provinces – April 2014 Alberta Leads the Pack...Again After a challenging winter for the North American economy, all sights are now squarely on spring and an expected rebound in growth. The Canadian economy is expected to expand 2.3% this year, up from the 2.0% pace in 2013, and rise a further 2.5% in 2015. The potent one-two punch of a stronger U.S. economy and weaker loonie remain key themes shaping the provincial growth outlook, opening the door for improved relative performance in Central and Atlantic Canada. Even so, Alberta is expected to remain head-and-shoulders above the pack in the coming year, with sturdy oil prices and a heavy dose of public-sector capital spending providing a boost—partly for post-flood rebuilding, but also because of the infrastructure demands created by a fast-growing population. Indeed, by many measures such as employment growth, retail sales and housing market performance, the province is in a league of its own. Real GDP growth is expected at 3.5% this year and 3.3% in 2015, the only province carrying 3-handles. These growth prospects, widen- ing wage gaps and a low tax burden will continue to draw inward migration from other regions of the country. The rest of the West is expected to perform closer to the national average in the year ahead. British Columbia’s housing market has balanced out after enduring a soft patch, but growth in China is softening and mining investment is downshifting. In Sas- katchewan, the labour market remains healthy with the lowest jobless rate in Canada and a healthy oil industry, but uncertainty in the pot- ash sector persists and spending growth is cool- ing. And, as in Mani- toba, crop production is assumed to normalize after a bountiful year in 2013. Central Canada should benefit proportionately more from the weaker dollar/ stronger U.S. growth combi- nation. Growth in Ontario is expected to improve to 2.3% this year, up from the subdued 1.4% average pace seen over the prior two years—net ex- ports are poised to improve, and the housing market, while expected to moderate, should avoid a severe correction. Longer-term challenges such as labour costs in manufactur- ing will persist, but will get Robert Kavcic BMO Nesbitt Burns Inc. robert.kavcic@bmo.com (416) 359-8329 PROVINCIAL GDP Real GDP Growth Rate (percent) 2014 1.5 2015 0.8 Alberta 2013 3.3 Manitoba Newfoundland and Labrador 2013 5.5 Prince Edward Island 2013 1.5 Nova Scotia 2013 1.0 2014 3.5 2015 3.3 British Columbia 2013 1.8 Canada 2013 2.0 2013 2.4 Quebec 2013 1.3 New Brunswick 2013 0.5 2014 2.2 2015 2.4 2014 1.7 2015 2.0 Saskatchewan 2013 3.5 Ontario 2013 1.4 2014 2.2 2015 2.5 2014 2.5 2015 2.7 2014 2.3 2015 2.5 2014 1.3 2015 1.7 2014 2.3 2015 2.5 2014 1.3 2015 1.7 2014 1.7 2015 2.1 Sources: [2013-15] BMO Capital Markets forecasts FISCAL SUMMARY FY2014/15 Budget Balance 1 ($ mlns) % of GDP Gross Financing Requirements 2 ($ blns) British Columbia 184 0.1 5.2 Alberta 1,087 0.3 8.4 Saskatchewan 105.4 0.1 1.5 Manitoba (357) (0.6) 4.8 Ontario* (10,100) (1.4) 37.0 Quebec (454) (0.1) 21.6 New Brunswick (391) (1.2) 1.8 Nova Scotia* 18.3 0.0 0.5 PEI* (35) (0.6) 0.2 Nfld & Labrador (538) (1.4) 1.0 Total Provincial (10,480) (0.5) 82.0 1 AB is chng in net assets. SK and QC before fund transfers. 2 Includes provincial Crown corporations. *Based on latest available update (FY14/15 budget pending). S&P Moody’s DBRS British Columbia AAA Aaa 2 AA (high) Alberta AAA Aaa AAA Saskatchewan AAA Aa1 1 AA Manitoba AA Aa1 A (high) Ontario AA- 2 Aa2 AA (low) Quebec A+ Aa2 A (high) New Brunswick A+ Aa2 A (high) Nova Scotia A+ Aa2 A (high) PEI A Aa2 A (low) Nfld & Labrador A+ Aa2 A Sources: Provinces, BMO Capital Markets, S&P, Moody’s, DBRS ( ) = deficit 1 = positive outlook 2 = negative outlook some reprieve thanks to the weaker currency. Meantime, Quebec’s Page 2 Fixed Income Quarterly—Provinces contr Fixed Income Quarterly—Provinces Page 3 Provincial Economic Summary BC Alberta Sask. Manitoba Ontario Quebec NB NS PEI NL Canada Real GDP Growth (chain-weighted : year/year % change) 2013 e 1.8 3.3 3.5 2.4 1.4 1.3 0.5 1.0 1.5 5.5 2.0 2014 f 2.2 3.5 2.5 2.2 2.3 1.7 1.3 1.7 1.3 1.5 2.3 2015 f 2.5 3.3 2.7 2.4 2.5 2.0 1.7 2.1 1.7 0.8 2.5 Employment Growth (y/y % chng) 2013 e -0.2 2.8 3.4 0.5 1.4 1.1 -0.2 -0.3 2.1 1.2 1.3 2014 f 0.6 3.2 1.4 0.4 0.9 0.7 0.4 0.2 -0.1 0.7 1.0 2015 f 1.2 2.2 1.6 1.3 1.3 0.8 0.3 1.0 0.4 0.4 1.3 Unemployment Rate (percent) 2013 e 6.6 4.7 4.0 5.4 7.5 7.7 10.4 9.1 11.4 11.4 7.1 2014 f 6.5 4.2 4.0 5.3 7.4 7.7 10.0 8.7 11.3 11.0 6.9 2015 f 6.2 4.0 3.9 5.0 7.0 7.5 9.8 8.4 11.1 10.8 6.6 HousingStarts (thousands) 2013 e 27.1 36.1 8.2 7.5 60.7 37.5 2.8 3.9 0.6 2.9 187.4 2014 f 24.5 40.0 7.1 6.0 55.0 38.0 2.6 3.2 0.7 3.1 180.1 2015 f 23.0 43.5 7.2 6.0 53.5 37.0 2.5 3.4 0.7 3.2 180.0 Consumer Prices (year/year % change) 2013 e -0.1 1.4 1.4 2.3 1.1 0.8 0.8 1.2 2.0 1.7 0.9 2014 f 0.9 2.2 2.1 1.7 1.7 1.3 1.7 2.0 2.1 1.9 1.6 2015 f 1.8 2.1 1.9 1.8 1.8 1.7 1.7 1.9 1.8 1.9 1.8 f = forecast Page 4 Fixed Income Quarterly—Provinces History of Canadian Fiscal Balances ($ Millions) 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 e BC (2,621) (1,342) 2,689 2,963 3,973 2,741 64 (1,810) (241) (1,840) (1,146) 175 Alberta 2,133 4,136 5,175 8,551 8,510 4,581 (852) (1,032) (3,410) (23) (2,842) (335) Sask. 83 (210) 765 539 398 1,283 1,970 168 95 55 16 (128) Manitoba 78 (579) 562 394 485 558 451 (200) (179) (999) (580) (432) Ontario 117 (5,483) (1,555) 298 2,269 600 (6,409) (19,262) (14,011) (12,969) (9,220) (11,741) Quebec (694) (358) (664) 37 1,993 1,650 (1,258) (2,940) (2,390) (1,788) (2,515) (1,428) NB (109) (197) 221 226 275 240 (153) (696) (618) (245) (508) (564) NS 28 38 170 196 182 419 26 (269) 585 (259) (302) (482) PEI (55) (125) (34) 1 24 (4) (31) (74) (63) (78) (79) (59) NL (644) (914) (489) 199 154 1,421 2,350 (33) 594 883 (199) (349) Provinces (1,684) (5,034) 6,840 13,404 18,263 13,489 (3,842) (26,148) (19,638) (17,263) (17,375) (15,342) Federal 6,621 9,145 1,463 13,218 13,752 9,597 (5,755) (55,598) (33,372) (26,279) (18,929) (16,600) Total 4,937 4,111 8,303 26,622 32,015 23,086 (9,597) (81,746) (53,010) (43,542) (36,304) (31,942) f = forecast Source: BMO Capital Markets (% of GDP) Fixed Income Viewpoint Provincial Perspectives – April 2014 Duration Frustration Despite surging to the top of the heap on a year-to-date basis in the FTSE TMX Canada Universe Bond Index during Febru- ary, the total return for Broad Provincials gave up some ground in March, encountering the index’s worst loss last month of -0.48%. The same factor that propelled the Provincial segment of the index to such success a month earlier was its biggest bane in March. A modest back up long Canada yields wreaked the most havoc on the overall performance of Provincials since it has the longest duration of any index component. There- fore, a -0.43% total return drubbing of long Canadas during March in large measure precipitated the loss of -0.72% for long Provincials and ultimately sowed the seeds of its overall weakness in the month. The total return for Broad Provincials underperformed the next closest index segment by almost 20 basis points. The poor showing in March also chipped away at the lead for Broad Provincials on a year-to-date basis relative to most other index segments. Its total return so far in 2014 Jason Parker, CFA BMO Nesbitt Burns Inc. jason.parker@bmo.com (416) 359-5410 Robert Kavcic BMO Nesbitt Burns Inc. robert.kavcic@bmo.com (416) 359-8329 fell to 3.42% and actually permitted Broad Corporate BBB to leapfrog it with a total return of 3.80% in Q1/14. Chart 1: Province of Ontario 200 5 Yr 160 120 80 40 00 Chart 2: Province of Quebec 200 10 Yr 30 Yr 5 Yr 10 Yr 30 Yr 160 120 80 40 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Source: BMO Capital Markets Chart 4: Province of British Columbia 200 Source: BMO Capital Markets Chart 3: Province of Alberta 200 5 Yr 160 120 80 40 00 5 Yr 10 Yr 30 Yr 10 Yr 30 Yr 160 120 80 40 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Source: BMO Capital Markets Source: BMO Capital Markets Page 2 Fixed Income Quarterly—Provincial Perspectives We have maintained our preference for corporate bonds over provincial bonds all year as we believe investors will prefer to add spread in a range-bound yield environment. The stronger performance of corporate bonds in January and March as yields backed up within their recent range underscores this investment thesis. Moreover, we believe yields may be under some pressure over the near term. Provincial issuers are com- ing back to the market following budget-related blackouts and investors await material coupon and maturity payments in June to reinvest in the market and rekindle yields. At the same time, we observe geopolitical risk is currently heightened in Europe and may place a serious bid behind fixed income should tensions escalate further. In such an event, we expect provies to outperform corporates. While weakness in underlying Canadas was the main driver behind the total return underperformance of Broad Provincials during March, elevated political uncertainty in the form of an election call in Quebec weighed on spreads. All provinces traded heavier once the election announcement was made in early March, as would be expected whenever the prospect of a possible change in the political status quo emerges. After some initial softness, traditional buyers moved in to look for some relative value and also engage in the usual month-end buying Table 1: Provincial Borrowing Calendar and rebalancing action. This purchasing activity curtailed some of the early damage and, as a result, spreads for Broad Provincials widened by just 3 basis points by the end of March, with little difference in performance among all of the provinces. The reduction in volatility once news of the election settled-in caused spreads to quiet down a bit heading into April. The modest gapping in March brought spreads for all the provinces into negative territory for the year. Of note, several of the eastern provinces (i.e. New Brunswick, Nova Scotia and Quebec) are leading the charge softer, moving out by roughly 5 basis points so far in 2014. Nevertheless, there is not too much difference between the various provinces in terms of their spread movements. The fact that a number of provinces were in issuance blackouts related to the tabling of their budgets helped limit the spread damage during March since the amount of primary market supply from the provinces was restricted to just $2.7 billion. Supply in the month was also curbed by the fact that Provincial issuance in the year started so strong with $10.4 billion worth of deals in January as many provinces moved quick out the gate to secure funding ahead of their budgets. 2014/15 (C$ Millions) Budget Balance 2015/16 Budget Balance Estimated Re-financings Net New Borrowing Total Non-market/ Completed(6) Domestic International Remaining Borrowing to 31-Mar-15 % Funded British Columbia Alberta(7) Saskatchewan Manitoba Ontario Québec (1) 184 206 2,476 2,699 1,087 941 1,814 6,559 108 (218) (7,200) New Brunswick (3) (391) (262) 756 1,017 1,773 -23 0 Nova Scotia (4) 0 0 594 -39 346 0 P.E.I. (35) 1 100 100 200 0 0 Nfld & Labrador (5) (538) 29 575 425 1,000 0 0 Prov'l Totals (10,499) (4,754) 48,599 33,381 81,980 7,400 0 105 (357) (10,100) (454) 884 2,764 22,000 12,258 628 2,003 15,000 7,368 5,175 0 0 8,373 250 0 1,512 191 0 5,175 0% 8,123 3% 1,321 13% 4,766 0% 34,248 7% 15,741 20% 2,000 0% 1,796 -1% 210 62% 200 0% 1,000 0% 74,580 9% 4,766 37,000 19,626 0 0 2,753 0 3,885 0 1,642 Hydro-Québec(2) n/a n/a 4,379 -2,379 2,000 0 0 Notes: 1. Requirements include Financement Québec. Completed includes FY13/14 pre-funding 2. 2014 calendar year 3. Includes guaranteed NB Electric (0), NBMFC ($150 million), and remaining $23 million of 13-14 requirements 4. Includes NSMFC 5. Includes Newfoundland & Labrador Hydro 6. CAD equivalent 7. Change in net assets As at April 2, 2014 Source: BMO Capital Markets  Fixed Income Quarterly—Provincial Perspectives Page 3 Some investors thought the dearth of supply during March may completely offset the election news in the month, but the tepid market sentiment was likely exacerbated by the weakness in underlying long Canadas, which is readily understood to have a disproportionately negative impact on the provincial segment of the index. Curve Appeal Although spreads for Broad Provincials were weaker during March, not all parts of the curve were out of favour. The Short bucket of the index for most provinces received a decent bid in part as investors rolled down the curve in an effort to minimize the damage being wrought by the backup in long Canadas, as well as to position themselves ahead of the up- coming election. They were also likely bumped in further by the ongoing narrowing of Short Corporates. Yet, some modest pressure in the short end for BC and Ontario caused the ag- gregate spread for Provincials in the Short bucket to be softer by half a basis point. With the exception of PEI, the modest tightening in March failed to bring year-to-date spreads into narrowing territory as levels have yet to fully recover from early year weakness. By comparison, the greatest spread damage during March occurred in the Mid bucket, with levels wider by 4 basis points to 5 basis points. A general paucity of longer-dated spread product has left investors reticent to sell anything in the Long bucket for fear of not being able to get it back, thus leaving Mids as the prime candidate for any efforts to shorten duration. Having said that, there was good buying in the 8-year to 9-year segment of the provincial curve towards the end of the month. Investors moved in to take advantage of recently cheapened relative value opportunities, especially since spreads in the 5-year and under part of the curve are egregiously expensive. Table 2: Indicative Provincial Spreads February 28, 2014 5-year 10-year 30-year Province of British Columbia Province of Ontario Province of Quebec Province of Alberta 29 61 75 45 78 90 47 90 105 30 62 78 Average 38 73 87 March 31, 2014 5-year 10-year 30-year Province of British Columbia Province of Ontario Province of Quebec Province of Alberta 31 66 80 50 82 94 53 93 107 32 67 81 Average 41 77 90 Month over Month Change 5-year 10-year 30-year Province of British Columbia Province of Ontario Province of Quebec Province of Alberta 2 5 5 5 4 4 6 3 2 2 5 3 Average 3 4 3 Source: BMO Capital Markets For example, spreads for all of the higher-rated (western) prov- inces are within a hair’s breath of CMBs in the short end, but begin to splinter away from each other as one travels further out the curve, creating more credible trading prospects. A number of historical relationships, such as Ontario versus Quebec, have come off their recent highs due to election uncer- tainty, but remain at the low end of the recent range. Investors are also less willing to add to positions in the western provinces since they appear expensive to Ontario. The bias toward shorter duration in March caused a 2-basis- point bear steepening of the 5s-10s curve, while 10s-30s backed up by half a basis point. This move obviously runs counter Table 3: FTSE TMX Canada Provincial Bond Index Total Return and Spread Source: PC Bonds, a business unit of the TMX Group Inc., BMO Capital Markets Short Mid Long Broad Sector Return Spread (bps) Return Spread (bps) Return Spread (bps) Return Spread (bps) MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD Provincials -0.07% 1.14% 0.56 1.12 -0.39% 2.97% 2.74 5.14 -0.72% 4.76% 3.32 1.48 -0.48% 3.42% 2.92 3.59 Alberta British Columbia Manitoba New Brunswick Newfoundland Nova Scotia Ontario Prince Edward Island Quebec Saskatchewan -0.05% -0.22% -0.06% -0.05% -0.02% 0.00% -0.06% 0.10% -0.08% -0.05% 1.03% 1.78% 1.11% 0.94% 0.79% 0.47% 1.13% 0.49% 1.19% 0.70% -0.35 0.47 -0.37 -0.33 -0.59 -0.38 1.59 -2.90 -0.34 4.13 1.71 0.82 0.39 0.11 1.66 4.67 0.29 -4.15 2.36 4.85 -0.47% -0.46% -0.41% -0.42% -0.40% -0.47% -0.41% -0.34% -0.32% -0.36% 3.11% 2.87% 2.89% 2.72% 2.55% 2.49% 3.06% 2.56% 2.92% 2.60% 3.59 5.02 3.19 3.02 2.07 3.57 2.72 2.38 1.55 2.05 5.00 7.29 5.13 5.72 4.29 6.42 3.81 3.80 5.92 4.61 -0.90% -0.87% -0.76% -0.83% -0.81% -0.90% -0.73% -0.85% -0.59% -0.83% 4.77% 4.69% 4.87% 4.73% 4.33% 5.20% 4.85% 4.95% 4.62% 4.72% 3.03 4.42 3.58 4.52 4.61 3.80 3.42 3.91 2.57 4.07 1.25 2.34 0.89 1.56 2.67 1.38 0.33 0.82 3.28 1.79 -0.44% -0.65% -0.51% -0.55% -0.72% -0.74% -0.48% -0.72% -0.39% -0.73% 2.70% 3.75% 3.40% 3.24% 3.90% 4.12% 3.45% 4.33% 3.29% 4.10% 2.80 3.25 2.68 2.95 3.94 3.50 3.88 3.29 1.52 2.12 3.97 3.22 2.94 5.26 2.91 5.53 2.94 1.33 4.71 1.68  Page 4 Fixed Income Quarterly—Provincial Perspectives to our 5s-10s flattening bias, which is offside by about 4 basis points in pure spread to start the year, despite having been a decent move on a total return basis. We find it difficult to overcome the fact that the short end remains perpetually expensive, assisted by shorter-term technical anomalies, like the election call in Quebec. Accordingly, we still believe 5s-10s provies is steep and recommend selling 5s to buy 10s at a pick up of over 100 basis points. Our 5s-10s flattening bias is also supported by ongoing relatively higher funding costs for most provinces in other jurisdictions, which may induce them to tap the domestic market in the short end. In addition, the 20-year part of the curve remains attractive, in terms of both yield and spread. This value is largely a function of selling in the 20-year part of the curve to move out further along the curve since 20-years represent the shortest holdings of the long bucket. The 20-year part of the curve is also populated with a number of higher coupon bonds that a myriad of investors do not like to own due to price. Table 4: Provincial / Crown /SSA USD New Issue Indications Corps vs. Provies Given our expectation for yields to remain range-bound, we continue to favour corporates since we believe meaningful sums of new monies will be invested in the Canadian corpo- rate bond market as investors prefer to add spread. We wrote in our most recent Monthly Relative Value report about the consistent influx of funds into corporate bonds from new sources such as international investors and short-term bond funds. We expect this flow of funds into corporates to continue for the foreseeable future. From a relative value perspective, the graphs in Appendix A indicate that corporate bonds remain attractive in the long and short parts of the curve versus provincial bonds, while the provinces look reasonably inexpensive in the middle part of the curve. We appraise relative value based on spread as a percentage of underlying yield. We note that the two new significant buyers noted above have focused their activity in the short segment of the curve and thus we expect shorter-dated corporates to forge new ground by moving relatively closer to provincials. USD Pricing - Libor Levels CAD Pricing - Spread to GoC Curve (bid) Issuer DBRS Moody's S&P USD 2-yr USD 3-yr USD 5-yr USD 7-yr USD 10-yr CAD 2-yr CAD 3-yr CAD 5-yr CAD 7-yr CAD 10-yr AAL AH AAA AAA AAH AH A AH AA AAA AAA Aa1 Aa2 Aaa Aaa Aaa Aa2 Aa2 Aa1 Aa1 Aaa Aaa AA- A+ AAA AAA AAA AA- A+ AA AA+ AAA AAA Province of Ontario Québec / Hydro-Québec Canada Housing Trust Export Development Canada Province of British Columbia Province of New Brunswick Province of Nova Scotia Province of Manitoba Province of Saskatchewan Canada Alberta +11.0bps +17.0bps +25.0bps +45.0bps +60.0bps +25.5bps +49.0bps +69.8bps +81.0bps +27.0bps +51.5bps +74.3bps +90.0bps +16.0bps +28.0bps +41.0bps +43.0bps +16.0bps +28.0bps +41.0bps +43.0bps +18.5bps +30.5bps +53.3bps +64.5bps +26.5bps +51.0bps +72.8bps +85.0bps +25.5bps +49.0bps +69.8bps +81.0bps +22.0bps +42.0bps +63.8bps +75.0bps +18.5bps +30.5bps +53.8bps +65.0bps 0.0bps 0.0bps 0.0bps 0.0bps +19.0bps +31.0bps +53.8bps +65.5bps +15.0bps +22.0bps +30.0bps +60.0bps +75.0bps -6.0bps -2.0bps +7.0bps +18.0bps +20.0bps -9.0bps -6.0bps +3.0bps +15.0bps +20.0bps -5.0bps +3.0bps +7.0bps +24.0bps +40.0bps +12.0bps +17.0bps +35.0bps +55.0bps +70.0bps +10.0bps +23.0bps +32.0bps +63.0bps +80.0bps +1.0bps +6.0bps +15.0bps +30.0bps +49.0bps -1.0bps +7.0bps +15.0bps +35.0bps +50.0bps -10.0bps -7.0bps +1.0bps +12.0bps +18.0bps -5.0bps 0.0bps +6.0bps +25.0bps +40.0bps Summary USD Arbitrage vs. CAD (all-in) Issuer DBRS Moody's S&P USD 2-yr USD 3-yr USD 5-yr USD 7-yr USD 10-yr AAL Aa1 AA- Province of Ontario +19.2bps +9.3bps +17.0bps +18.9bps AH AAA AAA AAH AH A AH AA AAA AAA Aa2 Aaa Aaa Aaa Aa2 Aa2 Aa1 Aa1 Aaa Aaa A+ AAA AAA AAA AA- A+ AA AA+ AAA AAA Québec / Hydro-Québec Canada Housing Trust Export Development Canada Province of British Columbia Province of New Brunswick Province of Nova Scotia Province of Manitoba Province of Saskatchewan Canada Alberta +21.8bps +11.8bps +27.9bps +9.7bps +13.4bps +19.6bps +5.7bps +9.4bps +16.6bps +8.7bps +7.7bps +10.9bps +15.6bps +14.1bps +22.0bps +22.6bps +13.1bps +33.0bps +9.1bps +3.1bps +6.0bps +13.6bps +14.7bps +21.0bps +24.1bps +38.6bps +57.7bps +6.1bps +7.3bps +12.6bps +25.3bps +18.7bps +18.7bps +14.3bps +23.5bps +37.5bps +12.5bps +23.5bps +62.7bps +14.2bps Note: Indicative Pricing Levels As at April 2, 2014 Source: BMO Capital Markets  Fixed Income Quarterly—Provincial Perspectives Page 5 Primary Market Expectations Despite recent spread weakening, we believe the Provincial market is on the precipice of breaking into new, lower spread ranges in the medium term. Over the near term, we expect some short-term pressure on spreads since the Provinces are able to come back to the primary market and grab some funds to begin their fiscal years. Following that anticipated pulse of issuance, however, we believe the Provincial market will settle back down in the May-June time frame and resume its trajec- tory towards establishing new, lower spread ranges. We are still a ways off from where Provincial spreads traded before the credit crisis, and thus expect ranges to continue moving down toward pre-credit crisis levels, absent any external risk of course. In particular, we believe investors remain interested in the extra carry that provincials offer, despite 10-years and 30-years both generally being towards the lower end of their recent ranges. The emergence of issuers that have been out of the primary market for some time has given investors new opportunities to trade for relative value. Having said that, buyers of higher- quality provincial issuers are awaiting issuance from federally backed entities to see if any re-pricing occurs. Chart 5: Government & Agency Monthly Issuance (All Currencies) Chart 6: March 2014 Issuance by Province (All Currencies) 25.0 20.0 15.0 10.0 $8.5 5.0 0.0 Provincial $11.1 $11.5 $9.9 $9.3 Municipal Agency 1,600 1,400 1,200 1,000 800 600 400 200 0 $1,350 $18.0 $12.7 $600 $250 $- $9.2 $10.9 $8.8 $7.8 $350 $6.2 $7.0 $125 $- $- $- $- $- Source: BMO Capital Markets Source: BMO Capital Markets Chart 7: Provincial Maturity Schedule 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 38.6 40.8 39.3 36.4 34.2 32.1 30.8 28.1 25.7 26.7 23.6 15.1 14.0 13.6 21.3 2.7 14.5 12.3 10.9 8.8 Manitoba Newfoundland 10.1 8.6 7.8 7.1 6.9 6.0 6.4 6.1 3.5 4.4 1.7 0.9 1.3 Ontario New Brunswick Quebec Nova Scotia British Columbia Saskatchewan Alberta Prince Edward Island Source: BMO Capital Markets C$ eq. billion C$ Eq. (Billions) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046+ Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 C$ Eq. (Millions) Alberta B.C. Manitoba New Brunswick Newfoundland Nova Scotia Ontario P.E.I. Quebec Saskatchewan Yukon Page 6 Fixed Income Quarterly—Provincial Perspectives Another Bevy of Budgets (by Robert Kavcic) The FY14/15 provincial budget season is winding down, with three still to table their documents—Ontario, PEI and Nova Scotia. The combined deficit is pegged at $10.5 billion versus $15.3 billion now estimated for FY13/14, or a relatively modest 0.5% of GDP (we’ve plugged in the most recent update for the three Provinces yet to table their budget). However, there is some downside risk as we await budgets from Ontario and Nova Scotia, both of which have hinted at deeper deficits for this fiscal year. The improvement elsewhere has been largely driven by Alberta and Quebec, even though the latter back- tracked on prior plans to balance the budget this fiscal year. In fact, 6 of 7 provinces who have tabled their budget to date are expecting a year-over-year bottom line improvement. On the policy front, major revenue measures have been sparse this year, netting out to a roughly $100 million net decrease, or less than 0.1% of GDP. That compares to last year’s more aggres- sive moves that aimed to raise $1.1 billion in revenues through various tax increases. On the spending side, the provinces con- tinue to hold the line, with most targeting spending growth at or below the combined rate of inflation and population growth. Here is a recap of the budgets tabled in March: The Province of Alberta is projecting a $2.6 billion opera- tional surplus for FY14/15, with the oil price environment much healthier than expected at this time last year. Surpluses are projected right through FY16/17, which will allow the Contingency Account to hit its $5 billion ceiling this coming fiscal year, and grow the Heritage Fund to $17.2 billion by FY16/17, from $15 billion this year. The change in net assets is pegged at $1.1 billion for FY14/15, or 0.3% of GDP, after a much better-than-expected showing in FY13/14—that would be the first consolidated surplus in seven years. There were no major tax-related measures in the budget, with new policy initiatives centred entirely on the spending side, including a heavy dose of capital investment in the coming years. Indeed, while operational spending control will remain in focus, at least in real per-capita terms, the bulk of new spending flows through the capital budget—think flood prevention and road/ infrastructure building. Much of this will be funded through new borrowing. In a nutshell, a rapidly growing population is putting demand on infrastructure, and the Province is going to borrow at historically low rates to satisfy it. The Province of Saskatchewan is projecting a $71.4 million surplus on a summary basis for FY14/15 (which includes the activities of government organizations and business enterpris- es), or a small 0.1% of GDP, down from $591 million expected in FY13/14—a drop in GBE net income accounts for much of the decline. On a General Revenue Fund basis, the surplus is pegged at $105.4 million (0.1% of GDP) in FY14/15 before transfers to the Growth and Financial Security Fund (GFSF), improved from the $127.8 million deficit expected in FY13/14. The latter is unchanged from the most recent update—recall that weaker-than-expected resource prices and sales forced the Province to cut its estimate from a $64.8 million surplus in the original budget plan. The Province is also projecting pre-transfer surpluses through the 4-year forecast horizon averaging just under $140 million per year, which will build up the GFSF to $706 million by the end of FY16/17 from $531 million at the end of FY13/14. As expected, there are no major revenue initiatives in this budget, and the Province is keeping spending growth in check. The Province of Manitoba is projecting a $357 million bud- get deficit in FY14/15 (a very manageable 0.6% of GDP), a moderate improvement over the prior-year shortfall of $432 million, which is unchanged from the prior fiscal update. Overall, there is precious little change to the fiscal plan—and that’s not a bad thing—with the Province still aiming for a bal- anced budget in FY16/17, a year ahead of Ontario and New Brunswick. Additionally, cumulative deficits between FY13/14 and FY16/17 are now just a touch smaller ($30 million) than they were forecasted to be at this time last year. After raising revenues in each of the prior two budgets—expanding the sales tax base, lifting the rate, and various other small tax/fee measures—taxpayers come out clean this year. The Province of Newfoundland and Labrador is projecting a $538 million deficit (1.4% of GDP) in FY14/15, deeper than the $349 million shortfall now estimated for FY13/14. The latter, however, marks an improvement over the $451 million deficit expected in the Fall update, and the two-year (13/14 and 14/15) combined shortfall is now pegged at $887 million versus $1.2 billion in last year’s budget. So, while the Province is slipping deeper into the red, the fiscal position is still slightly improved overall versus last year, at least for these two years. There are a few new tax measures in this budget, with reductions largely offset by an increase in tobacco taxes. On the spending side,  Fixed Income Quarterly—Provincial Perspectives Page 7 this budget reverses the aggressive tack on spending restraint last year, when public-sector employment was cut in an effort to prevent an even larger deficit. This year, spending is again on the rise, with a particular focus on education. The Province is also sticking to, and is in year two of, its 10-year sustain- ability plan. As announced last year, years 1 and 2 focus on deficit elimination and a review of pension liabilities. Year 3 returns to surplus—a small $28.5 million surplus is expected in FY15/16. Years 4-10 focus on debt reduction and economic diversification.  Page 8 Appendix – Spread Graphs Chart A1: Corporate Avg. Spread vs. Ontario Yield (5-Year) 5 Year Term Fixed Income Quarterly—Provincial Perspectives Chart A4: Ontario Spread vs. Canada Yield (5-Year) 5 Year Term 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 100% 6.0% 90% 5.0% 80% 70% 60% 50% 3.0% 40% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2011 Ontario Spread as % of Canada Yield (Right Axis) Ontario Spread as a % of Canada Yield Ontario Spread as a % of Canada Yield Ontario Spread as a % of Canada Yield 0% 0.0% 2013 2004 2005 Canda 5 Year Yield (Left Axis) 2006 2007 2008 Ontario 5 Year Yield (Left Axis) 2010 2004 2005 2008 2009 2010 Corporate Average Yield (Left Axis) 2007 Corporate Average Spread as % of Ontario Yield (Right Axis) 2011 2012 Ontario 5 Year Yield (Left Axis) Corporate Average includes indicative spreads for GTAA 5-year, BMO Deposit Notes 5-Year and Hydro One 5-Year Source: BMO Capital Markets Chart A2: Corporate Avg. Spread vs. Ontario Yield (10-Year) 10 Year Term Source: BMO Capital Markets Chart A5: Ontario Spread vs. Canada Yield (10-Year) 10 Year Term 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 90% 6.0% 80% 70% 60% 4.0% 50% 70% 60% 50% 40% 30% 20% 10% 0% Ontario Spread as % of Canada Yield (Right Axis) 2004 2005 2006 2008 2009 2010 Corporate Average Yield (Left Axis) 2007 Corporate Average Spread as % of Ontario Yield (Right Axis) 20% 10% 1.0% 0% 2013 0.0% 2011 2012 2004 2005 Canada 10 Year Yield (Left Axis) 2007 Ontario 10 Year Yield (Left Axis) Ontario 10 Year Yield (Left Axis) 2006 2008 2009 2010 2011 2012 2013 Corporate Average includes indicative spreads for GTAA 10-year, TransCanada PipeLines 10-Year and Hydro One 10-Year Source: BMO Capital Markets Chart A3: Corporate Avg. Spread vs. Ontario Yield (30-Year) 30 Year Term Source: BMO Capital Markets Chart A6: Ontario Spread vs. Canada Yield (30-Year) 30 Year Term Corporate Spread as a % of Ontario Yield Corporate Spread as a % of Ontario Yield Corporate Spread as a % of Ontario Yield 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2004 2005 Canada 30 Year Yield (Left Axis) 2007 2008 Ontario 30 Year Yield (Left Axis) 60% 50% 40% 30% 20% 10% 0% Ontario Spread as % of Canada Yield (Right Axis) 2004 2005 2006 2008 2009 2010 Corporate Average Yield (Left Axis) 2013 2006 2009 2012 2013 30% 20% 10% 4.0% 2.0% 1.0% 40% 30% 5.0% 3.0% 2.0% 2007 Corporate Average Spread as % of Ontario Yield (Right Axis) 2006 2009 2010 2011 2012 2013 2011 2012 Ontario 30 Year Yield (Left Axis) Corporate Average includes indicative spreads for GTAA 30-year, TransCanada PipeLines 30-Year and Hydro One 30-Year Source: BMO Capital Markets Source: BMO Capital Markets Yield (%) Yield (%) Yield (%) Yield (%) Yield (%) Yield (%) Fixed Income Viewpoint Benchmark Barometer – April 2014 Yields March Higher The FTSE TMX Canada (formerly DEX) Universe Bond In- dex returned -0.19% in March, chipping away at the near 3% return registered through the first two months of the year. The loss was led by Provincials (at -0.48%) and Longs at (-0.41%), with their intersection resulting in a sub-sector leading loss of 0.72% for Long Provincials. However, apart from the smallest of losses for the Mid-Corporate A subsector (-0.01%), the entire Corporate sector was a sea of positive returns, which sailed as high as +0.65% for Long BBB Corporates. Indeed, the return differential between the “riskiest” and “safest” long bonds was more than a percentage point (long Canadas were -0.43%), emphasizing the power of supply-demand dynamics to buck the return-sapping impact of rising yields. The paucity of corporate supply during the first two months of the year created sufficient pent-up demand to not only easily digest a hefty new issue docket in March, but also cause most credit spreads to compress. Benchmark Government of Canada yields rose along the curve, topping 10 basis points in the 5- to 7-year segment. The move reflected an even more pronounced “bear bowing” in the U.S. Treasury market. South of the border, 3- to 5-year yield rises topped 20 basis points but, interestingly, U.S. long bonds man- aged to rally during the month (yields down 3 basis points). These moves reflected the shift in Fed policy on March 19. The FOMC abandoned the thresholds for inflation and the unemployment rates and, in doing so, afforded itself increased policy flexibility on two fronts. First, there’s the flexibility not to tighten if the jobless rate continues to fall. The Fed was already asserting this flexibility with respect to the 6.5% threshold but they now no longer have to explain why. Second, there’s the flexibility to tighten even if inflation remains low. The latter Table 1.1: FTSE TMX Canada (formerly DEX) Universe Bond Index March 2014 Total Returns Source: PC Bond, a business unit of TMX Group Inc. As of March 31, 2014 Jason Parker, CFA BMO Nesbitt Burns Inc. jason.parker@bmo.com (416) 359-5410 Michael Gregory, CFA BMO Nesbitt Burns Inc. michael.gregory@bmo.com (312) 845-5025/(416) 359-4747 was the reason why Minneapolis Fed President Kocherlakota dissented. Note that the FOMC’s own projections for the fed funds target showed an additional 10 to 15 basis points of rate hikes in 2015 and an earlier start to tightening (all else equal), compared with December’s polling. Then came Janet Yellen’s press conference. When questioned about what “considerable” meant in the FOMC’s forward guidance (maintaining current rates “for a considerable time after the asset purchase program ends”), Ms. Yellen mused “something on the order of around six months or that type of thing.” The market quickly set its countdown- to-liftoff clock. At the current $10-billion-per-meeting tapering pace, asset purchases would end in either October (if the final taper were upped to $15 billion, which is our base case) or De- cember (if the final taper were left at $5 billion). This potentially set policy rate liftoff for either the April or June meeting, which was earlier than the market was initially contemplating. Table 1.2: FTSE TMX Canada (formerly DEX) Universe Bond Index Year-to-Date Total Returns Source: PC Bond, a business unit of TMX Group Inc. As of March 31, 2014 Sector Short Mid Long Broad Composite 1.06% 3.22% 5.12% 2.77% All Government 0.86% 2.99% 4.84% 2.68% Canada Agencies Provincials Municipals 0.67% 0.94% 1.14% 1.34% 2.99% 3.09% 2.97% 3.03% 4.93% 5.18% 4.76% 5.37% 2.24% 1.73% 3.42% 3.23% All Corporates 1.39% 3.85% 6.06% 2.95% Corporate AA Corporate A Corporate BBB 1.31% 1.35% 1.65% 3.60% 3.52% 4.16% 5.51% 5.83% 6.56% 1.58% 3.35% 3.80% Sector Short Mid Long Broad Composite -0.01% -0.24% -0.41% -0.19% All Government -0.07% -0.37% -0.62% -0.33% Canada Agencies Provincials Municipals -0.05% -0.10% -0.07% -0.04% -0.29% -0.47% -0.39% -0.25% -0.43% -0.54% -0.72% -0.56% -0.20% -0.24% -0.48% -0.29% All Corporates 0.07% 0.11% 0.29% 0.13% Corporate AA Corporate A Corporate BBB 0.01% 0.11% 0.17% 0.02% -0.01% 0.23% 0.08% 0.11% 0.65% 0.01% 0.08% 0.31%  Page 2 Fixed Income Quarterly—Benchmark Barometer We look for the Fed to begin tightening rates around the middle of next year, reflecting a tightening labour market. Even if the seeds of a wage-price spiral won’t be planted easily, and inflation on the ground and perhaps even in the FOMC’s projections could still be running sub-2%, the Fed may still want to fire a warning salvo or two across the bow of inflation expectations to temper the latter, along with bolstering its own credibility. Indeed, the inaugural rate hikes could even take on “pre-emptive” characteristics. This is what likely buoyed long Treasuries (and their perennial inflation worry), despite the prospects for sooner liftoff. Canada-U.S. yield spreads narrowed along most of the curve in March, by as much as 13 basis points at the 3-year node. However, they widened some 6 basis points for 30 years, emphasizing the power of inflation expectations in bucking front-end selloffs. The Canadian market might have done even better if not for the shift in the Bank of Canada’s tone. In its March 5 policy announcement, the Bank said “the balance of risks remains within the zone for which the current stance of monetary policy is appropriate,” emphasizing its neutral stance. In January, the Bank had omitted the “appropriate” reference—it was there in December—raising the risk of a rate cut in the market’s mind. The Bank effectively shut the door on rate cuts, with Governor Poloz starting to reach for the locking key given recent comments (he’s “a little more comfortable” about inflation). Yields on both sides of the border look to continue drifting higher during the months ahead on the combination of con- tinued tapering of Fed asset purchases (we judge QE will end by this Q4), sustained stronger U.S. economic performance that should eventually support the Canadian economy, and the prospects for policy rate hikes around the middle of next year (with a net risk the BoC could go before the Fed owing to the Canadian economy sporting a significantly smaller output gap than the U.S.). More New Issues, but Still Not Enough There were over $8 billion worth of additions and re-openings to the corporate segment of FTSE TMX Canada Universe Bond Index during March, but even that was not enough to curtail the torrent of buying activity that has taken place all year. It has mattered little about risk-on versus risk-off, or whether yields have been backing up or narrowing. Investors want corporate bonds of all shapes and sizes. As a result, the modest backup in underlying Canada yields during March did little to dampen enthusiasm for corporate bonds, propelling Broad Corporates to a total return of 0.13% in the month and making it the best-performing segment. By comparison, the Broad Composite incurred a negative total return of -0.19%, while Broad Government registered a total loss of -0.33%. Strong demand during March saw spreads for Broad Corpo- rates draw narrower by three basis points. We have spoken at some length in other reports about the factors creating the demand/supply imbalance in corporate bonds, the most prominent being the entry of significant new buyers (e.g., international investors and short-term corporate bond funds) over the past number of months. The slow start to the year for corporate new issuance exacerbated the impact of these new players, who last year catapulted the primary market for corporates into a new stratosphere. The disrup- tion to that new issue flow has dragged corporate spreads to multi-year lows, with no let-up in sight. We expect demand for corporate bonds to remain strong over the near term and note that buying has been relatively indiscriminate across maturity and credit quality. With regard to ratings buckets, Broad Corporate BBB was the best-performing segment during March, posting a total return of 0.31%. What’s more, the total return of each corpo- rate ratings bucket beat out each of the government segments in the index during the month, demonstrating that investors were interested in adding spread product. However, the de- sire to assume extra risk was not only apparent in terms of credit ratings, the move to add duration was also equally quite evident. While the total losses incurred by the government segment worsened as one moved out the maturity buckets, quite the opposite happened with corporates, with the strong total returns being recorded in the long end. In fact, the total return of 0.65% registered by long Corporate BBB was by far the best performance of all index segments in March. Fatter coupons and a scant availability of product helped to drive that outperformance. Indeed, investors have demonstrated a distinct reluctance to sell BBB bonds for fear of not being able to get them back given the disequilibrium in the market. This occurrence speaks to our assertions from last year that the BBB and high-yield portions of the corporate market have developed their own characteristics, separate from the dynam- ics in the higher-rated buckets. On a year-to-date basis, the strong performance in March thrust the 2.95% total return of Broad Corporates ahead of  Fixed Income Quarterly—Benchmark Barometer Page 3 both the Broad Composite (2.77%) and Broad Government (2.68%). Broad Corporate BBB in particular with a total re- turn of 3.80% now ranks as the best performer so far in 2014. Yet, the strong early gains experienced by Provincials and Agencies to start the year, in large measure due to their longer duration, still have them following in second and fourth place, respectively. At this point then, it is not clear that adding credit risk has been fully justified from a risk/reward perspective. Nevertheless, our expectation for range-bound yields over the near term is supportive of Corporates over Provies. Overall, the demand for Broad Corporates during 2014 has brought its spreads in by nine basis points, indicative of the ongoing investor search to add yield. Also of note, the emergence of meaningful issuance from the banks toward the end of March did weigh on total returns for Broad Corporate AA, despite the fact that domestic primary market activity from the Big 6 banks is still low compared with last year. We maintain our belief that the prospect of external risk remains elevated and advise investors to improve credit qual- ity when possible through strategies such as buying preferred issuers within a sector, rather than indiscriminately adding sector exposure. We also believe cash will continue flowing into the Canadian corporate bond market largely due to the additional pickup offered over paltry GoC yields. Table 2.1: FTSE TMX Canada (formerly DEX) Universe Bond Index Modified Duration Source: PCBond, a business unit of TSX Inc. FTSE TMX Canada (formerly DEX) Universe Bond Index Weightings Sector Short Mid Long Broad 31-Mar-14 28-Feb-14 Change 31-Mar-14 28-Feb-14 Change 31-Mar-14 28-Feb-14 Change 31-Mar-14 28-Feb-14 Change Composite 2.72 2.71 0.02 6.17 6.21 (0.04) 13.58 13.67 (0.09) 6.84 6.87 (0.03) All Government 2.72 2.70 0.03 6.32 6.37 (0.04) 13.88 14.00 (0.12) 7.39 7.41 (0.03) Canada Agencies Provincial 2.43 2.97 3.07 2.38 2.93 3.02 0.04 0.04 0.05 6.23 6.56 6.31 6.15 6.81 6.38 0.08 (0.26) (0.07) 13.92 13.58 13.88 14.01 13.71 14.02 (0.09) (0.13) (0.14) 6.31 4.77 9.28 6.40 4.69 9.30 (0.09) 0.08 (0.01) Municipal 3.04 3.13 (0.08) 6.08 6.10 (0.02) 14.68 14.82 (0.14) 8.06 8.16 (0.10) All Corporate 2.73 2.73 (0.00) 5.77 5.79 (0.02) 12.57 12.54 0.03 5.61 5.63 (0.02) Corporate AA Corporate A Corporate BBB 2.78 2.55 2.87 2.75 2.62 2.85 0.03 (0.06) 0.01 5.64 5.74 5.83 5.75 5.77 5.82 (0.11) (0.03) 0.01 8.42 12.91 12.32 8.35 12.88 12.31 0.07 0.03 0.01 3.23 6.81 6.30 3.19 6.87 6.33 0.04 (0.06) (0.04) Chart 2.1: FTSE TMX Canada (formerly DEX) Universe Bond Index Weightings Chart 2.2: Change in FTSE TMX Canada (formerly DEX) Universe Bond Index Weightings Corporates 30.7% Agencies 11.6% Provi/Muni 31.7% Canada 26.1% Corporates 0.31 (0.40) (0.30) (0.20) (0.10) 0.00 0.10 0.20 0.30 0.40 Canada (0.03) Agencies (0.13) Provi/Muni (0.16) Source: PCBond, a business unit of TSX Inc. Source: PCBond, a business unit of TSX Inc.  Page 4 Fixed Income Quarterly—Benchmark Barometer Duration and Weightings Modified duration for the FTSE TMX Canada (formerly DEX) Universe Bond Index decreased by 0.3 during February as additions, re-openings and deletions were insufficient to off- set the natural roll of the curve. During the month there were $13.7 billion of index additions and $6 billion of re-openings, along with $12.6 billion of deletions. With most ($9 billion) of the deletions taking place in the government segment of the index and over $8 billion of additions in the corporate space, Table 3.1: FTSE TMX Canada (formerly DEX) Universe Bond Index Modified Duration Projections the weighting for all corporates rose by 31 basis points during the month to 30.7%. For April, the index’s modified duration is forecast to drop 0.05 since deletions are relatively modest, at $4.2 billion, which is expected to be insufficient to offset the natural roll of the index. All of the deletions take place in the Corporate segment during April, which is projected to keep its modified duration relatively flat, while its weighting is forecast to drop by 30 basis points. Table 3.2: FTSE TMX Canada (formerly DEX) Universe Bond Index Weightings Projections (%) Sector 31-Mar-14 30-Apr-14 Change Broad Composite All Government(1) Canada Agency Provincial Municipal All Corporate 6.81 7.39 6.31 4.72 9.31 8.08 5.43 6.76 7.31 6.23 4.64 9.24 8.02 5.43 (0.05) (0.08) (0.08) (0.08) (0.07) (0.06) (0.01) Short Composite All Government(1) Canada Agency Provincial Municipal All Corporate 2.72 2.72 2.43 2.97 3.07 3.04 2.73 2.68 2.64 2.35 2.89 2.99 3.06 2.73 (0.05) (0.08) (0.08) (0.08) (0.08) 0.02 0.00 Mid Composite All Government(1) Canada Agency Provincial Municipal All Corporate 6.18 6.33 6.23 6.58 6.32 6.08 5.78 6.14 6.26 6.15 6.51 6.24 6.10 5.82 (0.04) (0.08) (0.08) (0.08) (0.08) 0.02 0.04 Long Composite All Government(1) Canada Agency Provincial Municipal All Corporate 13.81 13.99 13.92 14.56 14.01 14.89 13.06 13.77 13.92 13.84 14.48 13.94 14.84 13.12 (0.04) (0.07) (0.08) (0.08) (0.07) (0.06) 0.06 Sector 31-Mar-14 30-Apr-14 Change Broad Composite All Government(1) Canada Agency Provincial Municipal All Corporate 100.00 70.24 26.54 11.58 30.15 1.81 29.76 100.00 70.54 26.65 11.63 30.29 1.81 29.46 0.00 0.30 0.11 0.05 0.14 0.00 (0.30) Short Composite All Government(1) Canada Agency Provincial Municipal All Corporate 44.79 27.90 13.90 7.48 5.93 0.57 16.88 44.98 28.04 13.95 7.51 5.95 0.60 16.94 0.19 0.14 0.05 0.03 0.02 0.04 0.05 Mid Composite All Government(1) Canada Agency Provincial Municipal All Corporate 26.73 19.52 5.48 3.43 9.98 0.64 7.21 26.52 19.57 5.50 3.44 10.02 0.60 6.95 (0.21) 0.05 0.02 0.01 0.05 (0.03) (0.26) Long Composite All Government(1) Canada Agency Provincial Municipal All Corporate 28.48 22.82 7.15 0.68 14.25 0.60 5.66 28.51 22.93 7.19 0.68 14.32 0.61 5.58 0.02 0.11 0.04 0.00 0.07 0.00 (0.09) Note: (1) Supranationals category has not been broken out of All Govern- ment total (2) Duration figures exclude impact of amortizing securities. Source: PCBond, a business unit of TSX Inc., BMO Capital Markets Note: (1) Supranationals category has not been broken out of All Govern- ment total (2) Duration figures exclude impact of amortizing securities. Source: PCBond, a business unit of TSX Inc., BMO Capital Markets  Fixed Income Quarterly—Benchmark Barometer Page 5 Table 4.1: FTSE TMX Canada (formerly DEX) Universe Bond Index Changes in Composition (New Issues) Issuer Cusip Coupon % Maturity Par Value ($mm) Index Weight(1) Curve Segment Sector Additions BMW Canada Inc. BMW Canada Inc. Crombie Real Est Inv Tr Daimler Canada Finance Enbridge Inc. Alberta Rogers Communication Inc. Genworth MI Canada Inc. Artis REIT Enbridge Inc. OMERS Realty Corp. Tim Hortons Inc. 05590HAK3 05590HAL1 227107AG4 23384NAM9 29251ZBF3 013051DM6 775109BD2 37252BAC6 04315LAH8 29251ZBG1 68214WAK4 88706MAD5 2.33 1.73 3.96 2.27 3.16 3.10 2.80 4.24 3.75 4.57 2.97 2.85 09/26/2018 09/26/2016 06/01/2021 03/26/2018 03/11/2021 06/01/2024 03/13/2019 04/01/2024 03/27/2019 03/11/2044 04/05/2021 04/01/2019 300 200 100 400 400 600 400 160 125 500 300 450 0.02% 0.02% 0.01% 0.03% 0.03% 0.05% 0.03% 0.01% 0.01% 0.04% 0.02% 0.04% Short Short Mid Short Mid Long Short Long Short Long Mid Mid Corporate Industrial Corporate Industrial Corporate Real Estate Corporate Financial Corporate Energy Government Provincial Corporate Communication Corporate Financial Corporate Real Estate Corporate Energy Corporate Real Estate Corporate Industrial Canada Housing Trust 13509PEG4 1.95 06/15/2019 5,000 0.39% Mid Government Federal Bank of Nova Scotia 0641493J4 2.46 03/14/2019 1,250 0.10% Short Corporate Financial Saskatchewan 803854JY5 1.95 03/01/2019 250 0.02% Short Government Provincial Toronto-Dominion Bk Toronto-Dominion Bk MCAP Commercial LP Rogers Communication Inc. 891145N42 891145N34 55279QAA8 775109BA8 2.45 1.82 3.96 4.00 04/02/2019 04/03/2017 03/11/2019 03/13/2024 2,000 500 150 600 13,685 0.16% 0.04% 0.01% 0.05% 1.07% Mid Short Short Mid Corporate Financial Corporate Financial Corporate Financial Corporate Communication Deletions C.I.B.C. Ontario Husky Energy Inc. Canada Housing Trust Royal Bank of Cda Covered Bank of Nova Scotia Trans-Northern Pipelines Inc. 13591Z5H9 683234WM6 448055AG8 13509PCF8 780085J49 064149A80 89328MAA7 3.10 4.50 3.75 2.95 3.18 3.34 4.74 03/02/2015 03/08/2015 03/12/2015 03/15/2015 03/16/2015 03/25/2015 03/31/2015 1,500 2,894 300 6,000 850 1,000 51 12,595 0.12% 0.24% 0.02% 0.48% 0.07% 0.08% 0.00% 1.02% Short Short Short Short Short Short Short Corporate Financial Government Provincial Corporate Energy Government Federal Corporate Financial Corporate Financial Corporate Energy Source: PCBond, a business unit of TMX Group Inc. Table 4.2: FTSE TMX Canada (formerly DEX) Universe Bond Index Changes in Composition (Re-Openings) Issuer Coupon % Maturity Reissue Value ($mm) Reissue Date Sector Re-Openings Cominar REIT Ontario Prince Edward Island First Capital Realty Inc. Canada Manitoba Ontario Ontario Total 4.94 3.50 3.60 4.79 1.00 4.05 3.45 3.50 27-Jul-20 02-Jun-24 17-Jan-53 30-Aug-24 01-May-16 05-Sep-45 02-Jun-45 02-Jun-24 100 750 125 75 3,300 250 600 750 5,950 05-Mar-14 05-Mar-14 06-Mar-14 07-Mar-14 20-Mar-14 21-Mar-14 24-Mar-14 31-Mar-14 Corporate Real Estate REIT Government Provincial Government Provincial Corporate Real Estate Non-REIT Government Federal Government Provincial Government Provincial Government Provincial Source: PCBond, a business unit of TSX Inc.  Page 6 Fixed Income Quarterly—Benchmark Barometer Table 4.3: March Index Rolls Issuer Coupon % Maturity Par Value ($mm) Weight (%) Modified Duration Sector Long to Mid Canadian Utilities Inc. Brookfield Asset Management Inc. Rogers Communication Inc. AltaGas Ltd. Total 6.22 5.04 4.00 4.40 6-Mar-24 8-Mar-24 13-Mar-24 15-Mar-24  120 500 600 200 1,420 0.01 0.04 0.05 0.02 7.66 7.81 8.13 8.04 Energy Industrial Communication Energy Mid to Short Canada Saskatchewan British Columbia Bank of Montreal BCIMC Realty Corp. MCAP Commercial LP Loblaw Companies Ltd. Rogers Communication Inc. Bank of Nova Scotia Reliance LP Artis REIT Total 1.75 1.95 2.25 2.43 2.96 3.96 3.75 2.80 2.46 5.19 3.75 1-Mar-19 1-Mar-19 1-Mar-19 4-Mar-19 7-Mar-19 11-Mar-19 12-Mar-19 13-Mar-19 14-Mar-19 15-Mar-19 27-Mar-19 8,160 250 1,100 750 500 150 800 400 1,250 325 125 13,810 0.64 0.02 0.09 0.06 0.04 0.01 0.07 0.03 0.10 0.03 0.01 4.69 4.66 4.63 4.61 4.57 4.44 4.50 4.59 4.63 4.37 4.51 Federal Provincial Provincial Financial Real Estate Financial Industrial Communication Financial Industrial Real Estate Deletions C.I.B.C. Ontario Husky Energy Inc. Canada Housing Trust Royal Bank of Cda Covered Bank of Nova Scotia Trans-Northern Pipelines Inc. Total 3.10 4.50 3.75 2.95 3.18 3.34 4.74 2-Mar-15 8-Mar-15 12-Mar-15 15-Mar-15 16-Mar-15 25-Mar-15 31-Mar-15 1,500 2,894 300 6,000 850 1,000 51 12,595 0.12 0.24 0.02 0.48 0.07 0.08 0.00 0.98 0.97 0.97 0.98 0.98 0.97 0.82 Financial Provincial Energy Federal Financial Financial Energy Source: PCBond, a business unit of TSX Inc.  Fixed Income Quarterly—Benchmark Barometer Page 7 Table 4.4: April Index Rolls Issuer Coupon % Maturity Par Value ($mm) Weight (%) Modified Duration Sector Long to Mid Genworth MI Canada Inc. Telus Corp. Total 4.24 3.35 1-Apr-24 1-Apr-24 160 1,100 1,260 0.01 0.08 8.09 8.24 Financial Communication Mid to Short Tim Hortons Inc. Toronto-Dominion Bk Manulife Financial Corp. IGM Financial Inc. Brookfield Asset Management Inc. Nav Canada Power Corporation of Cda York Ont Regl Munic. Total 2.85 2.45 7.77 7.35 3.95 5.30 7.57 5.00 1-Apr-19 2-Apr-19 8-Apr-19 8-Apr-19 9-Apr-19 17-Apr-19 22-Apr-19 29-Apr-19 450 2,000 465 364 600 350 203 400 4,831 0.04 0.16 0.05 0.04 0.05 0.03 0.02 0.04 4.63 4.68 4.16 4.18 4.47 4.39 4.20 4.45 Industrial Financial Financial Financial Industrial Infrastructure Financial Municipal Deletions Toronto-Dominion Bk John Deere Credit Inc. Telus Corp. Bank of Montreal Cdn Cr Card Tr 12-1 Bank of Montreal C.I.B.C. Total 5.48 3.25 5.95 4.87 2.31 3.93 4.11 2-Apr-15 8-Apr-15 15-Apr-15 22-Apr-15 24-Apr-15 27-Apr-15 30-Apr-15  775 150 490 238 330 1,250 975 4,207 0.06 0.01 0.04 0.02 0.03 0.10 0.08 0.96 0.99 0.99 1.02 1.04 1.04 1.04 Financial Financial Communication Financial Securitization Financial Financial Source: PCBond, a business unit of TSX Inc.  Page 8 Fixed Income Quarterly—Benchmark Barometer Table 5.1: FTSE TMX Canada (formerly DEX) Universe Bond Index Total Return and Spread – Provincials Short Mid Long Broad Sector Return Spread (bps) Return Spread (bps) Return Spread (bps) Return Spread (bps) MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD Provincials -0.07% 1.14% 0.56 1.12 -0.39% 2.97% 2.74 5.14 -0.72% 4.76% 3.32 1.48 -0.48% 3.42% 2.92 3.59 Alberta British Columbia Manitoba New Brunswick Newfoundland Nova Scotia Ontario Prince Edward Island Quebec Saskatchewan -0.05% -0.22% -0.06% -0.05% -0.02% 0.00% -0.06% 0.10% -0.08% -0.05% 1.03% 1.78% 1.11% 0.94% 0.79% 0.47% 1.13% 0.49% 1.19% 0.70% -0.35 0.47 -0.37 -0.33 -0.59 -0.38 1.59 -2.90 -0.34 4.13 1.71 0.82 0.39 0.11 1.66 4.67 0.29 -4.15 2.36 4.85 -0.47% -0.46% -0.41% -0.42% -0.40% -0.47% -0.41% -0.34% -0.32% -0.36% 3.11% 2.87% 2.89% 2.72% 2.55% 2.49% 3.06% 2.56% 2.92% 2.60% 3.59 5.02 3.19 3.02 2.07 3.57 2.72 2.38 1.55 2.05 5.00 7.29 5.13 5.72 4.29 6.42 3.81 3.80 5.92 4.61 -0.90% -0.87% -0.76% -0.83% -0.81% -0.90% -0.73% -0.85% -0.59% -0.83% 4.77% 4.69% 4.87% 4.73% 4.33% 5.20% 4.85% 4.95% 4.62% 4.72% 3.03 4.42 3.58 4.52 4.61 3.80 3.42 3.91 2.57 4.07 1.25 2.34 0.89 1.56 2.67 1.38 0.33 0.82 3.28 1.79 -0.44% -0.65% -0.51% -0.55% -0.72% -0.74% -0.48% -0.72% -0.39% -0.73% 2.70% 3.75% 3.40% 3.24% 3.90% 4.12% 3.45% 4.33% 3.29% 4.10% 2.80 3.25 2.68 2.95 3.94 3.50 3.88 3.29 1.52 2.12 3.97 3.22 2.94 5.26 2.91 5.53 2.94 1.33 4.71 1.68 Source: PCBond, a business unit of TSX Inc., BMO Capital Markets Chart 5.1: FTSE TMX Canada (formerly DEX) Universe Bond Index Ranked Monthly Total Return – Provincials Chart 5.2: FTSE TMX Canada (formerly DEX) Universe Bond Index Ranked Monthly Spread – Provincials Quebec Alberta Ontario -0.39% -0.44% -0.48% -0.48% -0.51% -0.55% -0.65% Provincials Overall Manitoba New Brunswick British Columbia Newfoundland -0.72% Prince Edward Island-0.72% Saskatchewan -0.73% Nova Scotia-0.74% -1.00% -0.50% 0.00% 0.50% 1.00% Total Return 1 2.12 2.68 2.80 2.92 2.95 3.25 3.29 .50 .52 Quebec Saskatchewan Manitoba Alberta Provincials Overall New Brunswick British Columbia Prince Edward Island Nova Scotia Ontario Newfoundland 5.00 4.00 3.00 2.00 1.00 - Spread (bps) 3 3.88 3.94 Source: PCBond, a business unit of TMX Group Inc., BMO Capital Markets Provies Don’t Rebound After Ides of March Despite encompassing a bevy of school-related holidays, March proved to be quite a busy month in the Provincial space, with budgets, new issuance and even an election call all affect- ing spreads to varying degrees. Without question, however, the biggest impact in the month was the election call in Quebec. Spreads for all provinces traded a little heavier in the wake of the announcement as investors naturally eschew any kind of uncertainty associated with an election, regardless of the province. Most provinces failed to rebound after the ides from this early month weakness and as a result the spread for Broad Provinces widened by 3 basis points during March. More generally, there were movements in and out of bonds in March as geopolitical risk ebbed and flowed and the U.S. Fed waxed and waned about its intentions for monetary policy accommodation over the next couple of years. By month’s end, Source: PCBond, a business unit of TMX Group Inc., BMO Capital Markets GoC yields backed up a touch and Broad Provincials lost their pre-eminent position in the FTSE TMX Canada Universe Bond Index to Broad Corporates as a consequence. In fact, Broad Provincials was the worst-performing segment of the index at a loss of -0.48%. One of the biggest influences in this regards was the poor performance of underlying long Canadas and the longer duration of Broad Provincials. However, the weakness in March was not sufficient to displace the lead of Broad Provincials on a year-to-date basis, with a total return of 3.42% after the strong rally in long Canadas during February. At the same time, it should be noted inves- tor predilection toward corporates in the current environment propelled Broad Corporate BBB ahead of Broad Provincials during March, with a year-to-date return of 3.80%, while Broad Corporate A followed closely at 3.35%. We still prefer corporates over provincials, as we believe yields will remain range-bound and investors will gravitate toward greater spread as a result.  Fixed Income Quarterly—Benchmark Barometer Page 9 Table 6.1: FTSE TMX Canada (formerly DEX) Universe Bond Index Total Return and Spread – Corporates Short Mid Long Broad Sector Return Spread (bps) Return Spread (bps) Return Spread (bps) Return Spread (bps) MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD All Corporates 0.07% 1.39% -1.90 -8.59 0.11% 3.85% -4.99 -13.90 0.29% 6.06% -3.31 -9.33 0.13% 2.95% -2.98 -8.68 Communication - Media Communication - Telecommunication Energy - Distribution Energy - Exploration Energy - Generation Energy - Pipelines Financial - Auto Finance Financial - Bank Financial - Insurance Financial - Services Infrastructure - Health Infrastructure - Transportation Infrastructure - Utility Other Real Estate Retail Securitization 0.15% 0.16% 0.04% 0.15% 0.23% 0.11% 0.07% 0.03% 0.16% 0.08% 0.20% 0.05% 0.07% 0.17% 0.31% 0.18% 0.07% 0.99% 1.42% 1.31% 1.69% 1.95% 1.34% 1.50% 1.32% 1.55% 1.44% 1.04% 1.27% 1.53% 1.72% 2.31% 1.58% 1.10% -3.67 -4.98 -2.41 -2.24 -7.87 -4.61 -3.53 -0.60 -5.74 -2.14 -8.38 -2.81 -3.51 -3.00 -12.72 -3.30 -2.31 -14.23 -13.09 -4.69 -9.89 -9.15 -4.10 -5.99 -8.07 -13.61 -8.11 -12.89 -8.15 -6.87 -15.15 -19.57 -12.39 -9.70 0.24% 0.20% -0.07% 0.25% 0.19% 0.00% 0.01% 0.19% 0.09% -0.01% -0.09% -0.10% 0.31% 0.15% 0.47% 4.11% 4.05% 3.56% 3.32% 4.42% 3.69% 0.42% 3.48% 3.73% 3.40% 0.39% 3.23% 3.83% 4.17% 4.37% 4.84% -7.22 -5.16 -1.12 -8.70 -5.63 -1.51 -6.75 -6.67 -5.87 -4.45 -3.26 -1.92 -7.29 0.03 -2.74 -17.11 -13.82 -3.95 -12.56 -18.17 -5.01 -22.01 -15.61 -10.31 -8.33 -7.43 -18.69 -6.50 -14.43 1.75% 0.83% 0.11% 0.33% -0.02% 0.21% 0.35% 0.44% 0.57% 0.12% 0.06% 0.06% 0.76% -0.65% 1.10% 8.72% 6.48% 5.97% 5.55% 5.32% 5.70% 6.12% 6.21% 5.96% 5.83% 5.42% 6.15% 7.05% 4.82% 7.94% -14.23 -7.34 -2.20 -4.80 0.10 -2.31 -3.25 -5.08 -6.22 -0.67 -0.71 -1.87 0.62 6.04 -10.75 -28.20 -13.21 -5.58 -4.49 -14.29 -7.18 -12.81 -10.60 -8.55 -11.48 -6.12 -6.00 -10.46 -4.14 -26.26 0.52% 0.35% 0.07% 0.22% 0.11% 0.10% 0.07% 0.04% 0.22% 0.13% 0.12% 0.03% 0.03% 0.30% 0.15% 0.54% 0.07% 4.17% 3.75% 4.92% 2.79% 4.40% 3.87% 1.51% 1.70% 3.05% 2.33% 5.12% 4.22% 4.83% 3.60% 3.53% 4.58% 1.10% -7.15 -6.13 -2.60 -3.49 -3.86 -2.22 -3.53 -1.18 -5.86 -3.15 -2.02 -1.65 -2.22 -9.75 -5.15 -9.25 -2.31 -17.24 -13.30 -5.43 -8.28 -16.97 -5.69 -5.99 -8.06 -13.96 -7.20 -6.56 -6.73 -5.22 -17.80 -8.98 -20.22 -9.70 Source: PCBond, a business unit of TSX Inc., BMO Capital Markets Table 6.2: FTSE TMX Canada (formerly DEX) Universe Bond Index Total Return and Spread – Bank Debt Short Mid Long Broad Bank Debt Return Spread (bps) Return Spread (bps) Return Spread (bps) Return Spread (bps) MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD MoM YTD Bank - Covered Bank - Senior Bank - Sub Bank - Tier 1 Bank - Tier 2A 0.00% -0.01% 0.13% 0.06% 0.20% 1.43% 1.31% 1.16% 1.71% 1.50% 9.29 0.34 -3.92 -3.06 -6.97 -0.24 -7.07 -12.88 -9.88 -13.21 -0.02% 0.00% 0.05% 3.62% 3.47% 3.31% -5.82 -4.56 -5.37 -12.09 -17.03 -15.60 0.15% 0.25% 0.52% 5.98% 4.92% 6.41% -2.09 -2.96 -5.24 -15.79 -8.82 -12.89 0.00% 0.00% 0.11% 0.13% 0.20% 1.43% 1.56% 1.62% 3.11% 1.50% 9.29 -0.06 -4.02 -4.25 -6.97 -0.24 -6.17 -13.46 -11.69 -13.21 Source: PCBond, a business unit of TSX Inc., BMO Capital Markets Chart 6.1: FTSE TMX Canada (formerly DEX) Universe Bond Index Ranked Monthly Total Return – Corporates Chart 6.2: FTSE TMX Canada (formerly DEX) Universe Bond Index Ranked Monthly Spread – Corporates Retail Communication - Media Communication - Telecommunication Other Financial - Insurance Energy - Exploration Real Estate All Corporates Financial - Services Infrastructure - Health Energy - Generation Energy - Pipelines Financial - Auto Finance Securitization Energy - Distribution Financial - Bank Infrastructure - Transportation Infrastructure - Utility 0.00% 0.20% 0.40% 0.60% 0.80% Total Return 0.54% 0.52% 0.35% 0.30% 0.22% 0.22% 0.15% 0.13% 0.13% 0.12% 0.11% 0.10% 0.07% 0.07% 0.07% 0.04% 0.03% 0.03% Other Retail Communication - Media Communication - Telecommunication Financial - Insurance Real Estate Energy - Generation Financial - Auto Finance Energy - Exploration Financial - Services All Corporates Energy - Distribution Securitization Energy - Pipelines Infrastructure - Utility Infrastructure - Health Infrastructure - Transportation Financial - Bank - (4.00) (8.00) (12.00) Spread (bps) (9.75) (9.25) (7.15) (6.13) (5.86) (5.15) (3.86) (3.53) (3.49) (3.15) (2.98) (2.60) (2.31) (2.22) (2.22) (2.02) (1.65) (1.18) Source: PCBond, a business unit of TMX Group Inc., BMO Capital Markets More BBBs, Please Corporate bonds were the mainstay of investor focus during March, tightening by another three basis points in the month. Unlike the start of the year, however, investor fancy for BBBs start to become more pronounced with sectors such as Media, Telecom, Real Estate, Retail and Insurance all experiencing the Source: PCBond, a business unit of TMX Group Inc., BMO Capital Markets best spread moves inwards. While the high-quality sectors did trail, their performance was not too shabby either. We expect the strong start to last a little longer, which has been typical the past couple of years, along with higher beta receiving early investor favour. We still advise investors to remain selective in the current environment of heightened uncertainty, as event risk can emerge at any time.  Page 10 Fixed Income Quarterly—Benchmark Barometer Table 7.1: Historical Total Return (Month Over Month) Sector 30-Apr-13 31-May-13 28-Jun-13 31-Jul-13 30-Aug-13 30-Sep-13 31-Oct-13 29-Nov-13 31-Dec-13 31-Jan-14 28-Feb-14 31-Mar-14 Broad Composite 1.1% -1.5% -2.0% 0.2% -0.6% 0.5% 1.1% -0.2% -0.4% 2.6% 0.3% -0.2% All Government Canada Agencies Provincials Municipals 1.2% 1.0% 0.6% 1.6% 1.4% -1.6% -1.7% -0.9% -1.9% -1.5% -2.1% -1.7% -1.1% -2.8% -2.3% 0.1% 0.1% 0.3% 0.0% 0.1% -0.6% -0.5% -0.2% -0.9% -0.6% 0.6% 0.4% 0.5% 0.7% 0.7% 1.0% 0.8% 0.9% 1.2% 1.1% -0.3% -0.4% 0.1% -0.5% -0.2% -0.5% -0.6% -0.5% -0.4% -0.3% 2.7% 2.3% 1.8% 3.4% 3.0% 0.3% 0.1% 0.2% 0.5% 0.5% -0.3% -0.2% -0.2% -0.5% -0.3% All Corporates Corporate AA Corporate A Corporate BBB 1.0% 0.5% 1.2% 1.3% -1.0% -0.6% -1.2% -1.1% -1.9% -0.9% -2.1% -2.5% 0.5% 0.6% 0.4% 0.5% -0.5% -0.2% -0.6% -0.7% 0.4% 0.4% 0.3% 0.5% 1.2% 0.8% 1.2% 1.5% 0.0% 0.2% -0.2% 0.0% -0.3% -0.1% -0.3% -0.4% 2.4% 1.2% 2.8% 3.0% 0.4% 0.4% 0.4% 0.5% 0.1% 0.0% 0.1% 0.3% Short Composite 0.4% -0.4% -0.6% 0.4% -0.1% 0.4% 0.6% 0.2% -0.1% 0.9% 0.2% 0.0% All Government Canada Agencies Provincials Municipals 0.3% 0.3% 0.3% 0.5% 0.5% -0.4% -0.4% -0.4% -0.4% -0.4% -0.5% -0.4% -0.5% -0.6% -0.7% 0.3% 0.3% 0.3% 0.3% 0.4% -0.1% -0.1% -0.1% 0.0% 0.0% 0.4% 0.3% 0.4% 0.5% 0.5% 0.6% 0.4% 0.7% 0.7% 0.7% 0.2% 0.1% 0.2% 0.2% 0.3% -0.1% -0.1% -0.2% -0.2% -0.2% 0.8% 0.7% 1.0% 1.1% 1.2% 0.1% 0.0% 0.1% 0.1% 0.2% -0.1% 0.0% -0.1% -0.1% 0.0% All Corporates Corporate AA Corporate A Corporate BBB 0.4% 0.4% 0.4% 0.5% -0.4% -0.5% -0.3% -0.3% -0.7% -0.7% -0.7% -0.8% 0.5% 0.5% 0.5% 0.5% -0.1% -0.2% -0.1% -0.1% 0.4% 0.3% 0.3% 0.5% 0.7% 0.8% 0.7% 0.8% 0.3% 0.3% 0.3% 0.3% 0.0% -0.1% 0.0% 0.0% 1.0% 1.0% 1.0% 1.2% 0.3% 0.3% 0.2% 0.3% 0.1% 0.0% 0.1% 0.2% Mid Composite 1.2% -1.8% -2.3% 0.4% -0.7% 0.8% 1.3% -0.1% -0.8% 3.0% 0.5% -0.2% All Government Canada Agencies Provincials Municipals 1.2% 1.2% 1.1% 1.3% 1.2% -1.9% -2.2% -2.0% -1.7% -1.5% -2.3% -2.3% -2.2% -2.3% -1.9% 0.3% 0.2% 0.2% 0.3% 0.4% -0.7% -0.7% -0.6% -0.6% -0.4% 0.8% 0.8% 0.8% 0.8% 0.9% 1.3% 1.1% 1.2% 1.3% 1.3% -0.1% -0.4% 0.1% 0.0% 0.2% -0.9% -1.1% -1.0% -0.8% -0.7% 2.9% 3.0% 3.1% 2.8% 2.7% 0.4% 0.3% 0.5% 0.5% 0.5% -0.4% -0.3% -0.5% -0.4% -0.3% All Corporates Corporate AA Corporate A Corporate BBB 1.3% 1.2% 1.2% 1.3% -1.5% -1.7% -1.6% -1.4% -2.4% -2.2% -2.2% -2.7% 0.7% 0.7% 0.7% 0.7% -0.7% -0.7% -0.6% -0.7% 0.6% 0.6% 0.5% 0.7% 1.5% 1.5% 1.4% 1.6% 0.0% 0.1% 0.1% 0.0% -0.6% -0.6% -0.6% -0.7% 3.1% 2.8% 2.9% 3.3% 0.6% 0.7% 0.6% 0.6% 0.1% 0.0% 0.0% 0.2% Long Composite 2.2% -2.8% -4.0% -0.3% -1.4% 0.6% 1.5% -1.1% -0.6% 5.0% 0.5% -0.4% All Government Canada Agencies Provincials Municipals 2.2% 2.4% 2.2% 2.2% 2.3% -3.0% -3.8% -2.7% -2.6% -2.6% -4.0% -4.0% -3.1% -4.0% -4.0% -0.4% -0.5% 0.0% -0.4% -0.5% -1.4% -1.4% -1.1% -1.4% -1.2% 0.7% 0.4% 0.9% 0.8% 0.7% 1.3% 1.4% 1.5% 1.3% 1.3% -1.3% -1.7% -0.9% -1.1% -1.2% -0.5% -1.4% -1.2% -0.1% 0.0% 5.0% 5.3% 5.5% 4.8% 5.1% 0.5% 0.1% 0.3% 0.7% 0.8% -0.6% -0.4% -0.5% -0.7% -0.6% All Corporates Corporate AA Corporate A Corporate BBB 2.2% 1.7% 2.2% 2.2% -2.0% -2.8% -2.2% -1.6% -4.3% -3.5% -4.0% -4.8% 0.1% 0.4% 0.0% 0.2% -1.4% -1.0% -1.4% -1.3% 0.3% 0.6% 0.2% 0.4% 2.0% 1.4% 1.8% 2.3% -0.7% -0.7% -0.8% -0.4% -0.6% -1.1% -0.5% -0.7% 5.2% 4.1% 5.2% 5.2% 0.6% 1.3% 0.5% 0.6% 0.3% 0.1% 0.1% 0.6% Source: PCBond, a business unit of TSX Inc.  Fixed Income Quarterly—Benchmark Barometer Page 11 Table 8.1: Historical Modified Duration Sector 30-Apr-13 31-May-13 28-Jun-13 31-Jul-13 30-Aug-13 30-Sep-13 31-Oct-13 29-Nov-13 31-Dec-13 31-Jan-14 28-Feb-14 31-Mar-14 Broad Composite 6.91 6.80 6.82 6.74 6.67 6.68 6.67 6.60 6.72 6.83 6.87 6.84 All Government Canada Agencies Provincials Municipals 7.30 6.28 4.14 9.49 7.92 7.19 6.23 4.10 9.31 7.87 7.29 6.36 4.24 9.32 7.92 7.18 6.22 4.15 9.23 7.90 7.13 6.24 4.12 9.09 7.87 7.15 6.14 4.24 9.17 7.89 7.12 6.08 4.18 9.18 7.92 7.05 6.08 4.16 9.03 7.74 7.25 6.19 4.72 9.15 7.93 7.34 6.21 4.71 9.33 8.07 7.41 6.40 4.69 9.30 8.16 7.39 6.31 4.77 9.28 8.06 All Corporates Corporate AA Corporate A Corporate BBB 5.93 3.31 7.01 6.72 5.81 3.22 6.88 6.64 5.70 3.23 6.79 6.50 5.68 3.24 6.77 6.51 5.57 3.18 6.67 6.39 5.57 3.13 6.73 6.35 5.59 3.12 6.88 6.30 5.57 3.15 6.85 6.24 5.52 3.13 6.78 6.25 5.64 3.17 6.91 6.34 5.63 3.19 6.87 6.33 5.61 3.23 6.81 6.30 Short Composite 2.67 2.64 2.78 2.72 2.69 2.71 2.66 2.65 2.78 2.72 2.71 2.72 All Government Canada Agencies Provincials Municipals 2.56 2.34 2.70 2.95 2.99 2.51 2.32 2.61 2.88 2.95 2.73 2.52 2.92 2.99 3.18 2.64 2.43 2.83 2.90 3.10 2.61 2.45 2.75 2.82 3.02 2.67 2.47 2.81 3.01 2.97 2.60 2.40 2.74 2.97 2.94 2.57 2.38 2.66 2.90 2.98 2.77 2.42 3.08 3.12 3.26 2.70 2.35 3.01 3.05 3.20 2.70 2.38 2.93 3.02 3.13 2.72 2.43 2.97 3.07 3.04 All Corporates Corporate AA Corporate A Corporate BBB 2.89 2.99 2.80 2.85 2.87 2.93 2.78 2.90 2.88 2.89 2.83 2.95 2.87 2.89 2.79 3.00 2.83 2.86 2.72 2.98 2.78 2.80 2.67 2.95 2.76 2.77 2.70 2.85 2.80 2.81 2.75 2.83 2.79 2.80 2.71 2.88 2.76 2.79 2.66 2.83 2.73 2.75 2.62 2.85 2.73 2.78 2.55 2.87 Mid Composite 6.27 6.17 6.42 6.35 6.26 6.32 6.27 6.21 6.33 6.28 6.21 6.17 All Government Canada Agencies Provincials Municipals 6.39 6.21 6.57 6.44 5.98 6.27 6.06 6.46 6.34 5.88 6.59 6.80 6.63 6.50 5.93 6.49 6.64 6.54 6.42 5.85 6.38 6.49 6.45 6.34 5.76 6.48 6.61 6.42 6.46 6.01 6.42 6.54 6.35 6.41 5.97 6.34 6.39 6.35 6.33 5.93 6.51 6.38 6.93 6.47 6.15 6.45 6.28 6.88 6.43 6.17 6.37 6.15 6.81 6.38 6.10 6.32 6.23 6.56 6.31 6.08 All Corporates Corporate AA Corporate A Corporate BBB 5.91 5.47 5.92 5.96 5.87 5.72 5.82 5.94 5.90 6.00 5.85 5.93 5.91 5.85 5.93 5.90 5.88 5.86 5.87 5.89 5.84 5.79 5.79 5.90 5.83 5.87 5.76 5.88 5.80 5.79 5.78 5.81 5.80 5.77 5.78 5.82 5.81 5.80 5.78 5.83 5.79 5.75 5.77 5.82 5.77 5.64 5.74 5.83 Long Composite 13.82 13.56 13.67 13.59 13.38 13.53 13.53 13.41 13.55 13.72 13.67 13.58 All Government Canada Agencies Provincials Municipals 14.07 14.22 11.00 14.05 15.06 13.77 13.91 10.25 13.79 14.84 14.02 14.61 10.06 13.88 14.63 13.91 14.52 10.00 13.74 14.64 13.67 14.23 9.49 13.57 14.48 13.90 14.15 10.50 13.85 14.58 13.87 13.99 10.47 13.89 14.55 13.72 13.88 10.54 13.71 14.40 13.91 13.99 14.64 13.85 14.55 14.07 14.14 14.95 14.00 14.76 14.00 14.01 13.71 14.02 14.82 13.88 13.92 13.58 13.88 14.68 All Corporates Corporate AA Corporate A Corporate BBB 12.95 8.97 13.19 12.91 12.80 8.81 13.05 12.74 12.49 8.68 12.78 12.35 12.52 8.66 12.86 12.29 12.41 8.55 12.71 12.25 12.34 8.56 12.59 12.23 12.44 8.50 12.70 12.32 12.41 8.40 12.69 12.24 12.37 8.33 12.66 12.19 12.57 8.41 12.88 12.37 12.54 8.35 12.88 12.31 12.57 8.42 12.91 12.32 Source: PCBond, a business unit of TSX Inc.  Page 12 Fixed Income Quarterly—Benchmark Barometer Table 9.1: Ten Best Short Performers – Ranked by Total Return Coupon Interest Price Total Issue (%) Maturity Par Value Return Return Return Monthly Alberta CF Amrtzing Deb - 013051CR6 Granite REIT Hld LP - 387427AA5 Veresen Inc. - 92343ZAC9 Calloway REIT - 131253AC0 Algonquin Power Co. - 01585PAA3 Aimia Inc - 00900QAB9 MI Developments Inc. - 55304XAA2 Genworth MI Canada Inc. - 37252BAB8 Aimia Inc - 00900QAD5 Manulife Fin. Delaware LP - 56502FAB7 5.93 4.61 3.95 5.37 5.50 6.95 6.05 4.59 4.35 4.45 09/16/2016 10/02/2018 03/14/2017 10/12/2016 07/25/2018 01/26/2017 12/22/2016 12/15/2015 01/22/2018 12/15/2016 127,853,952 200,000,000 300,000,000 250,000,000 135,000,000 167,400,000 265,000,000 150,000,000 200,000,000 550,000,000 0.43% 0.33% 0.30% 0.37% 0.38% 0.47% 0.43% 0.33% 0.32% 0.32% 0.44% 0.29% 0.31% 0.19% 0.15% 0.06% 0.07% 0.08% 0.08% 0.01% 0.87% 0.61% 0.61% 0.56% 0.54% 0.53% 0.50% 0.42% 0.40% 0.33% YTD Crombie Real Est Inv Tr - 227107AF6 Capital Power L.P. - 14043ZAC6 Granite REIT Hld LP - 387427AA5 Algonquin Power Co. - 01585PAA3 Aimia Inc - 00900QAD5 Morguard - 617577AA9 First Capital Realty Inc. - 31943BBD1 H&R Real Estate Invest. Trust - 403925AR1 Reliance LP - 759480AF3 Loblaw Companies Ltd. - 539481AH4 3.99 4.85 4.61 5.50 4.35 4.10 4.95 3.34 5.19 3.75 10/31/2018 02/21/2019 10/02/2018 07/25/2018 01/22/2018 12/10/2018 11/30/2018 06/20/2018 03/15/2019 03/12/2019 175,000,000 244,000,000 200,000,000 135,000,000 200,000,000 135,000,000 100,000,000 175,000,000 325,000,000 800,000,000 0.93% 1.06% 1.05% 1.18% 0.98% 0.98% 1.11% 0.81% 1.16% 0.85% 3.29% 2.93% 2.83% 2.49% 2.46% 2.30% 2.17% 2.45% 2.08% 2.29% 4.22% 3.99% 3.88% 3.67% 3.45% 3.28% 3.27% 3.26% 3.24% 3.14% Source: PCBond, a business unit of TSX Inc. Table 9.2: Ten Worst Short Performers – Ranked by Total Return Coupon Interest Price Total Issue (%) Maturity Par Value Return Return Return Monthly Canada Housing Trust - 13509PEA7 British Columbia - 11070TAE8 Canada Housing Trust - 13509PBN2 Canada - 135087B86 Quebec Finance Corp - 31739ZAS4 B.C. MFA - 626209JM3 Canada Housing Trust - 13509PDT7 British Columbia - 110709FX5 Quebec - 74814ZDU4 2.35 2.25 4.10 1.75 2.40 2.35 1.75 4.65 4.50 12/15/2018 03/01/2019 12/15/2018 03/01/2019 12/01/2018 12/03/2018 06/15/2018 12/18/2018 12/01/2018 10,345,000,000 1,100,000,000 7,403,400,000 8,160,000,000 1,500,000,000 320,000,000 5,000,000,000 1,700,000,000 4,500,000,000 0.18% 0.17% 0.29% 0.13% 0.18% 0.18% 0.14% 0.32% 0.31% -0.57% -0.56% -0.67% -0.52% -0.54% -0.52% -0.47% -0.65% -0.64% -0.40% -0.39% -0.38% -0.38% -0.36% -0.34% -0.34% -0.33% -0.33% YTD Daimler Canada Finance - 23384NAE7 Nova Scotia - 669827FN2 Royal Bank Of Canada - 7800855Q5 Canada - 135087ZX5 New Brunswick - 642866FT9 BCIMC Realty Corp. - 07329VAG5 Terasen Pipelines Corridor - 88079VAB8 Nat Bank Of Canada - 633067UW1 Hydro Ottawa Holding Inc. - 44882CAA2 3.02 4.70 2.05 1.00 4.50 3.38 5.03 2.23 4.93 01/07/2015 01/14/2015 01/13/2015 02/01/2015 02/04/2015 01/29/2015 02/02/2015 01/30/2015 02/09/2015 300,000,000 200,000,000 1,100,000,000 12,380,000,000 550,000,000 200,000,000 150,000,000 1,500,000,000 200,000,000 0.03% 0.13% 0.05% 0.08% 0.37% 0.23% 0.40% 0.16% 0.48% 0.00% -0.07% 0.04% 0.05% -0.23% -0.08% -0.23% 0.02% -0.28% 0.03% 0.06% 0.09% 0.13% 0.14% 0.15% 0.17% 0.18% 0.20% Source: PCBond, a business unit of TSX Inc.  Fixed Income Quarterly—Benchmark Barometer Page 13 Table 9.3: Ten Best Mid Performers – Ranked by Total Return Coupon Interest Price Total Issue (%) Maturity Par Value Return Return Return Monthly AltaLink Invest L.P. - 02137PAC0 Fairfax Finl Holdings Ltd - 303901AV4 Algonquin Power Co. - 01585PAE5 Calloway REIT - 131253AM8 TMX Group Ltd - 87262KAB1 Genworth MI Canada Inc. - 37252BAA0 Fairfax Finl Holdings Ltd - 303901AR3 Calloway REIT - 131253AL0 RioCan REIT - 766910AW3 First Capital Realty Inc. - 31943BBU3 3.67 5.84 4.65 3.99 4.46 5.68 7.25 4.05 3.73 3.90 06/05/2019 10/14/2022 02/15/2022 05/30/2023 10/03/2023 06/15/2020 06/22/2020 07/27/2020 04/18/2023 10/30/2023 200,000,000 400,100,000 200,000,000 150,000,000 250,000,000 227,900,000 200,240,000 150,000,000 200,000,000 300,000,000 0.27% 0.40% 0.34% 0.30% 0.32% 0.38% 0.47% 0.30% 0.29% 0.30% 0.58% 0.42% 0.41% 0.43% 0.35% 0.26% 0.12% 0.23% 0.22% 0.20% 0.84% 0.83% 0.75% 0.74% 0.67% 0.64% 0.59% 0.53% 0.51% 0.50% YTD Choice Properties REIT - 17039AAB2 Fairfax Finl Holdings Ltd - 303901AV4 RioCan REIT - 766910AW3 Calloway REIT - 131253AM8 First Capital Realty Inc. - 31943BBR0 First Capital Realty Inc. - 31943BBU3 Tim Hortons Inc. - 88706MAC7 Sobeys Inc. - 833577AE9 Cogeco Cable Inc - 19238VAJ4 Loblaw Companies Ltd. - 539481AJ0 4.90 5.84 3.73 3.99 3.95 3.90 4.52 4.70 4.18 4.86 07/05/2023 10/14/2022 04/18/2023 05/30/2023 12/05/2022 10/30/2023 12/01/2023 08/08/2023 05/26/2023 09/12/2023 200,000,000 400,100,000 200,000,000 150,000,000 250,000,000 300,000,000 450,000,000 500,000,000 300,000,000 800,000,000 1.17% 1.30% 0.92% 1.00% 0.98% 0.96% 1.07% 1.06% 1.02% 1.06% 5.77% 5.40% 5.55% 5.41% 5.38% 5.33% 5.05% 4.88% 4.89% 4.82% 6.94% 6.71% 6.46% 6.41% 6.36% 6.29% 6.12% 5.94% 5.91% 5.88% Source: PCBond, a business unit of TSX Inc. Table 9.4: Ten Worst Mid Performers – Ranked by Total Return Coupon Interest Price Total Issue (%) Maturity Par Value Return Return Return Monthly Nova Scotia Schools Tr. - 80927YAB3 Farm Credit Corp. - 30766ZXG3 Centre Street Trust - 156327AB4 British Columbia - 110709GB2 Alberta - 013051DG9 New Brunswick - 642869AD3 Alberta - 013051DL8 Canada Housing Trust - 13509PCS0 British Columbia - 110709GF3 Farm Credit Corp. - 30766ZXM0 7.31 4.55 3.69 2.70 2.55 3.35 3.40 3.80 3.30 4.60 09/17/2020 04/12/2021 06/14/2022 12/18/2022 12/15/2022 12/03/2021 12/01/2023 06/15/2021 12/18/2023 06/01/2021 19,817,598 240,956,200 242,938,331 1,400,000,000 1,820,000,000 900,000,000 500,000,000 7,247,740,000 1,450,000,000 70,813,000 0.62% 0.32% 0.29% 0.21% 0.20% 0.25% 0.26% 0.27% 0.25% 0.31% -4.82% -1.73% -1.24% -0.99% -0.96% -0.97% -0.97% -0.98% -0.96% -1.01% -4.19% -1.40% -0.94% -0.77% -0.75% -0.71% -0.71% -0.71% -0.71% -0.70% YTD Nova Scotia Schools Tr. - 80927YAB3 Maritime & NE Pipe - 57036QAC4 Maritime & NE Pipe - 57036QAB6 Milit-Air Amortizing - 599910AA4 Farm Credit Corp. - 30766ZXG3 British Columbia - 11070ZAG9 New Brunswick - 6428668Z3 Viterra Inc. - 92849TAL2 Ontario - 683234B80 Nova Scotia Schools Tr. - 80927YAA5 7.31 4.34 6.90 5.75 4.55 9.00 4.40 6.41 4.40 6.22 09/17/2020 11/30/2019 11/30/2019 06/30/2019 04/12/2021 06/17/2019 06/03/2019 02/16/2021 06/02/2019 07/13/2020 19,817,598 126,900,000 156,000,000 291,636,886 240,956,200 50,000,000 900,000,000 200,000,000 7,901,772,000 32,552,295 1.56% 1.00% 1.46% 1.26% 0.96% 1.63% 0.96% 1.35% 0.96% 1.25% -4.88% -0.26% -0.72% -0.39% 0.78% 0.18% 0.92% 0.54% 0.96% 0.69% -3.32% 0.74% 0.74% 0.86% 1.74% 1.81% 1.88% 1.89% 1.93% 1.94% Source: PCBond, a business unit of TSX Inc.  Page 14 Fixed Income Quarterly—Benchmark Barometer Table 9.5: Ten Best Long Performers – Ranked by Total Return Coupon Interest Price Total Issue (%) Maturity Par Value Return Return Return Monthly Weston Ltd. George - 96115ZAD4 Bell Canada PRYDES - 078149DV0 TransCanada PipeLines - 89353ZAY4 Transalta Corporation - 89347ZAE7 C.I.B.C. Capital Trust - 12544UAB7 Shaw Communications Inc. - 82028KAQ4 Loblaw Companies Ltd. - 53947ZAF4 Loblaw Companies Ltd. - 53947ZAH0 Loblaw Companies Ltd. - 53947ZAT4 Cameco Corporation - 13321LAJ7 7.10 7.65 6.27 6.90 10.25 6.75 6.50 6.45 6.54 5.09 02/05/2032 12/30/2031 07/18/2028 11/15/2030 06/30/2039 11/09/2039 01/22/2029 03/01/2039 02/17/2033 11/14/2042 150,000,000 150,000,000 106,900,000 147,210,000 300,000,000 1,429,300,000 175,000,000 120,000,000 188,000,000 100,000,000 0.44% 0.45% 0.41% 0.48% 0.53% 0.41% 0.42% 0.41% 0.42% 0.37% 2.65% 1.63% 1.57% 1.32% 1.20% 1.29% 1.24% 1.14% 1.05% 1.04% 3.10% 2.08% 1.98% 1.80% 1.72% 1.69% 1.66% 1.55% 1.47% 1.41% YTD Cameco Corporation - 13321LAJ7 Loblaw Companies Ltd. - 53947ZAH0 Loblaw Companies Ltd. - 53947ZAY3 Loblaw Companies Ltd. - 53947ZAX5 Loblaw Companies Ltd. - 53947ZAU1 Sobeys Inc. - 83357ZAL1 Shaw Communications Inc. - 82028KAQ4 Hydro One Inc. - 44810ZBG4 Loblaw Companies Ltd. - 53947ZAT4 Toronto Hydro Corp. - 89119ZAF0 5.09 6.45 5.90 6.15 6.05 6.64 6.75 3.79 6.54 3.96 11/14/2042 03/01/2039 01/18/2036 01/29/2035 06/09/2034 06/07/2040 11/09/2039 07/31/2062 02/17/2033 04/09/2063 100,000,000 120,000,000 300,000,000 200,000,000 200,000,000 150,000,000 1,429,300,000 310,000,000 188,000,000 200,000,000 1.26% 1.28% 1.24% 1.23% 1.34% 1.40% 1.38% 0.93% 1.30% 1.02% 10.04% 7.69% 7.46% 7.32% 7.18% 7.06% 6.97% 7.40% 6.98% 7.18% 11.29% 8.98% 8.71% 8.54% 8.53% 8.46% 8.35% 8.34% 8.28% 8.20% Source: PCBond, a business unit of TSX Inc. Table 9.6: Ten Worst Long Performers – Ranked by Total Return Coupon Interest Price Total Issue (%) Maturity Par Value Return Return Return Monthly University of B.C. - 914104AB0 SEC LP & Arci Ltd - 784103AA1 Canadian Utilities Inc. - 12657ZAZ6 Ontario Infrastructure Projects Corp. - 683086AA0 Alberta - 01306ZDC2 Newfoundland - 651333FM3 University of B.C. - 914104AA2 New Brunswick - 642866FR3 Prince Edward Island - 741666CL3 TransLink - 83740TAC1 4.82 5.19 3.83 4.70 3.90 5.60 6.65 5.50 6.80 3.85 07/26/2035 08/29/2033 09/11/2062 06/01/2037 12/01/2033 10/17/2033 12/01/2031 01/27/2034 02/21/2030 02/09/2052 125,000,000 544,509,116 200,000,000 300,000,000 1,215,000,000 272,500,000 125,000,000 529,100,000 80,000,000 250,000,000 0.34% 0.38% 0.39% 0.35% 0.30% 0.36% 0.40% 0.35% 0.38% 0.32% -1.78% -1.81% -1.77% -1.70% -1.52% -1.56% -1.59% -1.53% -1.56% -1.49% -1.44% -1.43% -1.39% -1.35% -1.23% -1.20% -1.20% -1.18% -1.18% -1.17% YTD Can Pac Rail - 13645RAA2 Nova Gas Transmission Ltd - 66975ZAM6 York Region District Sch. - 987049AB9 York Region District Sch. - 987049AC7 City of Toronto - 891288CZ3 B.C. MFA - 626209HV5 Pearson Intl Fuel Facilities - 70501YAA0 On. Sch. Bd. Fin. Co. - 683244AE7 On. Sch. Bd. Fin. Co. - 683244AP2 On. Sch. Bd. Fin. Co. - 683244AA5 6.91 6.05 6.45 5.30 5.34 4.98 5.09 6.55 4.79 7.20 10/01/2024 07/16/2027 06/04/2024 06/03/2025 07/18/2027 04/06/2025 03/09/2032 10/19/2026 08/08/2030 06/09/2025 166,474,398 50,000,000 84,690,710 76,043,899 78,146,203 81,624,140 91,544,670 219,075,911 96,005,424 134,236,865 1.39% 1.37% 1.32% 1.14% 1.12% 1.07% 1.22% 1.31% 1.05% 1.42% -0.38% 0.00% 0.87% 1.05% 1.32% 1.41% 1.33% 1.26% 1.81% 1.46% 1.01% 1.37% 2.19% 2.19% 2.44% 2.47% 2.55% 2.57% 2.87% 2.88% Source: PCBond, a business unit of TSX Inc.  Fixed Income Quarterly—Benchmark Barometer Page 15 Table 10.1: Ten Best Performers Ranked by Total Return According to Macaulay Duration (1 to 4 years) Coupon Macaulay Modified Interest Price Total Issue (%) Maturity Duration Duration Par Value Return Return Return Monthly Alberta CF Amrtzing Deb - 013051CR6 Veresen Inc. - 92343ZAC9 Calloway REIT - 131253AC0 Algonquin Power Co. - 01585PAA3 Aimia Inc - 00900QAB9 MI Developments Inc. - 55304XAA2 Genworth MI Canada Inc. - 37252BAB8 Aimia Inc - 00900QAD5 Manulife Fin. Delaware LP - 56502FAB7 Great-West Lifeco Fin. (Delaware) LPII - 391385AA 5.93 3.95 5.37 5.50 6.95 6.05 4.59 4.35 4.45 7.13 09/16/2016 03/14/2017 10/12/2016 07/25/2018 01/26/2017 12/22/2016 12/15/2015 01/22/2018 12/15/2016 06/26/2018 1.4607 2.8241 2.3623 3.9017 2.6066 2.5336 1.6525 3.5431 2.5646 3.7330 1.4511 2.7911 2.3399 3.8429 2.5723 2.4917 1.6352 3.4901 2.5378 3.6875 127,853,952 300,000,000 250,000,000 135,000,000 167,400,000 265,000,000 150,000,000 200,000,000 550,000,000 500,000,000 0.43% 0.30% 0.37% 0.38% 0.47% 0.43% 0.33% 0.32% 0.32% 0.46% 0.44% 0.31% 0.19% 0.15% 0.06% 0.07% 0.08% 0.08% 0.01% -0.15% 0.87% 0.61% 0.56% 0.54% 0.53% 0.50% 0.42% 0.40% 0.33% 0.30% YTD Algonquin Power Co. - 01585PAA3 Aimia Inc - 00900QAD5 H&R Real Estate Invest. Trust - 403925AR1 Choice Properties REIT - 17039AAA4 Great-West Lifeco Fin. (Delaware) LPII - 391385AA Holcim Finance Canada - 43474PAC5 Calloway REIT - 131253AN6 RioCan REIT - 766910AV5 Borealis Infrastr Tr - 09972BAA8 Aimia Inc - 00900QAB9 5.50 4.35 3.34 3.55 7.13 3.65 3.39 2.87 6.35 6.95 07/25/2018 01/22/2018 06/20/2018 07/05/2018 06/26/2018 04/10/2018 12/01/2017 03/05/2018 12/01/2020 01/26/2017 3.9017 3.5431 3.9492 3.9788 3.7330 3.7341 3.4570 3.7458 3.3116 2.6066 3.8429 3.4901 3.8928 3.9268 3.6875 3.6852 3.4120 3.6968 3.2642 2.5723 135,000,000 200,000,000 175,000,000 400,000,000 500,000,000 300,000,000 150,000,000 250,000,000 80,460,813 167,400,000 1.18% 0.98% 0.81% 0.84% 1.47% 0.84% 0.80% 0.69% 1.37% 1.46% 2.49% 2.46% 2.45% 2.20% 1.52% 2.06% 1.98% 1.99% 1.30% 1.20% 3.67% 3.45% 3.26% 3.05% 2.99% 2.90% 2.79% 2.68% 2.68% 2.66% 9 9 Source: PCBond, a business unit of TSX Inc. Table 10.2: Ten Worst Performers Ranked by Total Return According to Macaulay Duration (1 to 4 years) Coupon Macaulay Modified Interest Price Total Issue (%) Maturity Duration Duration Par Value Return Return Return Monthly Nova Scotia Schools Tr. - 80927YAB3 Ontario - 683234TQ1 Manitoba - 563469FP5 B.C. MFA - 626209JD3 Canada - 135087YL2 Alberta - 013051DH7 Nova Scotia Schools Tr. - 80927YAA5 British Columbia - 11070ZDE1 Ontario - 683234ZQ4 7.31 5.50 4.25 4.60 4.25 1.70 6.22 5.60 4.20 09/17/2020 06/02/2018 03/05/2018 04/23/2018 06/01/2018 12/15/2017 07/13/2020 06/01/2018 03/08/2018 3.3626 3.7656 3.6729 3.7118 3.8453 3.6011 3.2465 3.7579 3.6833 3.3114 3.7296 3.6406 3.6764 3.8165 3.5714 3.2237 3.7237 3.6499 19,817,598 715,000,000 250,000,000 440,000,000 9,232,664,000 1,250,000,000 32,552,295 200,000,000 3,000,000,000 0.62% 0.37% 0.32% 0.32% 0.29% 0.13% 0.41% 0.37% 0.31% -4.82% -0.66% -0.59% -0.57% -0.55% -0.38% -0.66% -0.62% -0.56% -4.19% -0.29% -0.27% -0.25% -0.25% -0.25% -0.25% -0.25% -0.25% YTD Nova Scotia Schools Tr. - 80927YAB3 Daimler Canada Finance - 23384NAE7 Nova Scotia - 669827FN2 Royal Bank Of Canada - 7800855Q5 Canada - 135087ZX5 New Brunswick - 642866FT9 BCIMC Realty Corp. - 07329VAG5 Terasen Pipelines Corridor - 88079VAB8 Nat Bank Of Canada - 633067UW1 7.31 3.02 4.70 2.05 1.00 4.50 3.38 5.03 2.23 09/17/2020 01/07/2015 01/14/2015 01/13/2015 02/01/2015 02/04/2015 01/29/2015 02/02/2015 01/30/2015 3.3626 0.9808 0.9695 0.9930 0.9953 0.9708 0.9783 0.9697 0.9864 3.3114 0.9735 0.9645 0.9867 0.9906 0.9658 0.9717 0.9617 0.9799 19,817,598 300,000,000 200,000,000 1,100,000,000 12,380,000,000 550,000,000 200,000,000 150,000,000 1,500,000,000 1.56% 0.03% 0.13% 0.05% 0.08% 0.37% 0.23% 0.40% 0.16% -4.88% 0.00% -0.07% 0.04% 0.05% -0.23% -0.08% -0.23% 0.02% -3.32% 0.03% 0.06% 0.09% 0.13% 0.14% 0.15% 0.17% 0.18% Source: PCBond, a business unit of TSX Inc.  Page 16 Fixed Income Quarterly—Benchmark Barometer Table 10.3: Ten Best Performers Ranked by Total Return According to Macaulay Duration (4 to 8 years) Coupon Macaulay Modified Interest Price Total Issue (%) Maturity Duration Duration Par Value Return Return Return Monthly AltaLink Invest L.P. - 02137PAC0 Fairfax Finl Holdings Ltd - 303901AV4 Algonquin Power Co. - 01585PAE5 Calloway REIT - 131253AM8 TMX Group Ltd - 87262KAB1 Genworth MI Canada Inc. - 37252BAA0 Granite REIT Hld LP - 387427AA5 Fairfax Finl Holdings Ltd - 303901AR3 Calloway REIT - 131253AL0 RioCan REIT - 766910AW3 3.67 5.84 4.65 3.99 4.46 5.68 4.61 7.25 4.05 3.73 06/05/2019 10/14/2022 02/15/2022 05/30/2023 10/03/2023 06/15/2020 10/02/2018 06/22/2020 07/27/2020 04/18/2023 4.7308 6.7491 6.6845 7.6619 7.7405 5.3137 4.0501 5.1373 5.6298 7.6241 4.6638 6.5901 6.5500 7.5050 7.5936 5.2266 3.9805 5.0300 5.5353 7.4733 200,000,000 400,100,000 200,000,000 150,000,000 250,000,000 227,900,000 200,000,000 200,240,000 150,000,000 200,000,000 0.27% 0.40% 0.34% 0.30% 0.32% 0.38% 0.33% 0.47% 0.30% 0.29% 0.58% 0.42% 0.41% 0.43% 0.35% 0.26% 0.29% 0.12% 0.23% 0.22% 0.84% 0.83% 0.75% 0.74% 0.67% 0.64% 0.61% 0.59% 0.53% 0.51% YTD Choice Properties REIT - 17039AAB2 Fairfax Finl Holdings Ltd - 303901AV4 RioCan REIT - 766910AW3 Calloway REIT - 131253AM8 First Capital Realty Inc. - 31943BBR0 First Capital Realty Inc. - 31943BBU3 Tim Hortons Inc. - 88706MAC7 Sobeys Inc. - 833577AE9 Cogeco Cable Inc - 19238VAJ4 Loblaw Companies Ltd. - 539481AJ0 4.90 5.84 3.73 3.99 3.95 3.90 4.52 4.70 4.18 4.86 07/05/2023 10/14/2022 04/18/2023 05/30/2023 12/05/2022 10/30/2023 12/01/2023 08/08/2023 05/26/2023 09/12/2023 7.5496 6.7491 7.6241 7.6619 7.3524 7.9528 7.8805 7.6900 7.6168 7.7520 7.4002 6.5901 7.4733 7.5050 7.2109 7.7942 7.7276 7.5380 7.4682 7.6036 200,000,000 400,100,000 200,000,000 150,000,000 250,000,000 300,000,000 450,000,000 500,000,000 300,000,000 800,000,000 1.17% 1.30% 0.92% 1.00% 0.98% 0.96% 1.07% 1.06% 1.02% 1.06% 5.77% 5.40% 5.55% 5.41% 5.38% 5.33% 5.05% 4.88% 4.89% 4.82% 6.94% 6.71% 6.46% 6.41% 6.36% 6.29% 6.12% 5.94% 5.91% 5.88% Source: PCBond, a business unit of TSX Inc. Table 10.4: Ten Worst Performers Ranked by Total Return According to Macaulay Duration (4 to 8 years) Coupon Macaulay Modified Interest Price Total Issue (%) Maturity Duration Duration Par Value Return Return Return Monthly Farm Credit Corp. - 30766ZXG3 Centre Street Trust - 156327AB4 British Columbia - 110709GB2 Alberta - 013051DG9 New Brunswick - 642869AD3 Canada Housing Trust - 13509PCS0 Farm Credit Corp. - 30766ZXM0 British Columbia - 110709BJ0 Ontario - 68323AAW4 Business Dev Bank Canada - 12290ZGW0 4.55 3.69 2.70 2.55 3.35 3.80 4.60 3.25 3.15 4.35 04/12/2021 06/14/2022 12/18/2022 12/15/2022 12/03/2021 06/15/2021 06/01/2021 12/18/2021 06/02/2022 02/28/2022 6.0617 6.4580 7.7669 7.8009 6.7860 6.3611 6.1918 6.8552 7.2135 6.8449 5.9886 6.3340 7.6566 7.6901 6.6895 6.2848 6.1175 6.7641 7.1086 6.7576 240,956,200 242,938,331 1,400,000,000 1,820,000,000 900,000,000 7,247,740,000 70,813,000 1,750,000,000 10,750,000,000 97,601,000 0.32% 0.29% 0.21% 0.20% 0.25% 0.27% 0.31% 0.24% 0.24% 0.29% -1.73% -1.24% -0.99% -0.96% -0.97% -0.98% -1.01% -0.92% -0.92% -0.96% -1.40% -0.94% -0.77% -0.75% -0.71% -0.71% -0.70% -0.68% -0.67% -0.67% YTD Can Pac Rail - 13645RAA2 Canada Housing Trust - 13509PDT7 Canada Housing Trust - 13509PDX8 Alberta - 013051DJ3 Farm Credit Corp. - 30766ZXG3 Canada Housing Trust - 13509PBN2 Quebec - 74814ZDU4 British Columbia - 11070ZAG9 Manitoba - 56344ZBB4 Canada - 135087B37 6.91 1.75 2.05 1.60 4.55 4.10 4.50 9.00 5.50 1.25 10/01/2024 06/15/2018 06/15/2018 06/15/2018 04/12/2021 12/15/2018 12/01/2018 06/17/2019 11/15/2018 09/01/2018 4.9191 4.0640 4.0400 4.0760 6.0617 4.3137 4.2409 4.3449 4.1213 4.3153 4.8360 4.0281 4.0045 4.0395 5.9886 4.2730 4.1966 4.2973 4.0804 4.2809 166,474,398 5,000,000,000 5,000,000,000 1,050,000,000 240,956,200 7,403,400,000 4,500,000,000 50,000,000 445,000,000 8,160,000,000 1.39% 0.43% 0.49% 0.39% 0.96% 0.90% 0.98% 1.63% 1.15% 0.31% -0.38% 1.11% 1.06% 1.32% 0.78% 0.87% 0.80% 0.18% 0.66% 1.52% 1.01% 1.54% 1.55% 1.72% 1.74% 1.78% 1.78% 1.81% 1.81% 1.83% Source: PCBond, a business unit of TSX Inc.  Fixed Income Quarterly—Benchmark Barometer Page 17 Table 10.5: Ten Best Performers Ranked by Total Return According to Macaulay Duration (greater than 8 years) Coupon Macaulay Modified Interest Price Total Issue (%) Maturity Duration Duration Par Value Return Return Return Monthly Weston Ltd. George - 96115ZAD4 Bell Canada PRYDES - 078149DV0 TransCanada PipeLines - 89353ZAY4 Transalta Corporation - 89347ZAE7 C.I.B.C. Capital Trust - 12544UAB7 Shaw Communications Inc. - 82028KAQ4 Loblaw Companies Ltd. - 53947ZAF4 Loblaw Companies Ltd. - 53947ZAH0 Loblaw Companies Ltd. - 53947ZAT4 Cameco Corporation - 13321LAJ7 7.10 7.65 6.27 6.90 10.25 6.75 6.50 6.45 6.54 5.09 02/05/2032 12/30/2031 07/18/2028 11/15/2030 06/30/2039 11/09/2039 01/22/2029 03/01/2039 02/17/2033 11/14/2042 11.0544 10.7062 9.7357 10.0405 11.5293 13.3531 10.1063 13.7087 11.7219 15.1499 10.7770 10.4266 9.5335 9.7251 11.1643 13.0096 9.8757 13.3725 11.4376 14.7783 150,000,000 150,000,000 106,900,000 147,210,000 300,000,000 1,429,300,000 175,000,000 120,000,000 188,000,000 100,000,000 0.44% 0.45% 0.41% 0.48% 0.53% 0.41% 0.42% 0.41% 0.42% 0.37% 2.65% 1.63% 1.57% 1.32% 1.20% 1.29% 1.24% 1.14% 1.05% 1.04% 3.10% 2.08% 1.98% 1.80% 1.72% 1.69% 1.66% 1.55% 1.47% 1.41% YTD Cameco Corporation - 13321LAJ7 Loblaw Companies Ltd. - 53947ZAH0 Loblaw Companies Ltd. - 53947ZAY3 Loblaw Companies Ltd. - 53947ZAX5 Loblaw Companies Ltd. - 53947ZAU1 Sobeys Inc. - 83357ZAL1 Shaw Communications Inc. - 82028KAQ4 Hydro One Inc. - 44810ZBG4 Loblaw Companies Ltd. - 53947ZAT4 Toronto Hydro Corp. - 89119ZAF0 5.09 6.45 5.90 6.15 6.05 6.64 6.75 3.79 6.54 3.96 11/14/2042 03/01/2039 01/18/2036 01/29/2035 06/09/2034 06/07/2040 11/09/2039 07/31/2062 02/17/2033 04/09/2063 15.1499 13.7087 12.9480 12.5397 12.2613 13.6069 13.3531 21.1019 11.7219 20.6171 14.7783 13.3725 12.6334 12.2357 11.9634 13.2574 13.0096 20.6598 11.4376 20.1803 100,000,000 120,000,000 300,000,000 200,000,000 200,000,000 150,000,000 1,429,300,000 310,000,000 188,000,000 200,000,000 1.26% 1.28% 1.24% 1.23% 1.34% 1.40% 1.38% 0.93% 1.30% 1.02% 10.04% 7.69% 7.46% 7.32% 7.18% 7.06% 6.97% 7.40% 6.98% 7.18% 11.29% 8.98% 8.71% 8.54% 8.53% 8.46% 8.35% 8.34% 8.28% 8.20% Source: PCBond, a business unit of TSX Inc. Table 10.6: Ten Worst Performers Ranked by Total Return According to Macaulay Duration (greater than 8 years) Coupon Macaulay Modified Interest Price Total Issue (%) Maturity Duration Duration Par Value Return Return Return Monthly University of B.C. - 914104AB0 SEC LP & Arci Ltd - 784103AA1 Canadian Utilities Inc. - 12657ZAZ6 Ontario Infrastructure Projects Corp. - 683086AA0 Alberta - 01306ZDC2 Newfoundland - 651333FM3 University of B.C. - 914104AA2 New Brunswick - 642866FR3 Prince Edward Island - 741666CL3 TransLink - 83740TAC1 4.82 5.19 3.83 4.70 3.90 5.60 6.65 5.50 6.80 3.85 07/26/2035 08/29/2033 09/11/2062 06/01/2037 12/01/2033 10/17/2033 12/01/2031 01/27/2034 02/21/2030 02/09/2052 13.7643 9.7573 21.0566 14.4439 13.8511 12.6915 11.4121 12.9793 10.8007 19.5020 13.4769 9.5271 20.6108 14.1424 13.6012 12.4533 11.1809 12.7307 10.5986 19.1002 125,000,000 544,509,116 200,000,000 300,000,000 1,215,000,000 272,500,000 125,000,000 529,100,000 80,000,000 250,000,000 0.34% 0.38% 0.39% 0.35% 0.30% 0.36% 0.40% 0.35% 0.38% 0.32% -1.78% -1.81% -1.77% -1.70% -1.52% -1.56% -1.59% -1.53% -1.56% -1.49% -1.44% -1.43% -1.39% -1.35% -1.23% -1.20% -1.20% -1.18% -1.18% -1.17% YTD Nova Gas Transmission Ltd - 66975ZAM6 Quebec - 748148PZ0 University of Toronto - 383660AA5 SEC LP & Arci Ltd - 784103AA1 Nfld-Labrador Hydro - 651329AW4 Aeroports De Montreal - 007863AD5 Quebec - 74814ZDE0 Investors Group - 46152HAB7 Ontario - 683234JQ2 Ontario - 683234KN7 6.05 8.50 6.78 5.19 8.40 6.61 5.35 6.65 8.50 8.00 07/16/2027 04/01/2026 07/18/2031 08/29/2033 02/27/2026 10/11/2033 06/01/2025 12/13/2027 12/02/2025 12/02/2026 9.2015 8.3300 11.2348 9.7573 8.5136 9.0341 8.6577 9.4745 8.2684 8.8752 8.9828 8.1835 10.9996 9.5271 8.3685 8.8373 8.5083 9.2566 8.1303 8.7236 50,000,000 1,191,022,945 160,000,000 544,509,116 179,600,000 146,329,182 652,000,000 125,000,000 756,471,853 164,145,000 1.37% 1.37% 1.21% 1.12% 1.30% 1.31% 1.12% 1.36% 1.39% 1.34% 0.00% 1.87% 2.04% 2.33% 2.17% 2.17% 2.39% 2.18% 2.20% 2.30% 1.37% 3.24% 3.25% 3.46% 3.47% 3.48% 3.51% 3.55% 3.59% 3.64% Source: PCBond, a business unit of TSX Inc.  Page 18 Fixed Income Quarterly—Benchmark Barometer Table 11.1: Ten Best Short Performers – Ranked by Relative % Spread Change Coupon Spread Relative Spread Issue (%) Maturity Par Value Change (bps) Change (%) Monthly Calloway REIT - 131253AC0 Alliance Pipelines Ltd - 01877PAA0 Genworth MI Canada Inc. - 37252BAB8 BMW Canada Inc. - 05590HAC1 Veresen Inc. - 92343ZAC9 Great-West Lifeco Fin. Delaware LPII - 391385AA9 Plenary Health Humber LP - 72908WAA9 GE Capital Cda Funding - 36158ZCA2 Crombie Real Est Inv Tr - 227107AF6 Cdn Cr Card Tr 12-1 - 13594ZAD9 5.37 7.23 4.59 3.15 3.95 7.13 2.63 2.42 3.99 2.31 10/12/2016 06/30/2015 12/15/2015 04/01/2015 03/14/2017 06/26/2018 05/18/2015 05/31/2018 10/31/2018 04/24/2015 250,000,000 30,464,400 150,000,000 175,000,000 300,000,000 500,000,000 482,389,000 1,000,000,000 175,000,000 330,000,000 -23.59 -14.58 -21.57 -7.61 -22.89 -16.45 -10.86 -10.97 -25.69 -5.56 -23.67% -22.36% -17.84% -17.48% -17.19% -15.57% -15.43% -14.65% -14.35% -13.53% YTD Calloway REIT - 131253AC0 Cdn Cr Card Tr 12-1 - 13594ZAD9 Aimia Inc - 00900QAB9 BMW Canada Inc. - 05590HAC1 Great-West Lifeco Fin. Delaware LPII - 391385AA9 Loblaw Companies Ltd. - 53947ZAR8 Genworth MI Canada Inc. - 37252BAB8 H&R Real Estate Invest. Trust - 403925AH3 Aimia Inc - 00900QAD5 Royal Bank of Cda Covered - 780085Y42 5.37 2.31 6.95 3.15 7.13 7.10 4.59 4.78 4.35 3.77 10/12/2016 04/24/2015 01/26/2017 04/01/2015 06/26/2018 06/01/2016 12/15/2015 07/27/2016 01/22/2018 03/30/2018 250,000,000 330,000,000 167,400,000 175,000,000 500,000,000 236,400,000 150,000,000 180,000,000 200,000,000 1,100,000,000 -64.23 -14.58 -59.53 -14.36 -34.19 -23.63 -33.11 -32.26 -49.30 -17.47 -45.78% -29.09% -29.04% -28.55% -27.71% -26.09% -25.00% -24.16% -23.89% -23.76% Source: PCBond, a business unit of TSX Inc., BMO Capital Markets Table 11.2: Ten Worst Short Performers – Ranked by Relative % Spread Change Coupon Spread Relative Spread Issue (%) Maturity Par Value Change (bps) Change (%) Monthly Caisse Centrale Desj - 12801ZCC0 Enbridge Pipelines Inc. - 29250ZAN8 Caterpillar Fin. Ser. Corp - 14911ZAM3 Bank of Nova Scotia - 064149Z59 Vancouver Intl Air Auth - 921947AD9 Telus Corp. - 87971MAH6 HSBC Bank of Canada - 40427HSP9 Bank of Nova Scotia - 064149T23 Nat Bank Of Canada - 63306ZDL2 Nat Bank Of Canada - 633067VX8 3.79 2.93 2.20 2.10 5.02 5.95 2.57 1.80 3.58 2.69 06/08/2015 09/08/2015 06/01/2015 11/08/2016 11/13/2015 04/15/2015 11/23/2015 05/09/2016 04/26/2016 08/21/2017 500,000,000 250,000,000 300,000,000 1,500,000,000 200,000,000 490,000,000 1,000,000,000 1,300,000,000 750,000,000 750,000,000 3.52 2.40 2.89 2.91 1.50 2.08 1.70 1.62 1.55 1.75 8.84% 8.50% 7.03% 4.93% 3.54% 3.50% 3.38% 2.96% 2.71% 2.63% Enbridge Gas Distribution - 29290ZAG5 5.16 12/04/2017 200,000,000 2.05 3.64% YTD Gaz Metropolitain - 368271AL6 Union Gas - 906667AW0 Trans Que & Maritime - 89332FAM0 First National Fin. Corp. - 33564PAA1 MI Developments Inc. - 55304XAA2 B.C. Gas Utility Ltd - 05534RAB0 Ford Credit Canada Ltd. - 34527ZXA8 Westcoast Energy Inc - 95751DAE2 Westcoast Energy Inc - 95751DAM4 10.45 9.70 4.25 5.07 6.05 10.30 7.50 8.50 8.50 10/31/2016 11/06/2017 09/15/2017 05/07/2015 12/22/2016 09/30/2016 08/18/2015 09/04/2018 11/23/2015 117,000,000 125,000,000 100,000,000 175,000,000 265,000,000 200,000,000 550,000,000 150,000,000 125,000,000 0.92 0.79 (0.30) (1.81) (2.12) (1.09) (1.70) (3.12) (2.68) 1.06% 0.81% -0.30% -0.88% -0.97% -1.14% -1.46% -2.35% -2.73% Source: PCBond, a business unit of TSX Inc., BMO Capital Markets  Fixed Income Quarterly—Benchmark Barometer Page 19 Table 11.3: Ten Best Mid Performers – Ranked by Relative % Spread Change Coupon Spread Relative Spread Issue (%) Maturity Par Value Change (bps) Change (%) Monthly AltaLink Invest L.P. - 02137PAC0 OMERS Realty Corp. - 68214WAJ7 GE Capital Cda Funding - 36158ZBN5 Brookfield Asset Management Inc. - 11257ZAB5 Canadian Natural Res. Ltd - 13638ZCD5 GE Capital Cda Funding - 36158ZBX3 Nav Canada - 62895ZAJ9 Genworth MI Canada Inc. - 37252BAA0 Bell Canada - 07813ZBB9 SNC Lavalin Group Inc. - 78460TAB1 3.67 3.20 5.68 3.95 3.05 3.55 5.30 5.68 3.35 6.19 06/05/2019 07/24/2020 09/10/2019 04/09/2019 06/19/2019 06/11/2019 04/17/2019 06/15/2020 06/18/2019 07/03/2019 200,000,000 300,000,000 700,000,000 600,000,000 500,000,000 350,000,000 350,000,000 227,900,000 1,000,000,000 340,678,000 -30.17 -13.68 -11.19 -17.34 -13.05 -9.62 -7.32 -16.80 -10.39 -15.02 -21.25% -13.88% -13.25% -11.90% -11.72% -11.70% -10.36% -10.25% -9.43% -9.28% YTD AltaLink Invest L.P. - 02137PAC0 Aimia Inc - 00900QAC7 First Capital Realty Inc. - 31943BBF6 Bell Canada - 07813ZBB9 First Capital Realty Inc. - 31943BBE9 OMERS Realty Corp. - 68214WAJ7 Brookfield Asset Management Inc. - 11257ZAB5 Genworth MI Canada Inc. - 37252BAA0 Choice Properties REIT - 17039AAB2 GE Capital Cda Funding - 36158ZBN5 3.67 5.60 5.60 3.35 5.48 3.20 3.95 5.68 4.90 5.68 06/05/2019 05/17/2019 04/30/2020 06/18/2019 07/30/2019 07/24/2020 04/09/2019 06/15/2020 07/05/2023 09/10/2019 200,000,000 238,300,000 175,000,000 1,000,000,000 150,000,000 300,000,000 600,000,000 227,900,000 200,000,000 700,000,000 -35.85 -51.52 -32.10 -22.86 -29.32 -18.86 -28.12 -32.07 -36.73 -15.44 -24.28% -22.35% -18.72% -18.63% -18.31% -18.18% -17.97% -17.89% -17.85% -17.40% Source: PCBond, a business unit of TSX Inc., BMO Capital Markets Table 11.4: Ten Worst Mid Performers – Ranked by Relative % Spread Change Coupon Spread Relative Spread Issue (%) Maturity Par Value Change (bps) Change (%) Monthly Maritime & NE Pipe - 57036QAC4 Centre Street Trust - 156327AB4 West Edmonton Mall B2 - 952637AC0 Nfld Light & Power - 651350BG4 Canadian Utilities Inc. - 12657ZAL7 Alliance Pipelines Ltd - 01877ZAD2 Nova Scotia Power Corp. - 669816AC4 Canadian Utilities Ltd. - 136717AX3 Alliance Pipelines Ltd - 01877ZAA8 Capital Desjardins Inc. - 14006ZAF4 4.34 3.69 4.06 9.00 4.80 5.55 9.75 9.40 7.18 4.95 11/30/2019 06/14/2022 02/13/2024 10/01/2020 11/22/2021 12/31/2023 08/02/2019 05/01/2023 06/30/2023 12/15/2021 126,900,000 242,938,331 550,000,000 37,200,000 160,000,000 139,254,000 100,000,000 100,000,000 314,892,900 463,000,000 5.34 11.32 7.57 6.88 3.74 2.95 3.87 3.87 2.82 2.80 7.50% 7.12% 5.13% 4.84% 4.59% 4.57% 3.31% 3.26% 2.68% 2.43% YTD Maritime & NE Pipe - 57036QAB6 Maritime & NE Pipe - 57036QAC4 Viterra Inc. - 92849TAL2 Co-Operators Financial Services Ltd - 18976JAB6 Nfld Light & Power - 651350BG4 IPL Energy Inc. - 46065DAA4 Sp LP & Sp1 LP - 78468GAA3 Alliance Pipelines Ltd - 01877ZAD2 Alliance Pipelines Ltd - 01877ZAA8 Centre Street Trust - 156327AA6 6.90 4.34 6.41 5.78 9.00 8.20 3.21 5.55 7.18 3.69 11/30/2019 11/30/2019 02/16/2021 03/10/2020 10/01/2020 02/15/2024 06/15/2019 12/31/2023 06/30/2023 06/14/2021 156,000,000 126,900,000 200,000,000 150,000,000 37,200,000 200,000,000 630,118,332 139,254,000 314,892,900 250,000,000 26.79 27.85 22.41 17.60 5.27 3.53 3.46 1.40 2.03 0.62 90.75% 57.18% 9.12% 8.36% 3.66% 2.96% 2.53% 2.12% 1.92% 0.33% Source: PCBond, a business unit of TSX Inc., BMO Capital Markets  Page 20 Fixed Income Quarterly—Benchmark Barometer Table 11.5: Ten Best Long Performers – Ranked by Relative % Spread Change Coupon Spread Relative Spread Issue (%) Maturity Par Value Change (bps) Change (%) Monthly TransCanada PipeLines - 89353ZAY4 Weston Ltd. George - 96115ZAD4 Ottawa Airport - 689561AB4 Loblaw Companies Ltd. - 53947ZAF4 Bell Canada PRYDES - 078149DV0 Loblaw Companies Ltd. - 53947ZAT4 B.C. Gas Utility Ltd - 05534ZAF3 InPower BC GP - 45780MAA0 Grtr Tor Air Authority - 391906AG9 Loblaw Companies Ltd. - 53947ZAH0 6.27 7.10 6.97 6.50 7.65 6.54 6.95 4.47 6.45 6.45 07/18/2028 02/05/2032 05/25/2032 01/22/2029 12/30/2031 02/17/2033 09/21/2029 03/31/2033 07/30/2029 03/01/2039 106,900,000 150,000,000 139,822,359 175,000,000 150,000,000 188,000,000 150,000,000 299,183,000 393,562,079 120,000,000 -22.94 -30.23 -12.96 -18.87 -21.52 -16.39 -9.81 -11.57 -4.95 -14.08 -13.91% -11.43% -9.33% -8.53% -7.64% -7.28% -6.98% -6.84% -6.64% -6.46% YTD Grtr Tor Air Authority - 391906AG9 Nav Canada - 628957AE2 TransCanada PipeLines - 89353ZAP3 TransCanada PipeLines - 89353ZAY4 Integrated Team Solutions SJHC - 45824RAA7 TransCanada PipeLines - 89353ZBA5 Cameco Corporation - 13321LAJ7 Loblaw Companies Ltd. - 53947ZAF4 Clarica Life Ins. Co. - 627912AB4 Royal Bank Of Canada - 780085N93 6.45 7.56 8.29 6.27 5.95 6.89 5.09 6.50 6.30 4.93 07/30/2029 03/01/2027 02/05/2026 07/18/2028 11/30/2042 08/07/2028 11/14/2042 01/22/2029 05/15/2028 07/16/2025 393,562,079 325,000,000 238,100,000 106,900,000 211,656,000 173,000,000 100,000,000 175,000,000 150,000,000 800,000,000 -21.57 -9.40 -29.61 -31.27 -30.32 -29.22 -40.38 -38.77 -29.56 -16.49 -23.66% -19.79% -18.34% -18.05% -17.34% -17.00% -16.28% -16.07% -15.51% -14.54% Source: PCBond, a business unit of TSX Inc., BMO Capital Markets Table 11.6: Ten Worst Long Performers – Ranked by Relative % Spread Change Coupon Spread Relative Spread Issue (%) Maturity Par Value Change (bps) Change (%) Monthly Nav Canada - 628957AE2 SEC LP & Arci Ltd - 784103AA1 Transalta Corporation - 89347ZAC1 Alliance Pipelines Ltd - 01877ZAC4 Nova Gas Transmission Ltd - 66975ZAE4 Winnipeg Airport Authority Inc. - 975014AC5 Acces Recherche Mtl L.P. - 00434CAC3 Gaz Metropolitain - 368271AQ5 Alliance Pipelines Ltd - 01877ZAB6 Plenary Health Hamilton LP - 72908UAC9 7.56 5.19 7.30 6.77 8.90 6.10 7.07 9.00 7.22 5.80 03/01/2027 08/29/2033 10/22/2029 12/31/2025 05/27/2025 11/20/2040 12/31/2042 05/16/2025 12/31/2025 05/31/2043 325,000,000 544,509,116 82,000,000 274,080,000 87,000,000 168,178,292 333,046,633 100,000,000 239,831,200 254,754,000 30.40 14.22 19.93 4.19 4.89 4.89 4.26 3.10 2.47 3.17 394.87% 7.71% 5.39% 3.96% 3.32% 2.89% 2.73% 2.54% 2.31% 2.18% YTD Can Pac Rail - 13645RAA2 Nova Gas Transmission Ltd - 66975ZAM6 Pearson Intl Fuel Facilities - 70501YAA0 Investors Group - 46152HAB7 Gaz Metropolitain - 368271AR3 Nova Gas Transmission Ltd - 66975ZAL8 Transalta Corporation - 89347ZAC1 Vancouver Intl Air Auth - 921947AB3 Nova Scotia Power Corp. - 66988ZAF6 Nova Gas Transmission Ltd - 66975ZAR5 6.91 6.05 5.09 6.65 7.20 7.00 7.30 7.38 8.85 6.30 10/01/2024 07/16/2027 03/09/2032 12/13/2027 11/19/2027 07/17/2028 10/22/2029 12/07/2026 05/19/2025 05/27/2030 166,474,398 50,000,000 91,544,670 125,000,000 50,000,000 100,000,000 82,000,000 150,000,000 125,000,000 100,000,000 35.70 33.27 10.96 7.32 5.41 3.90 7.21 2.11 2.37 2.67 59.22% 17.47% 5.62% 3.68% 3.53% 2.27% 1.88% 1.58% 1.52% 1.44% Source: PCBond, a business unit of TSX Inc., BMO Capital Markets  Fixed Income Viewpoint Monthly Money Trail: IFIC & International Fund Flows – April 2014 Lots of RSP Buying, but Little of It Canadian Investors rang up an impressive tally for the last month of RSP season, with $9.3 billion of new purchasing activity reported by the IFIC data for February 2014. Similar to the trend that has been in place for the past number of months, little interest was exhibited for all sorts of domestic funds as both equity and fixed income incurred net redemptions, while international and global funds garnered the lion’s share of investor cash. Within this general context, there remained considerable in- terest in fixed income assets during February, whether directly or indirectly, which continues to counter the notion that any sort of broad asset rotation is presently under way amongst Canadian investors. The biggest beneficiaries of investor affection last month were balanced funds, which received net investments of $7.4 billion. As we have noted for some time, balanced funds generally have a significant fixed income component between 30% and 40% in total assets and present a more prudent investment option for those who are uncertain about the direction of the mar- kets. Balanced funds by far have been the largest recipient of investor money over the past year, and more specifically global balanced funds, which in February experienced net investment of $5.8 billion. This pattern demonstrates that not only are investors pursuing a more cautious investment strategy, but also their predilection for international investments remains Table 1: IFIC Statistical Overview by Asset Class quite strong, especially given the relative underperformance of many domestic asset classes compared to international counterparts over the past couple of years. In terms of asset types, it thus appears investors are endeav- ouring to construct their port- folios on a more global basis, diversifying their geographic concentration risk. This trend is apparent in both balanced and equity funds, which have traditionally received material interest for investing in international assets, as well as fixed income directly. Furthermore, there has been meaningful growth in demand for lower-rated fixed income product as investors seek to mitigate the adverse impact of paltry underlying GoC yields on portfolio returns. Accordingly, we expected investors to be particularly aggressive at adding higher-yielding assets to start the year since they have a longer time horizon to trade out of any un- derperforming positions. The strong showing for Global and High Yield Fixed Income in both January and February 2014 Jason Parker, CFA BMO Nesbitt Burns Inc. jason.parker@bmo.com (416) 359-5410 ($ thousands) Total Net Assets Net Sales(1) Fund Type February-14 February-14 January-14 February-13 Equity Funds 348,929,885 2,011,678 1,592,036 558,369 Domestic Equity Global and International Equity U.S. Equity Sector Equity 187,675,516 94,334,671 51,903,579 15,016,119 (923) (61,819) 1,124,962 656,513 929,404 855,643 (41,766) 141,699 (256,924) 416,346 670,628 (271,682) Balanced Funds 505,715,009 7,399,616 4,722,719 7,127,980 Domestic Balanced 233,626,921 1,628,797 754,301 2,014,084 Global Balanced 272,088,089 5,770,819 3,968,418 5,113,896 Bond Funds 135,749,884 (228,364) (566,987) 249,106 Domestic Fixed Income 95,274,148 (860,637) (1,395,906) (802,129) Global and High Yield Fixed Income 40,475,737 632,273 828,919 1,051,235 Specialty Funds 27,760,431 470,799 502,912 267,208 Long-Term Funds Total 1,018,155,211 9,653,729 6,250,680 8,202,663 Money Market Funds 27,018,266 (388,125) (608,607) (567,778) Short-Term Funds Total 27,018,266 (388,125) (608,607) (567,778) All Funds 1,045,173,477 9,265,604 5,642,073 7,634,885 (1) Net Sales Exclude Reinvested Distributions Source: Data is compiled from IFIC and other sources to comprehensively reflect the size and activity of the Canadian Retail Mutual Fund Industry. Aggregate totals provided by Investor Economics. BMO Capital Markets Page 2 Fixed Income Quarterly—Monthly Money Trail is thus consistent with our expectations. The high yield com- ponent is rather self-explanatory, while the interest in global fixed income stems from the rather skimpy yields offered by GoC bonds versus many other jurisdictions. We believe interest in corporate bonds will remain robust over the near term. Issuance has been reasonably slow to start 2014 compared to the previous few years, allowing spread performance to be quite decent. In addition, uncertainty over geopolitical risks and the pace of growth for the U.S., combined with emerging concerns about growth in China, has created a constant bid for fixed income product more generally to start the year, despite what the IFIC data shows in terms of net sales for domestic fixed income funds. Although retail investors are seeking fixed income exposure through balanced funds, at the institutional level demand for bonds remains reasonably steady, as suggested by the positive returns posted Chart 1: Monthly Net Sales by Asset Class by the FTSE TMX Canada (formerly DEX) Universe Bond Index so far to start the year. We also believe the prevailing demand/supply disequilibrium that has traditionally characterized the market will buttress corporate bonds. Admittedly, international investors were net sellers of Canadian corporate bonds to begin 2014 (as discussed below); however, we believe their interest will resume. We similarly expect demand from crossover equity investors, asset swappers and short-term bond funds will be maintained over the foreseeable future. We have lamented the failure of the IFIC data to differentiate corporate bond funds from govern- ment bond funds in terms of investment patterns, but believe the net selling incurred by domestic fixed income is reflective of reallocating fixed income exposure away from GoC bonds rather than from fixed income altogether. 12.0 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 $7.1 Net Sales by Asset Class(1) $7.6 $5.9 $9.3 $5.6 $4.0 $2.9 $5.4 $3.4 $3.7 $3.8 $2.2 $1.7 $0.9 $1.5 Bond Funds All Funds $2.6 $1.9 $1.6 $2.1 $2.3 $1.7 $2.1 $2.6 $1.9 $1.0 $2.2 Equity Funds Specialty Funds Balanced Funds Money Market Funds (1) Net Sales Exclude Reinvested Distributions Source: Data is compiled from IFIC and other sources to comprehensively reflect the size and activity of the Canadian Retail Mutual Fund Industry. Aggregate totals provided by Investor Economics. BMO Capital Markets C$ Billions Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Fixed Income Quarterly—Monthly Money Trail Page 3 Chart 2: Cumulative Net Sales (January 2011 – February 2014) Cumulative Net Sales(1) 120.0 100.0 80.0 60.0 40.0 20.0 0.0 -20.0 -40.0 All Funds Bond Funds Equity Funds Balanced Funds (1) Net Sales Exclude Reinvested Distributions Source: Data is compiled from IFIC and other sources to comprehensively reflect the size and activity of the Canadian Retail Mutual Fund Industry. Aggregate totals provided by Investor Economics. BMO Capital Markets Chart 3: Monthly Fixed Income Net Sales 10.0 8.0 6.0 4.0 2.0 $7.1 Net Sales: Fixed Income vs. All Funds (1) $7.6 $5.9 $5.4 $9.3 $5.6 $3.4 $3.7 $3.8 $4.0 $2.6 $1.9 $0.5 $0.7 $2.1 $2.3 $2.1 $2.6 $1.9 $1.7 $2.2 $2.2 $2.9 $1.6 $1.0 $0.4 $0.3 $0.5 $0.6 $0.4 $0.6 $0.6 $0.5 $0.9 $1.5 $1.7 $1.9 $2.2 $0.7 $1.1 $0.4 $0.8 $0.9 $1.3 $1.1 $0.7 $0.9 $1.0 $0.6 $1.3 $1.1 $1.1 $0.9 $0.8 $0.0 $0.1 $0.0 $0.1 0.0      $0.3             -$0.5 -$0.2 -$0.5      $0.3 $0.3 -2.0 -4.0 $0.8 $0.6 $0.0 -$0.8 -$0.2 -$1.3 -$1.3 -$1.4 -$1.6 -$1.2 -$1.0 -$1.4 -$0.9 -$0.1 Global and High Yield Fixed Income All Funds Domestic Fixed Income (1) Net Sales Exclude Reinvested Distributions Source: Data is compiled from IFIC and other sources to comprehensively reflect the size and activity of the Canadian Retail Mutual Fund Industry. Aggregate totals provided by Investor Economics. BMO Capital Markets C$ Billions C$ Billions Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Page 4 Fixed Income Quarterly—Monthly Money Trail International Fund Flows Rude Reception Debt Securities received a rather rude salutation from inter- national investors to start 2014, incurring net redemptions of $1.8 billion. Much of the selling took place in the area of government money market instruments; however, it is likely some of those monies were directed toward agency bonds, which experienced net purchases of $2.3 billion in January. Another interesting occurrence was a second month in a row of net selling by international investors for bonds issued by private corporations. As noted in our last report, corporate bonds had a tremendous year in 2013, with net purchases rising by $12.4 billion to just over $32 billion. This activity tailed off in the last month of the year as international investors divested a net position of $1.6 billion in corporates. At that time we asserted that such selling activity was part of any healthy market and thus did not express any concern. We are similarly not worried about the net divestiture of $2.7 billion to start 2014, which matches up well with the $2.2 bil- lion that was invested in money market instruments issued by private corporations. With new issuance activity beginning 2014 at a rather tepid pace, there was little product sloshing around in the secondary market for international investors to purchase. We have observed previously that much of the buying activity from international investors is restricted to Table 2: Canada’s International Transactions in Securities shorter-dated bank paper in the secondary market, as well as shorter-dated bonds from cross-border issuers like Wells Fargo and GE Canada. In this regard, a number of traditional do- mestic buyers of corporates had purchased bank deposit notes heading into year-end 2013, using such investments as a quasi- cash position to be divested once the new issue market opened up at the start of 2013. However, since new issuance activity was slow to surface, the amount of deposit notes available in the secondary market was constricted, tightening spreads and leaving few bonds available for purchase, especially in the larger sizes that international buyers usually prefer to acquire. Compounding matters, the domestic banks were themselves slow out the gate for issuance, meaning fewer bonds were made available for trade in the secondary, exacerbated by an increasing number of investors that had to turn to the second- ary market to satisfy their deposit note demand. On the bright side, the fact that international investors ploughed in over $2 billion to money market instruments issued by private corporations suggests that money will even- tually be making its way back into the domestic corporate bond market. Our trading desk has indicated that demand from international investors for corporate bonds remains quite strong, and that buying activity has been higher than normal. For much of 2013 we witnessed international investors selling government bonds and buying corporate bonds. We believe this trend will continue over the near term, but recognize that (C$ millions) November 2013 December 2013 January 2014 2012 2013 Foreign Investment in Canadian Securities 9,081 -4,283 1,086 83,207 42,800 Debt securities Money market instruments Governments Federal government Other governments Corporations Government business enterprises Private corporations Bonds Governments Federal government Other governments Corporations Government business enterprises Private corporations Equity and investment fund shares 3,854 -7,128 -4,038 -1,179 -2,859 -3,089 -1,373 -1,716 10,982 3,051 2,535 517 7,930 4,010 3,921 5,227 -6,592 4,322 2,620 -2,146 4,767 1,702 269 1,432 -10,914 -7,976 -6,554 -1,422 -2,938 -1,311 -1,627 2,309 -1,750 -1,420 -3,549 -1,739 -1,810 2,129 -79 2,207 -330 80 134 -54 -410 2,319 -2,728 2,836 82,235 13,255 3,478 456 3,023 9,776 368 9,404 68,981 46,527 32,885 13,646 22,455 2,789 19,665 968 23,903 -2,521 -6,901 -10,015 3,115 4,380 272 4,107 26,423 -10,270 -7,160 -3,105 36,690 4,635 32,058 18,897 Canadian investment in foreign securities 7,171 3,876 2,338 35,140 27,519 Debt securities Money market instruments Bonds Equity and investment fund shares 7,016 3,417 751 -482 287 -742 7,498 3,130 1,494 155 459 1,587 11,933 -1,616 13,548 23,206 23,009 1,586 21,423 4,511 Source: Statistics Canada. Table 376-0131 – International transactions in securities, portfolio transactions in Canadian and foreign securities, by type of instrument and issuer, monthly (dollars). BMO Capital Markets  Fixed Income Quarterly—Monthly Money Trail Page 5 deficient levels of primary supply are adversely impacting the flow of bank deposit notes in the secondary market, which is the main dietary source of international investors. Overall, we maintain our belief that numerous international investors Chart 4: Net Foreign Investment in Canadian Securities (Quarterly) have taken a longer-term view toward a greater weighting of the Canadian dollar and thus need to invest monies in Canadian assets. 2013 2012 2011 2010 Net Foreign Investment in Canadian Securities (Quarterly) 50 40 30 20 10 0 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Also of note in April, foreign investment in money market instr-u1m0 ents was $5 billion, portending a potential switch into term paper at some point in the future given the recent demo-2n0strated preference of bonds over equities. -30 -40 Source: Statistics Canada. Table 376-0132 – International transactions in securities, portfolio transactions in Canadian and foreign securities, by type of instrument and issuer, quarterly. BMO Capital Markets 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 C$ Billions Page 6 Fixed Income Quarterly—Monthly Money Trail Chart 5: Net Foreign Investment in Canadian Bonds (Quarterly) 2013 2012 Net Foreign Investment in Canadian Bonds (Quarterly) 2011 2010 40 30 20 10 0 -10 -20 -30 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 2013 2012 Source: Statistics Canada. Table 376-0132 – International transactions in securities, portfolio transactions in Canadian and foreign securities, by type of instrument and issuer, quarterly. BMO Capital Markets Chart 6: Net Foreign Investment in Canadian Bonds (Last 12 Months by Quarter) 1991 1990 2011 2010 1989 1988 2009 2008 2007 2006 Net Foreign Investment in Canadian Bonds (Quarterly LTM) 2005 2004 120 100 80 60 40 20 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 Also of note in April, foreign investment in money market instrum0 ents was $5 billion, portending a potential switch into term paper at some point in the future given the recent demo-2n0strated preference of bonds over equities. -40 -60 Source: Statistics Canada. Table 376-0132 – International transactions in securities, portfolio transactions in Canadian and foreign securities, by type of instrument and issuer, quarterly. BMO Capital Markets 1993 1992 1991 1990 1989 C$ Billions C$ Billions Fixed Income Quarterly—Monthly Money Trail Page 7 2013 2012 Chart 7: Foreign Investment in Canadian Government and Corporate Bonds (Last 12 Months by Quarter) Foreign Investment in Canadian Government and Corporate Bonds (Quarterly LTM) 120 100 80 60 40 20 0 -20 -40 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 Federal Other Government Government Business Enterprises Private Corporations Source: Statistics Canada. Table 376-0132 – International transactions in securities, portfolio transactions in Canadian and foreign securities, by type of instrument and issuer, quarterly. BMO Capital Markets 2001 2000 Chart 8: Foreign Investment in Canadian Debt Securities by Geography (Quarterly) Foreign Investment in Canadian Debt Securities by Geography (Quarterly) 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 17.9 11.6 12.8 3.8 Q4 2012 United States 4.2 2.4 1.8 -0.8 Q1 2013 4.2 3.9 3.0 Q4 2013 1.2 1.6 2.2 0.1 0.7 0.1 0.7 -0.2-0.1-0.3 -0.6-0.4 -5.1 -1.0 -1.1 -5.1 -2.8 -2.5 -6.1 Q2 2013 Q3 2013 United Kingdom Other European Union countries Other Organisation for Economic Co-operation and Development (OECD) countries Japan All other countries Source: Statistics Canada. Table 376-0133 – International transactions in securities, portfolio transactions in Canadian and foreign securities, by geographic area, quarterly. BMO Capital Markets C$ Billions C$ Billions Fixed Income Viewpoint Banks – April 2014 Sector Rating: Market Perform Relative Value 5-Year: Market Perform 10-Year: Market Perform 30-Year: Not Rated Risks M&A – We do not expect any transformational acquisi- tions; however, we could see some tuck-in acquisitions in Wealth. Trading Liquidity – Banks are on average the most liquid. Regulatory – We believe bail- in debt will likely be imple- mented on a statutory versus contractual basis and will only apply to new issuance after a certain date. Overall, we believe bail-in will: (1) increase the cost of funding for banks; (2) put pressure on senior debt ratings to reflect lower uplift for government support; and (3) increase the use of secured funding such as covered bonds or NHA MBS. New Issuance – The big 6 Canadian banks issued C$21.2 bil- lion of wholesale funding across all currencies in YTD 2014 (deals greater than two years and greater than C$100 million) compared to C$23.0 billion in the year-ago period. That being said, deposit note issuance in the domestic market has declined ~34% to $8.5 billion in YTD 2014 compared to $12.9 billion in YTD 2013 given attractive funding alternatives outside of Canada, particularly covered bonds in Europe. Credit Profile Sector Financials – The big 6 Canadian banks reported cash operating earnings of $8.0 billion in Q1/14, up 7% Y/Y. The strong performance in the quarter was due primarily to solid Canadian P&C earnings, strong contribution from Wealth Management, better-than-expected trading revenues, high securities gains and lower loan loss provisions. Sector Fundamentals – Credit fundamentals remain strong for the Canadian banks. Capital ratios exceed the minimum Basel III requirements with an average CET 1 ratio of 9.3%. In addition, we estimate the Canadian banks already meet the more onerous Basel III Tier 1 leverage ratio of 3%. Finally, we believe the risk of a housing correction is manageable due to the high percentage of the mortgage portfolio that is insured and the low LTV on the uninsured book. Credit Ratings – On February 6, 2014, S&P published a Request for Comment (RFC) on the proposed changes to the criteria for rating bank hybrid instruments. Under the proposed cri- teria, all Tier 1 instruments could be downgraded one notch to reflect the risk of partial or untimely payment if the capital buffers were breached. Spread View – Deposit Notes – Deposit notes in the 5-year part of thecurvemovedin7bpsto77bpsinQ1/14andareinan impressive 25 bps from our recommendation back in September 2013. We believe the tightening in deposit note spreads is due to the general tightening in corporate credit spreads over the past six months and the expectation for existing deposit notes to be grandfathered under the bail-in regime in Canada. Overall, we believe there remains some additional room for spreads to tighten if existing deposit notes are grandfathered; however, we believe the magnitude of the spread tightening will be more modest over the near term given the bail-in will not likely be implemented before 2015 and the banks are expected to be active in the wholesale term funding markets. Furthermore, we do not believe deposit notes should trade through covered bonds, which are currently at 70 bps in the 5-year part of the curve. Subordinated Debt – We believe the spread differential between sub debt and deposit notes is tight at 15–20 bps for new-style sub debt and 10–12 bps for vintage sub debt. This compares to ~40 bps for U.S. banks. The tight spread differ- ential to senior debt is due primarily to scarcity value and the phase-out of all non-common equity capital without a non- viability contingent capital (NVCC) clause by Q1/22. That being said, the short end provides a more attractive pick-up of 25–30 bps. Hybrids – Tier 1 hybrids have experienced sig- nificant tightening and are now trading through their Canada call. The CIBC CoaTS 19s continue to offer an attractive ~20 bps pick-up relative to other bank hybrids. Credit Curve – We believe the 2016 part of the deposit note curve looks attractive given the steep roll down. Sector Value – We believe sub debt looks expensive relative to deposit notes. For example, the spread differential between BMO 6.17%/18-23 (sub debt) and BNS 2.242/18 (deposit notes) is back to pre-crisis levels of only 12 bps. Canadian bank sub debt also looks expensive relative to U.S. bank sub debt, which typically trades ~40 bps back of senior debt. Recommendation Top Pick – TD is one of our preferred credits from a funda- mental perspective due to its defensive business mix, solid Canadian franchise, and strong risk management and capital ratios (Basel III CET 1 ratio of 8.9%). TD Bank is also less dependent on wholesale funding compared to its peers due to its strong deposit base. George Lazarevski, CFA BMO Nesbitt Burns Inc. george.lazarevski@bmo.com (416) 359-7488 Page 2 Fixed Income Quarterly—Banks Viewpoint Canadian bank credit performed relatively in line with the FTSE TMX Corporate Canada index in the short end of the curve, but underperformed in the mid part of the curve with a 1.32% and 3.48% return, respectively, compared to the 1.39% and 3.85% return for the FTSE TMX Corporate Canada index. Overall, we are maintaining our Market Perform rating on the bank sector. Deposit Notes – Deposit notes in the 5-year part of the curve moved in 7 bps to 77 bps in Q1/14 and are an impressive 25 bps from our recommendation back in September 2013. We believe the tightening in deposit note spreads is due to the general tightening in corporate credit spreads over the past six months and the expectation for existing deposit notes to be grandfathered under the bail-in regime in Canada. Overall, we believe there remains some additional room for spreads to tighten if existing deposit notes are grandfathered; however, we believe the magnitude of the spread tightening will be more modest over the near term given bail-in will not likely be implemented before 2015 and the banks are expected to be active in the wholesale term funding markets. Furthermore, we do not believe deposit notes should trade through covered bonds, which are currently at 70 bps. extension risk is low for new style sub debt. However, if sub debt got extended, investors would receive a floating rate spread of 3M BAs+141 bps in the final five years, which is ~75 bps higher than the swapped equivalent on existing 5-year sub debt. Finally, we do not expect an NVCC sub debt deal until we get greater clarity around the bail-in regime in Canada. Chart 2: Sub Debt vs. Deposit Note Differentials Basis (bps) 70 60 50 40 30 20 10 0 Aug-13 US Sub Debt 2017s: BNS 2.898/17-22 Sub vs BMO 4.55%/17 Snr 43 23 12 Sep-13 Oct-13 Nov-13 2018s: BMO 6.17/18- 23 Vintage Sub vs BNS 2.242%/18 Snr Dec-13 Jan-14 Feb-14 Mar-14 Chart 1: 5-Year Indicative Funding Costs (bps) As at March 31, 2014 Source: BMO Capital Markets (bps) 100 80 60 40 20 0 78 RBC Senior 70 RBC Covered Bond 66 Hydro One 50 49 Hybrids – Tier 1 hybrids have experienced significant tightening and are now trading through their Canada call. For example, the BMO 10.221%/18s are trading 21 bps through their Canada call. We do not recommend investors buy capital securities through their Canada call given the risk of early redemption. That being said, banks have not historically called capital securities early due to the P&L volatility. Furthermore, Tier 1 capital has high importance under the Basel III regime given the change in the leverage ratio. 28 Ontario AAA - PSP CMB Chart 3: Canada Call on Tier 1 Hybrids As at March 31, 2014 Source: BMO Capital Markets (bps) 200 160 120 80 40 0 Current Spread 175 154 BMO - BoaTS / 31-Dec-18 Canada Call Spread 174 174 CIBC - CoaTS / 30-Jun-19 Subordinated Debt – We believe the spread differential between sub debt and deposit notes is tight at 15–20 bps for new-style sub debt and 10–15 bps for vintage sub debt. This compares to ~40 bps for U.S. banks. The tight spread differential to senior debt is due primarily to scarcity value and the phase-out of all non-common equity capital without a NVCC clause by Q1/22. That being said, we believe the short-end (RY 4.35/15-20) provides a more attractive pick-up of 25–30 bps. We believe 169 152 TD - CaTS / 30-Jun-19 123 94 TD - CaTS / 31-Dec-18 As at March 31, 2014 Source: BMO Capital Markets  Fixed Income Quarterly—Banks Page 3 From a fundamental perspective, TD is one of our preferred credits due to its defensive business mix, solid Canadian fran- chise, and strong risk management and capital ratios (Basel III CET 1 ratio of 8.9%). TD Bank is also less dependent on wholesale funding compared to its peers due to its strong deposit base. Key Themes NVCC – After three long years, the non-viability contingent capital (NVCC) market became reality in Canada in 2014 with RBC, NA, CWB and LB issuing four preferred share deals totalling nearly $1.1 billion. The deals went very well as exhibited by the strong demand from investors. For a more detailed look at the NVCC structure, please see our comment titled, “NVCC Becomes Viable in Canada” published on February 10, 2014. Overall, we are not surprised by the issuance of NVCC given the high amount of non-common equity capital redemptions expected over the next few years. Furthermore, OSFI an- nounced in early January that it intends to replace the current Assets-to-Capital multiple (ACM) test with the Basel III Tier 1 leverage ratio in January 2015 compared to January 2018. Chart 4: Remaining Capital Phase-Out Schedule (C$ Equivalent – Billion) important banks to hold a higher loss absorbency require- ment similar to what is being considered in Europe and by U.S. regulators (e.g., 17–20% of risk-weighted assets). Finally, banks could look to issue sub debt to create a larger buffer for senior debt holders, which will help reduce the higher senior funding costs expected under bail-in. Assuming banks hold a Tier 1 leverage ratio of 3.5%, we estimate the NVCC sub debt market could be as high as ~$23 billion. Not surprisingly, this is significantly lower than the ~$31 billion of Tier 2 capital that is currently outstanding. It should be noted that the size of the NVCC sub debt market is highly sensitive to the buffer that banks hold on the Tier 1 leverage ratio. For example, if banks hold a leverage ratio of 4% the need for sub debt decreases to $6 billion. Table 1: Potential Size of the NVCC Sub Debt Market As at January 31, 2014 Source: BMO Capital Markets How Much Will NVCC Sub Debt Cost? – On March 10, 2014, Australia and New Zealand Banking Group Ltd. (ANZ) issued a US$800 million 10-year bullet Basel III NVCC sub debt at 180 bps back of U.S. Treasuries. We estimate the NVCC premium was ~30 bps relative to non-NVCC subordinated debt. Table 2: ANZ NVCC Pricing As at March 12, 2014 announcement date Source: Bloomberg Overall, we were surprised the NVCC premium for the ANZ deal was so tight at ~30 bps, particularly given the deal was sold to institutional investors and not retail investors. We believe the features of the ANZ NVCC subordinated debt deal are less in- vestor friendly and more complex compared to the RBC NVCC preferred share deal issued in January. For example, the floor price was 20% of the share price at time of issue compared to Basel III Leverage BMO #REF! BNS #REF! CM #REF! NA #REF! RY #REF! TD #REF! Total 27,776 23,138 13,923 6,152 2,315 615 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4,802 4,802 4,802 4,014 2,315 615 6,042 6,042 3,933 1,577 0 0 2,625 1,214 6,835 6,259 1,422 661 4,636 5,576 219 108 1,793 3,069 0 0 0 561 0 0 0 0 0 0 0 0 $12.4 Tier 1 Tier 2 $7.0 $7.6 $7.6 $9.5 $6.4 $3.8 $2.3 $5.5 $3.4 $2.3 $5.6 $2.7 $1.0 $1.4 $2.4 $4.1 $3.9 $3.0 $2.3 $2.1 $1.7 $1.4 $1.4 $1.0 2014 2015 2016 2017 2018 2019 2020 2021 2022 ANZ NVCC Subordinated Debt USD 10-year US Treasury 2.7% Indicative Non-NVCC Sub Debt 1.5% NVCC Premium 0.3% Cost of ANZ NVCC Sub Debt 4.5% Note: Based on BMO Capital Markets assumption of capital redemptions As at March 31, 2014 Source: Company Reports, Bloomberg, BMO Capital Markets What About NVCC Sub Debt? – Sub debt is expected to have reduced importance under the Basel III regime compared to Basel II due to the focus on Common Equity Tier 1 capital (CET 1). In addition, the early implementation of the Basel III Tier 1 leverage ratio is expected to reduce the need for sub debt in the future. That being said, we believe sub debt will likely still have a role under the Basel III regime. First, the Canadian banks may need to issue sub debt to manage their total capital ratio. Second, the bail-in rules in Canada could require domestic systemically  Page 4 Fixed Income Quarterly—Banks 7% for RBC. In addition, the floor price would also be different for each NVCC instrument given it is based on the share price at time of issue compared to $5 for RBC. Finally, the ANZ instrument ranks behind all existing legacy subordinated debt instruments issued prior to January 1, 2013 upon a wind-up compared to ranking pari passu in Canada. We estimate the ANZ subordinated debt deal would swap back to ~200 bps back of the 10-Year Government of Canada curve, which is ~60 bps back of indicative C$ 10-year subordinated debt without NVCC language. Based on the attractive pricing obtained by ANZ, we believe the Canadian banks may be able to issue NVCC subordinated debt at tighter levels than our original expectations of ~100 bps back of existing non-NVCC subordinated debt. That being said, we do not expect the first NVCC subordinated debt deal in Canada until we get clarity on the bail-in regime, which may be further delayed given the recent resignation of Jim Flaherty. New Issuance – The big six Canadian banks have been active on the issuance front with C$21.2 billion of wholesale fund- ing across all currencies in YTD 2014 (deals greater than two years and greater than C$100 million) compared to C$23.0 billion in the year-ago period. However, domestic deposit note issuance is down 34% Y/Y to $8.5 billion compared to $12.9 billion in the year-ago period. We are not overly surprised by the decline in domestic issuance given the re-opening of the covered bond market in July 2013 and the attractive funding alternatives outside of Canada. Royal Bank and Scotiabank have been the most active in wholesale funding markets so far in 2014 with C$9.1 billion and C$6.4 billion of issuance, respectively. CIBC has been the least active with no wholesale term funding issued in 2014. Chart 5: Big Six Banks Issuance (All Currencies - C$ equivalent) Bail-in Debt – The 2014 Federal Budget did not include any update on the bail-in regime in Canada. However, based on the developments outside of Canada, we envision senior bail-in debt will be implemented no earlier than 2015 and on statutory basis rather than contractual. We believe existing 100.0 deposit notes could be grandfathered given the regulators’ treatment towards existing capital securities. We also believe that certain securities, such as covered deposits and secured 80.0 liabilities including covered bonds and credit card ABS, will be excluded from bail-in. Finally, we believe the Canadian 60.0 banks could be required to hold a higher loss absorbency 46.5 (HLA) requirement under the bail-in regime similar to what is (C$ billion) CAD 120.0 USD EUR OTH 73.7 58.9 2010 2011 Expected 99.6 57.8 66.0 2008 64.5 2012 75.0 21.2 being considered in Europe and by U.S. regulators. However, we believe this HLA requirement will be able to be met with additional common equity, NVCC Tier 1 or Tier 2 capital, or wholesale term funding. 40.0 20.0 16.0 0.0 Overall, we believe the adoption of a bail-in regime could have 2006 2007 2009 2013 2014 the following effects: 1. The use of bail-in senior debt would be a divergence from current practices and would likely increase the cost of funding for Canadian banks; 2. Ratings on senior debt could be pressured to reflect lower uplift for government support; 3. Existing deposit notes outstanding could benefit from scarcity value if the bail-in regime is adopted on a prospective basis; and 4. We could see a greater use of secured funding such as covered bonds and NHA MBS if these securities remain outside the range of liabilities covered under the bail-in powers. Note: Excludes issues less than C$100 mm, less than 2 years and extendibles As at April 9, 2014 settlement date Source: BMO Capital Markets, Bloomberg Overall, we are maintaining our new issuance estimate at ap- proximately C$75 billion across all currencies. Similar to the prior four years, we believe a large portion of this funding, at C$30–35 billion (C$9.6 billion YTD), will be completed outside of Canada in the form of senior debt. In addition, we expect the banks will issue C$15 billion (C$3.0 billion YTD) in covered bonds across all currencies, although issu- ance over the near term will likely be concentrated in Europe given the attractive funding. Finally, we expect the Canadian banks will issue C$25-$30 billion (C$8.5 billion YTD) in the domestic market.  Fixed Income Quarterly—Banks Page 5 Table 3: Wholesale Funding Maturities over the Next 12 Months (C$ mm) BMO BNS CM NA RY TD Total 44,065 49,687 Total 7,147 24,812 18,594 5,172 20,278 17,749 93,752 44,065 32,559 13,658 1,770 1,700 Senior unsecured medium-term notes Mortgage securitization Covered bonds Asset-backed Securities Subordinated liabilites Total Unsecured Total Secured 3,322 15,633 1,597 6,794 2,228 2,283 0 2 0 100 3,322 15,633 3,825 9,179 5,594 5,534 5,743 1,465 258 5,594 13,000 3,410 1,368 0 0 394 3,410 1,762 13,048 5,254 1,176 0 800 13,048 7,230 3,058 12,012 2,228 303 148 3,058 14,691 As at January 31, 2014 Source: Company Reports, BMO Capital Markets Credit Ratings – On February 6, 2014, S&P published a Re- quest for Comment (RFC) on the proposed changes to the criteria for rating bank hybrid instruments. The RFC proposes to redefine the “standard notching” applied to all legacy hy- brid capital instruments from two to three notches below the stand-alone credit profile (SACP). In addition, S&P proposes to deduct an additional notch from the SACP for Tier 1 hybrid instruments with a mandatory conversion or write-down clause (i.e., NVCC). The additional notching is intended to factor in the risk of Tier 1 instruments absorbing losses before the point of non-viability due to the ability to defer coupon payments if the capital conservation and countercyclical capital buffers are breached. Table 4: Potential Impact from S&P RFC on Tier 1 Capital Scope – Applies to all existing and future Tier 1 instruments, including preferred shares and innovative Tier 1 hybrids. Existing subordinated debt will not be impacted as the coupon payments are non-deferrable. Rating Impact – All existing non-NVCC Tier 1 hybrids and preferred shares could be downgraded one notch. In addition, NVCC Tier 1 hybrids and preferred shares could be sub- investment grade for BMO, CIBC, and National (Table 4). Timing – Comments on the proposal were due by March 21, 2014. S&P indicated it will provide an update following the end of the comment period. Issuer "Legacy" Innovative Tier 1 Hybrids "Legacy" Preferred Shares NVCC Preferred Shares Issuer Current Proposed Notching Current Proposed Notching Current Proposed Notching BMO BNS CM NA RY TD BBB BBB- -1 BBB+ BBB -1 BBB BBB- -1 BBB BBB- -1 A- BBB+ -1 A- BBB+ -1 BBB BBB- -1 BBB+ BBB -1 BBB BBB- -1 BBB BBB- -1 A- BBB+ -1 A- BBB+ -1 BBB- BB+ -1 BBB BBB- -1 BBB- BB+ -1 BBB- BB+ -1 BBB+ BBB -1 BBB+ BBB -1 Source: BMO Capital Markets; S&P  Page 6 Fixed Income Quarterly—Banks Table 5: Potential NVCC Sub Debt Ratings DBRS S&P Moody's Issuer Current Tier 2B NVCC Sub Debt Notches from Current Rating Issuer SACP NVCC Sub Debt Notches from SACP Current Sub Debt NVCC Sub Debt Notches from Current Rating BMO BNS CM NA RY TD AA (low) AA (low) AA (low) A (high) AA (low) AA (low) A (low) -3 A (low) -3 A (low) -3 BBB -4 A (low) -3 A (low) -3 a- BBB -2 a BBB+ -2 a- BBB -2 a- BBB -2 a+ A- -2 a+ A- -2 A3 Baa1 -2 A2 A3 -2 A3 Baa1 -2 Baa1 Baa2 -2 A3 Baa1 -2 A1 A2 -2 As at March 31, 2014 Source: BMO Capital Markets; Rating Agencies Table 6: Credit Ratings Moody's S&P DBRS Issuer Senior Subordinated Outlook Senior Subordinated Outlook Senior Subordinated Outlook BMO BNS CM Aa3 A3 Aa2 A2 Aa3 A3 Stable Stable Stable A+ BBB+ A+ A- A+ BBB+ Stable Stable Stable AA AA (low) AA AA (low) AA AA (low) Stable Stable Stable NA Aa3 Baa1 Stable A BBB+ Stable AA (low) A (high) Stable RY TD Aa3 A3 Stable Aa1 A1 Stable AA- A Stable AA- A Stable AA AA (low) Stable AA AA (low) Stable As at March 31, 2014 Source: Rating Agencies Table 7: Canadian Covered Bond Capacity (IFRS) Q1-14 (IFRS) Source: BMO Capital Markets, Bloomberg, Company Reports, SEDAR, EDGAR (C$ mm) BMO BNS CM NA RY TD Total Estimated Total Adjusted Assets Covered Bond Capacity Covered Bonds Outstanding Remaining Capacity CMHC Registration SEC Registration 564,386 22,575 7,604 14,972 745,022 29,801 13,737 16,064 391,678 15,667 12,136 3,532 192,315 7,693 5,035 2,657 850,776 34,031 20,477 13,554 856,141 34,246 9,993 24,253 3,600,319 144,013 68,981 75,032  Fixed Income Quarterly—Banks Page 7 Table 8: Insured vs Uninsured Mortgages Insured Mortgages Residential Condo Uninsured Mortgages Avg. LTV 1 HELOCs Total RESL Exposure Uninsured % (C$ billion) (C$ billion) BMO BNS 2 CM NA3 RY TD4 Total / Avg. Residential 31.2 76.9 40.5 9.4 98.8 37.4 294.3 Condo 6.1 8.6 4.5 1.1 9.8 7.0 37.1 % 31-Jan-14 59% 26.4 57% 18.6 60% 19.2 58% 15.6 56% 43.1 60% 60.6 58% 183.5 Insured 51.9 103.3 101.3 21.1 75.4 147.5 500.5 % Total 115.7 207.4 165.5 47.2 227.1 226.4 989.3 BMO BNS CM NA RY TD 100.4 21.0 45.5 6.4 92.9 10.4 89.2 12.1 18.9 2.2 68.7 6.8 45% 63.8 55% 50% 104.1 50% 61% 64.2 39% 45% 26.1 55% 33% 151.6 67% 65% 79.0 35% 51% 488.8 49% Total 415.6 58.9 1. Based on December 31, 2013 housing prices and is for entire uninsured portfolio 2. BNS $14 million of HELOCs is insured 3. NA LTV is for uninsured residential mortgages, LTV on HELOCs was 59% 4. TD $26.0B of HELOCs is insured Source: Company Reports; As at January 31, 2014 Chart 6: 2014 Maturity Profile by Month, Including IMPP (C$ Equivalent) Chart 7: Canadian Banks: Year-Over-Year Loan Growth (In Canada) (C$ billion) 8 7.4 Senior Unsecured Covered 4.9 Sub Debt 1.1 Aug Hybrids - Tier 2A Hybrids - Tier 1 6.1 Nov IMPP 4.3 Dec 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 7 6 5 4 3 2 1 0 5.1 5.6 2.7 0.8 Apr May Total Credit Commercial Credit Consumer Credit Jun Jul Sep Oct Dec-88 Dec-90 Dec-92 Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Note: Year-over-year percentage change includes securitization, Consumer Loans include Residential Mortgages as well as Consumer Lending, Total Credit sum of Commercial and Consumer Credit. As at February 2014 Source: Bank of Canada Banking and Financial Statistics Note: Excludes issues less than C$100 mm, less than 2 years and extendibles; As at March 31, 2014 Source: BMO Capital Markets, Bloomberg Year over Year Change Page 8 Fixed Income Quarterly—Banks Chart 8: Quarterly Specific Loan Loss Provisions of Canadian Banks (C$ mm) $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2002 $8,858 2009 $8,705 2001 $5,104 2010 $6,611 2011 $6,239 2012 $6,584 2014E $6,332 2008 $4,948 2007 $2,757 2013 $6,084 2000 $3,218 2003 $3,882 2004 $1,603 2005 $1,821 2006 $2,088 Note: Prior to 2011, specific loan losses only. Effective 2011, loan losses are on an IFRS basis and are on a total basis. Source: Company Reports, BMO Capital Markets Chart 9: Q1/14 CET 1 Ratios Under Basel III 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 9.3% 9.4% 9.5% 9.7% 8.9% 9.3% RY TD Avrg. 8.3% Min. CET1 DSIB - 8% Min. CET1 - 7% BMO BNS CM NA As at January 31, 2014 Source: Company Reports, BMO Capital Markets  Fixed Income Quarterly—Banks Page 9 Chart 10: Minimum Capital Requirements Comparison 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% CCB Bail-in Total Capital Tier 1 D-SIB Conservation Buffer CET1 OSFI Reg. OSFI Implied CET1: 8% * 4.5% Min. Requirement * 2.5% Conservation Buffer * 1.0% D-SIB CCB Progressive Component Systemically Imp. Banks (CoCo) CCB HLA Conservation Buffer CET1 Swiss Reg. Swiss Implied CET1: 11% * 4.5% Basel III requirement * 2.5% Conservation Buffer * 3.0% HLA * 1.0% CCB (2.5% Max.) CCB Tier 1 / Tier 2 HLA Conservation Buffer CET1 Sweden Reg. Sweden Implied CET1: 12% * 4.5% Basel III requirement * 2.5% Conservation Buffer * 5.0% HLA CCB Additional PLAC Tier 1 / Tier 2 HLA Conservation Buffer CET1 U.K. Reg. U.K, Implied CET1: 10% * 4.5% Basel III requirement * 2.5% Conservation Buffer * 3.0% HLA Note: HLA - Higher Loss Absorbency requirement imposed on systemically important banks; CCB - Counter Cyclical Buffer Source: BIS, FINMA, OSFI, BMO Capital Markets Chart 11: Estimated Basel III Leverage Ratios - Q1/14 4.0% 3.7% 3.6% 3.5% 3.0% 2.5% 2.0% 3.5% 3.5% Minimum 3.0% Total Big 6 CDN Banks 3.4% 3.3% 3.1% BMO BNS CM NA RY TD As at January 31, 2014 Source: Company Reports, BMO Capital Markets Leverage % Page 10 Fixed Income Quarterly—Banks Table 9: Canadian Banks – Capital Summary Q1/14 (C$ mm) BMO BNS CM NA RY TD Capital Summary Common Equity Tier 1 Tier 1 Capital Tier 2 Capital Total Capital Risk Weighted Assets (RWA) Credit Risk Operational Risk Market Risk Key Ratios CET 1 Ratio Tier 1 Ratio Total Capital Ratio Estimated Basel III Leverage Ratio Assets to Capital Multiple (ACM) 22,340 25,382 4,271 29,653 198,803 26,779 14,494 9.3% 10.6% 12.4% 3.7% 17.4x 28,499 33,742 7,069 40,811 253,200 32,200 16,700 9.4% 11.2% 13.5% 3.6% 17.4x 13,347 16,189 3,701 19,890 118,548 17,787 4,170 9.5% 11.5% 14.2% 3.4% 18.4x 5,336 6,885 1,904 8,789 52,030 8,487 4,110 8.3% 10.7% 13.6% 3.1% 20.0x 32,998 39,414 6,564 45,978 253,799 43,898 44,055 9.7% 11.5% 13.5% 3.5% 17.6x 27,803 32,852 8,474 41,326 263,971 35,824 13,177 8.9% 10.5% 13.2% 3.3% 19.4x Total RWA 240,076 302,100 140,505 64,627 341,752 312,972 Total Balance Sheet Assets 592,662 782,835 400,955 195,300 904,714 908,896 Source: Company reports, BMO Capital Markets Table 10: Spread Changes Historical Bank Indicative Spread Performance % Change % Change 5-Year Historical 31-Dec-09 31-Dec-10 30-Dec-11 31-Dec-12 31-Dec-13 Current QTD 2014 2013 Avg. (Pre-Crisis) Deposit Notes(1) 5 Year 55 81 121 95 84 77 (9%) (11%) 33 10 Year 88 122 152 136 123 119 (3%) (10%) 52 Subordinated Debt(1) 5 Year 82 125 189 116 108 97 (10%) (7%) 42 10 Year 121 172 231 170 145 141 (3%) (14%) 66 Province of Ontario 5 Year 34 40 49 53 41 50 21% (23%) 16 10 Year 65 70 87 95 79 82 4% (16%) 30 Spread Differential (Senior vs. Sub) 5 Year 27 45 68 21 24 21 (14%) 13% 9 10 Year 33 50 79 34 22 22 0% (34%) 14 Spread Differential (Deposit Note vs. Ontario) 5 Year 21 41 73 42 43 27 (37%) 3% 17 10 Year 23 52 66 42 44 37 (16%) 6% 22 Spread Differential (Sub Debt vs. Ontario) 5 Year 48 85 140 63 67 47 (30%) 6% 26 10 Year 56 102 145 75 66 59 (11%) (12%) 37 As at March 31, 2014 Note: December 31, 2010 onwards sub debt spreads are indicative of new sub debt (1) Avg of five banks Source: BMO Capital Markets  Fixed Income Viewpoint Insurance – April 2014 Sector Rating: Market Perform Relative Value 5-Year: Market Perform 10-Year: Market Perform 30-Year: Market Perform Spread View – Canadian insurance credit has performed rela- tively in line with the FTSE TMX Canada Corporate Uni- verse in Q1/14 with returns of 1.55%, 3.73% and 6.21% in the short, mid and long ends of the curve, respectively, com- pared to 1.39%, 3.85% and 6.06% for the FTSE TMX Cana- da Universe Corporate Bond Index. However, life insurance credit has underperformed relative to Canadian bank credit in Q1/14, with the spread differential between 5-year average senior life insurance credit and bank sub debt widening to -3 bps compared to -11 bps at the end of 2013. While the funda- mental backdrop has improved for the life insurers, we recom- mend a market weight position in life insurance credit given the significant outperformance over the past year. That being said, we do not expect the insurers to be active in the primary market in 2014, which should bode well for credit spreads. Credit Curve – In Q1/14, the life insurer 2s-5s curve tightened 1 bp to 26 bps, the 5s-10s flattened 4 bps to 48 bps, and the 10s-30s curve flattened 9 bps to 30 bps. We recommend that investors position themselves in the mid part of the curve. Sector Value – In terms of relative value, we believe the Sun Life senior fixed-floaters (4.80%/15-35) look attractive relative to the MFC 4.079%/15 at a pick up of ~40 bps. While these securities include a +20-year extension, we believe the risk of extension is very low given that the recent restructuring of their captive reinsurance arrangement eliminates the need for existing senior debentures and short-term letters of credit. Recommendation Top Pick – From a fundamental perspective, Great-West re- mains our top pick. The company has excellent market posi- tion, strong asset quality and solid capital. In addition, the company has the lowest sensitivity to equity markets, strong brand recognition and enhanced financial flexibility with ex- cess capital sitting at the holding company. That being said, we believe the pension announcement in the 2014 U.K. bud- get is negative from a credit perspective given it is expected to significantly reduce sales and margins in its U.K. annuity business. We estimate this business represents ~7% of GWO’s bottom line and approximately one-third of the company’s U.K. earnings. Risks External – The life insurers’ sensitivity to equity mar- kets and interest rates has declined given product repo- sitioning, hedging and out- right dispositions. M&A – We believe M&A ac- tivity will be limited to small tuck-in acquisitions. Regulatory – On November 12, 2013, OSFI released an update to its Life Insurance Regulatory Framework, orig- inally published in September 2012. The update pushes back the implementation of the life insurance capital framework to 2018 from 2016. In addition, draft guidelines are now ex- pected in 2015 and final guidelines in 2016. New Issuance – The life insurers have not been active on the primary front in 2014, with only Manulife tapping the mar- ket with a $500 million 5+5 opco subordinated fixed-floater in February. Manulife also issued a $200 million rate reset preferred share in February. The proceeds from both these securities are expected to be used to refinance the $1 billion senior holdco maturity in June. Sun Life did not refinance its $500 million sub debt holdco maturity at the end of March; however, we are not surprised given the high amount of excess cash at the holding company level. Credit Profile Sector Financials – The Canadian lifecos reported solid core EPS growth in 2013 with GWO up 11% (8% excl. Irish Life), IAG up 10%, MFC up 17% and SLF up 13%. We expect earnings growth to continue in 2014 and 2015 given increased contributions from wealth management businesses, growth in insurance premiums and deposits, continued focus on reduc- ing costs, and positive operating leverage. Sector Fundamentals – The fundamental backdrop for the life insurers improved in 2013 due to the increase in equity markets and long-term interest rates. In addition, the insur- ers have built fortress capital positions that can withstand sig- nificant volatility. Finally, the insurers have been moving away from more capital-intensive life insurance businesses to less capital-intensive wealth management. Credit Ratings – All three rating agencies have Stable outlooks for the Canadian Insurance sector. George Lazarevski, CFA BMO Nesbitt Burns Inc. george.lazarevski@bmo.com (416) 359-7488 Page 2 Fixed Income Quarterly—Insurance Viewpoint Canadian insurance credit has performed relatively in line with the FTSE TMX Canada Corporate Universe in Q1/14 with returns of 1.55%, 3.73% and 6.21% in the short, mid and long ends of the curve, respectively, compared to 1.39%, 3.85% and 6.06% for the FTSE TMX Canada Corporate Universe. However, life insurance credit has underperformed relative to Canadian bank credit in Q1/14, with the spread differential between 5-year average senior life insurance credit and bank sub debt widening to -3 bps compared to -11 bps at the end of 2013. While the fundamental backdrop has improved for the life insurers, we recommend a market weight position in life insurance credit given the significant outperformance over the past year. That being said, we do not expect the insurers to be active in the primary market in 2014, which should bode well for credit spreads. In terms of relative value, we believe the Sun Life senior fixed- floaters (4.80%/15-35) look attractive relative to the MFC 4.079%/15 at a pick up of ~40 bps. While these securities in- clude a +20-year extension, we believe the risk of extension is very low given that the recent restructuring of their captive reinsurance arrangement eliminates the need for existing se- nior debentures and short-term letters of credit. From a fundamental perspective, Great-West remains our top pick. The company has excellent market position, strong as- set quality and solid capital. In addition, the company has the lowest sensitivity to equity markets, strong brand recognition and enhanced financial flexibility with excess capital sitting at the holding company. That being said, we believe the pen- sion announcement in the 2014 U.K. budget is negative from a credit perspective given it is expected to significantly reduce sales and margins in its U.K. annuity business. We estimate this business represents ~7% of GWO’s bottom line and ap- proximately one-third of the company’s U.K. earnings. Key Themes New Issuance – Similar to last year, the life insurers have not been active on the primary front in 2014, with only Manulife tapping the market with a $500 million 5+5 opco subordinat- ed fixed-floater in February. Manulife also issued a $200 mil- lion rate reset preferred share in February. The proceeds from both these securities are expected to be used to refinance the $1 billion senior holdco maturity in June. Sun Life did not refinance its $500 million sub debt holdco maturity at the end of March; however, we are not surprised given the high amount of excess cash at the holding company level. For the remainder of 2014, we believe Industrial Alliance could still tap the market to refinance the $150 million sub debt maturity in June. In addition, we believe Manulife could tap the preferred share market again. Chart 1: LifeCo Senior vs. Bank Sub Debt (5-Year) (bps) 500 450 400 350 300 250 200 150 100 50 0 As at March 31, 2014 Source: BMO Capital Markets Lifeco Senior Big Five Sub Debt Chart 2: Sun Life Senior (4.80%/15-35) vs. Manulife Holdco Senior Debt (4.079%/15) (bps) 425 375 325 275 225 175 125 75 SLF 4.8%/15-35 MFC 4.079%/15 102 66 25 Jun-11 Aug-11 Nov-11 Jan-12 Mar-12 Jun-12 Aug-12 Nov-12 Jan-13 Apr-13 Jun-13 Aug-13 Nov-13 Jan-14 Mar-14 As at March 31, 2014 Source: BMO Capital Markets Table 1: FTSE TMX Canada Universe Bond Index Returns by Sector Sector All Corporates Financial - Bank Financial - Insurance Short YTD 1.39% 1.32% 1.55% Mid YTD 3.85% 3.48% 3.73% Long YTD 6.06% 6.12% 6.21% As at March 31, 2014 Source: PCBond, a business unit of TSX Inc. Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Fixed Income Quarterly—Insurance Page 3 Chart 3: Life Insurers Issuance Regulatory Update – On November 12, 2013, OSFI released an update to its Life Insurance Regulatory Framework, origi- nally published in September 2012. Some key developments include: Corporate Governance – An updated corporate governance guideline was published in January 2013 and implemented in 2014. The goal of the guideline is to help the board of directors and senior management to identify and manage risks being undertaken by an institution. In addition, the guideline addresses the role of the risk committee at the Board for large and complex institutions and provides insight on the role of the chief risk officer. Own Risk and Solvency Assessment – The final version of the Own Risk and Solvency Assessment (ORSA) Guideline was released in November 2013, with implementation starting January 2014. The primary objective of ORSA is to get the insurer to self-assess its risks and solvency requirements and employ appropriate processes that reflect the nature, scale and complexity of its own risks. Segregated Funds – Work on developing an internal models framework for segregated funds has been halted to acceler- ate the development of the standardized approach for segre- gated funds. OSFI expects the work on the internal models framework will resume once the new standardized approach is completed. Capital Framework – The implementation of the new life insurance capital framework was pushed out to 2018 from 2016. In addition, OSFI now plans on running another quan- titative impact study in 2014, with draft guidelines expected in 2015, and final guidelines in 2016. OSFI did state that, “it continues to believe that, in aggregate, the industry currently has adequate financial resources (total assets) for its current risks.” Global Systemically Important Insurers (G-SII) – On July 18, 2013, the Financial Stability Board (FSB) published the first set of Global Systemically Important Insurers (G-SIIs) framework. In line with our expectations, no Canadian insur- ers were included on the initial list. Global Insurance Capital Standard – The IAIS announced timelines in October 2013 for developing a global insurance capital standard for internationally active insurance groups (IAIGs) and simple backstop capital requirements for G-SI- Is. The IAIS indicated that full implementation of the former will begin in 2019, while the latter is expected to be ready for implementation in late 2014. (C$ Billion) $5.0 $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 0.0 MFC SLF GWO IAG Other $4.4 $3.0 $2.6 $2.1 $2.2 $1.7 $1.6 $1.7 $1.1 $0.8 $0.5 $0.8 $0.8 $0.5 $0.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD As at March 31, 2014 Source: BMO Capital Markets Potential Changes to the URR Calculation – On December 13, 2013, the Actuarial Standards Board (ASB) released the long-awaited exposure draft for revisions to the economic re- investment assumptions and assumed investment strategies utilized for long-tail liability cash flows under the Canadi- an Asset Liability Method (CALM). The comment period ended on February 14, 2014, and final implementation is tar- geted for Q4/14. Overall, we believe the exposure draft is positive for the in- dustry, particularly for Manulife and Industrial Alliance, as it will likely result in less onerous URR charges going forward. That being said, the proposed changes to limits in non-fixed income assets could offset some of this benefit. Table 2: Life Insurers 2014 Financing Requirements 1. Excluding preferred shares that we believe will not be redeemed 2. Includes $250 million of opco sub debt issued on November 29, 2013 to prefund 2014 maturities 3. SLF redeemed $500 million of sub debt on March 31, 2014 Source: BMO Capital Markets, Bloomberg C$ mm 2014 Uses of Cash 2014 Sources of Cash Issuer Debt Preferred Shares1 Debt Preferred Shares Common Shares Remaining Financing Requirements GWO 0 0 0 0 0 0 IAG 150 0 0 0 0 150 MFC2 1,000 800 750 200 0 850 SLF3 500 250 0 0 0 0 Total 1,650 1,050 750 200 0 1,000  Page 4 Fixed Income Quarterly—Insurance Chart 4: Updated Life Insurance Regulatory Framework Timeline Source: OSFI Table 3: Changes in Equity Markets and Interest Rates As at March 31, 2014 Source: Bloomberg Q1 2014 Performance Equity Markets Returns Treasuries - Change Corporate A - Spread Change Swap - Spread Change TSX S&P 500 TOPIX EAFE 5.2% Canada 10-Year 1.3% Canada 30-Year (7.6%) U.S. 10-Year 0.0% U.S. 30-Year (30) bps (27) bps (31) bps (41) bps Canada 10-Year Canada 30-Year U.S. 10-Year U.S. 30-Year (13) bps (4) bps (12) bps (1) bps Canada 10-Year Canada 30-Year U.S. 10-Year U.S. 30-Year (6) bps (2) bps 7 bps 2 bps  Fixed Income Quarterly—Insurance Page 5 Table 4: Capital Summary Great-West Industrial Alliance (C$ mm) Q4/13 Q3/13 Q2/13 Q1/13 Q4/13 Q3/13 Q2/13 Q1/13 Debt 499 499 0 675 45 2,893 4,112 3,769 1,661 2,398 696 2,503 0 14,223 19,820 12,038 5,562 499 0 675 45 2,801 4,020 3,684 1,645 2,400 696 2,503 0 15,116 20,715 11,902 5,478 608 150 675 45 2,801 4,278 3,887 1,643 2,744 696 2,503 0 14,696 20,639 11,808 5,513 5,740 118 2,314 2,354 15,323 5,503 118 2,544 2,495 14,389 5,166 118 2,544 2,466 12,827 4,483 118 2,544 2,477 12,241 Innovative Tier 1 Preferred Equity Par Surplus Common Equity Total Capital Total Available Capital Required Capital Debt Innovative Tier 1 Preferred Equity Par Surplus Common Equity Total Capital Total Available Capital Required Capital 0 575 47 3,045 4,166 3,663 1,687 2,403 696 2,503 0 14,851 20,453 12,354 5,639 25,849 25,049 23,121 21,863 Debt+Pref+Hybrid / Total Capital 32% 33% 34% 33% 26% 29% 29% 33% 12,668 12,012 11,548 10,387 5,673 5,443 4,955 4,951 MCCSR 223% 221% 233% 210% 217% 227% 224% 237% Manulife Sun Life (C$ mm) Q4/13 Q3/13 Q2/13 Q1/13 Q4/13 Q3/13 Q2/13 Q1/13 7,816 7,511 1,000 1,000 3,037 3,037 7,546 7,490 1,000 1,000 3,037 2,841 0000 25,964 23,862 23,571 23,020 37,817 35,410 35,154 34,351 Debt+Pref+Hybrid / Total Capital 31% 33% 33% 33% 27% 28% 27% 29% 32,140 30,268 30,258 29,588 12,955 13,235 13,655 13,621 MCCSR 248% 229% 222% 217% 219% 216% 217% 214% Source: Company reports  Page 6 Fixed Income Quarterly—Insurance Table 5: Bond Portfolio Great-West Industrial Alliance Bond Portfolio Mix Q4/13 Q3/13 Q2/13 Q1/13 Q4/13 Q3/13 Q2/13 Q1/13 31.4% 31.7% 18.1% 17.6% 29.4% 29.6% 19.6% 19.6% 1.4% 1.4% 31.7% 31.8% 16.4% 16.8% 31.2% 31.0% 19.1% 18.7% 1.7% 1.7% 100.0% 79.0% 85,434 100.0% 79.0% 82,686 100.0% 79.3% 78,677 100.0% 79.7% 79,069 Manulife Sun Life Bond Portfolio Mix Q4/13 Q3/13 Q2/13 Q1/13 Q4/13 Q3/13 Q2/13 Q1/13 26.4% 27.4% 18.8% 18.8% 30.9% 30.2% 20.4% 19.3% 3.5% 4.3% 28.0% 29.2% 18.6% 18.2% 29.7% 29.1% 19.1% 18.7% 4.6% 4.8% 100.0% 76.1% 135,972 100.0% 76.4% 135,231 100.0% 76.3% 138,333 100.0% 76.5% 140,928 AAA AA A BBB < BBB Total AAA/ AA/ A Total (C$ mm) AAA AA A BBB < BBB Total AAA/ AA/ A Total (C$ mm) 2.8% 33.7% 51.3% 12.1% 0.2% 100.0% 87.8% 15,107 16.5% 18.0% 32.9% 29.5% 3.0% 100.0% 67.5% 54,813 3.5% 30.9% 53.7% 11.8% 0.2% 100.0% 88.0% 15,010 16.3% 19.0% 32.9% 28.8% 3.0% 100.0% 68.2% 54,813 5.5% 30.5% 53.8% 10.1% 0.2% 100.0% 89.7% 15,051 16.8% 19.0% 33.8% 28.8% 1.6% 100.0% 69.6% 54,813 4.8% 26.4% 58.6% 10.1% 0.1% 100.0% 89.8% 15,050 15.1% 19.7% 34.7% 28.7% 1.9% 100.0% 69.4% 54,813 Source: BMO Capital Markets, Company Reports  Fixed Income Quarterly—Insurance Page 7 Table 6: LifeCo Spread Performance Historical LifeCo Indicative Spread Performance % Change % Change 5-Year Historical 31-Dec-09 31-Dec-10 30-Dec-11 31-Dec-12 31-Dec-13 Current YTD 2014 2013 Avg. (Pre-Crisis) Life Insurers Senior(1) Bank Deposit Notes(2) Bank Subordinated Debt(2) Spread Differential (Lifeco Senior vs Bank Senior) Spread Differential (Lifeco Senior vs Bank Sub Debt) 5 Year 10 Year 30 Year 86 123 229 151 169 272 193 205 308 130 96 95 (2%) 192 148 143 (4%) 251 188 173 (8%) (26%) 39 (23%) 63 (25%) 101 5 Year 55 81 121 95 84 77 (9%) (11%) 33 10 Year 88 122 152 136 123 119 (3%) (10%) 52 5 Year 82 125 189 116 108 97 (10%) (7%) 42 10 Year 121 172 231 170 145 141 (3%) (14%) 66 5 Year 31 43 108 35 13 18 42% (64%) 6 10 Year 62 47 120 56 25 24 (7%) (55%) 11 5 Year 4 (2) 41 14 (11) (3) nmf (182%) -3 10 Year 30 (3) 41 22 3 2 nmf (85%) -3 As at March 31, 2014 Note: December 31, 2010 onwards sub debt spreads are indicative of new sub debt (1) Avg of three lifecos; (2) Avg of five banks Source: BMO Capital Markets Table 7: Credit Ratings 1 Subordinated debt rating; * OpCo Ratings - Insurance Financial Strength rating As at March 31, 2014 Source: Credit Rating Agencies DBRS S&P Moody's Issuer Rating Trend Rating Trend Rating Trend Great-West Lifeco Industrial Alliance *,1 Manulife Financial Sun Life Financial Standard Life Assurance * AA (low) A A (high) A (high) nr Stable A+ Stable A Stable A Stable A Stable Stable Stable Stable Aa3 * nr A1 * Aa3 * nr Stable Stable Stable A1 Stable  Fixed Income Viewpoint Real Estate/REITs – April 2014 Sector Rating: Outperform Relative Value 5-Year: Outperform 10-Year: Outperform Spread View – We view REIT/REOC sector spreads as gener- ally attractive and anticipate the sectors’ bonds will continue to outperform in 2014. The sector provides an attractive pick- up in spread over the telecom and retail sectors. The sector experienced a bout of primary market digestion issues in late 2013 but remained resilient and still managed to outperform the universe. The sector is also vulnerable to underperformance if investors’ global risk tolerance deteriorates. Credit Curve – The 5s-10s indicative curve for the real estate sector narrowed in Q1/14 to 51 bps from 60 bps at December 31, 2013. The curve is slightly steeper than Telecom (49 bps) but slightly flatter than Retail (54 bps). Sector Value – REIT/REOC bonds are generally attractive, pro- viding spread pick-up over telecom and retail bonds. We expect the sector to outperform in 2014 due to solid underlying asset quality and financial profiles, which we anticipate to remain intact in 2014, and we expect manageable primary market new issuance. The real estate sector average spread in the short end of the curve of 198 bps is the widest in the Canadian universe. Similarly in the mid-term the sector’s average spread of 206 bps is the widest. The sector provides a pick-up of 88 bps over retail and 84 bps over telecom, which is attractive, although diminished as sector bonds continued to outperform in 2014. The Real Estate sector total return of 2.31% in the short end of the curve in Q1/14 outperformed the DEX universe return of 1.39%. Recommendation We rate the sector Outperform based on our view that the sec- tor’s solid fundamentals will remain intact in 2014 and offset another likely year of active new issuance. We like the real estate sector as it provides an attractive pick-up over other sectors and is supported by good underlying fundamentals. First Capital Realty is our favourite credit supported by its unencumbered assets, quality tenant portfolio, bond liquidity and relative value. Risks External – Canadian GDP is expected to pick-up modestly in 2014, although still at tepid levels. Increased funding costs could put property cap rates at risk. Nonetheless, the moderate pace of economic growth should continue to support de- mand for space across the real estate sector and yield increased rental revenues. High consumer debt levels is an area of vulnerability for the sector. Trading Liquidity – While liquidity is generally limited for REIT/REOC bonds, it has improved with recent new issue activity. Second- ary trading volume tends to follow new issue flow and there is generally always a bid for bonds. Trevor Bateman, CPA, CA, CFA BMO Nesbitt Burns Inc. trevor.bateman@bmo.com (416) 359-8238 New Issuance – Year to date, the real estate sector has issued ~$1.6 billion, which compares to $705 million issued during the same period in 2013 (Table 1). We are looking for total sector new issuance to be in the range of $3 to $4 billion in 2014. We expect the sector to remain active issuing bonds in the future. While there is only one senior unsecured bond maturing in 2014 for $100 million, the maturity schedule for issuers in our universe picks up in 2015 and beyond and averages nearly $1 billion through 2019. M&A – The sale of Bayview Village in late 2013 at a cap rate of sub 4% by BCIMC indicates the appetite for quality proper- ties remains strong. Credit Profile Sector Financials – Revenues, EBITDA and AFFO are expected by BMOCM Equity Research to grow solidly in 2014, which generally supports moderately improved leverage. Sector Fundamentals – Asset quality measures (occupancy and rents) are generally stable across the sector with some continu- ing to improve. REIT/REOCs have improved access to unse- cured debt funding, which bolsters their liquidity and funding profiles. We anticipate that cap rates will eventually move higher in 2014 driven by gradually increasing interest rates. The trend by corporations to divest ownership of their real estate could indicate a peak in commercial real estate valuation. Credit Ratings – Ratings are generally stable. A wrinkle for investors in this sector is that there are a number of single rated bond issuers. Page 2 Fixed Income Quarterly—Real Estate/REITs Table 1: REITs Issuance Q1 2014 Issuer Size Issue Date Coupon Maturity (C$ mm) Cominar REIT First Capital Realty Dundee REIT RioCan REIT Choice Properties REIT Choice Properties REIT Calloway REIT First Capital Realty Crombie REIT Cominar REIT First Capital Realty Artis Real Estate $100 16-Jan-2014 $150 20-Jan-2014 $150 21-Jan-2014 $150 23-Jan-2014 $250 06-Feb-2014 $200 06-Feb-2014 $150 11-Feb-2014 $75 18-Feb-2014 $100 05-Mar-2014 $100 07-Mar-2014 $75 11-Mar-2014 $125 27-Mar-2014 4.941% 27-Jul-2020 4.790% 30-Aug-2024 4.074% 21-Jan-2020 3.620% 01-Jun-2020 3.498% 08-Feb-2021 4.293% 08-Feb-2024 3.749% 11-Feb-2021 4.790% 30-Aug-2024 3.962% 01-Jun-2021 4.941% 27-Jul-2020 4.790% 30-Aug-2024 3.753% 27-Mar-2019 Total Issuance $1,625 Note: Includes all REITs issuance with settlement dates in Q1/14. Source: BMO Capital Markets  Fixed Income Viewpoint Asset-Backed Securities – April 2014 Sector Rating: Market Perform Relative Value 3-Year: Market Perform 5-Year: Market Perform Spread View – In Q1/14, large Canadian bankcard ABS has outperformed deposit notes in the five-year part of the curve as exhibited by the 12 bps (14.5%) tightening in credit card ABS spreads compared with the 7 bps (8.5%) tightening for bank deposit notes. Bankcard ABS currently trades ~6 bps through comparable deposit notes, which is the tightest level seen so far in 2014 but still off by ~5-6 bps from the levels seen early last year. We believe credit card ABS will continue to trade through deposit notes given the expectation for manageable ABS new issuance and for the Canadian banks to be active in the unsecured wholesale funding markets in 2014. Furthermore, we believe asset-backed securities will be outside the range of liabilities covered under the bail-in powers. Credit Curve – Credit card ABS trades wider in the short end of the curve at ~1 bp back of deposit notes compared to ~6 bps through in the 5-year part of the curve. Sector Value – We believe Glacier Credit Card Trust looks at- tractive in light of its announcement on August 8, 2013, that it intends to seek a financial partner for its $4.4 billion credit card portfolio. The Glacier 5-year indicative credit spreads are ~7 bps back of the large bank card programs, which could tighten if the Trust gets support from a large Canadian bank. Recommendation Top Pick – From a fundamental perspective, our top pick in credit card ABS is Golden Credit Card Trust (RBC sponsored) with its leading collateral performance (lowest charge-off level, second-highest excess spread, second-highest payment rate and best-in-class “capacity” measure as of January 2014) and solid bond liquidity. Risks Regulatory – In the 2014 Budget, the government announced that it will work with stakeholders to reduce credit card acceptance fees for merchants, while encouraging merchants to lower prices to consumers. We are not surprised by the government’s inten- tions to reduce credit card acceptance fees for merchants given the Competition Tribunal argued that the proper solution to the concerns raised by the Commissioner of Competition is through a regulatory framework. We do not expect a resolution to this issue over the near term; however, a potential reduction in credit card acceptance fees would reduce portfolio yield. New Issuance – Total ABS issuance so far in 2014 is $1.7 billion compared to $3.1 billion in the same period last year. This consists of US$1.0 billion dual tranche (2014-1 & 2014-2) issue from Golden and $644 million 2014-R2 transaction from FAST. In 2014, we expect total term ABS issuance to decline to $6–7 billion across all currencies, which includes credit card ABS issuance of ~$4 billion, auto ABS of ~$1 billion and other ABS issuance (Hollis & Genesis) of $1–2 bil- lion. That being said, we could see a greater use of ABS funding if these securities remain outside the range of liabilities covered under the bail-in powers. External – Canadian light vehicle sales remain strong with sales up 1% y/y to 357.6k as of March 2014. Growth was driven mainly by Asian manufacturers with sales up +5.0% y/y. Meanwhile, North American automakers lagged slightly with combined sales down 2.4% y/y mainly due to Ford (-7.6%) and GM (-4.6%), and partially offset by Chrysler (+4.5%). BMO Economics forecasts sales to be ~1.71 million in 2014, down slightly from 1.74 million in 2013. Trading Liquidity – Large Canadian bank credit card ABS continues to have the best secondary trading by virtue of their large amount of outstanding securities. Retail auto ABS has limited liquidity with only 11 deals totalling ~$2.7 billion. Credit Profile Sector Collateral Performance – Credit card collateral perfor- mance remains strong heading into 2014. In January, payment rate declined slightly y/y to 35.09% from 35.53% in January 2013 primarily due to Cards II (-433 bps y/y). Meanwhile, charge-offs remained below 4% for the fifth consecutive month at 3.61%, the lowest level since 2007. We continue to expect charge-offs to remain low over the near term given stable delinquencies. Sector Fundamentals – Consumer insolvencies have been rela- tively stable in the last 12 months as a 4.8% y/y rise in proposals was offset by a 4.1% y/y drop in bankruptcies. Finally, BMO Economics forecasts Canadian GDP to increase by 2.3% and the unemployment rate to fall to 6.9% in 2014, which we believe should keep bankruptcies and charge-offs low. Credit Ratings – We do not expect any rating actions on existing Canadian credit card and retail auto loan ABS. George Lazarevski, CFA BMO Nesbitt Burns Inc. george.lazarevski@bmo.com (416) 359-7488 Page 2 Fixed Income Quarterly—Asset-Backed Securities Chart 1: Relative Value 80 75 70 65 60 55 50 45 40 35 GLACIER 13-1 Sr 2.755% 2018 GLACIER 12-2A Sr 2.394% 2017 EAGLE 13-1 Sr 2.849% 2018 GLACIER 12-1A Sr 2.807% 2017 MCCT 12-1 Sr 2.626% 2017 GENESIS 13-1 Sr 2.295% 2017 MCCT 13-1 Sr 2.723% 2018 GLACIER 10-1A Sr 3.158% 2015 CARDS 11-1 Sr 3.333% 2016 GOLDEN 11-1A Sr 3.51% 2016 HOLLIS 13-1 Sr 2.235% 2016 MCCT 11-1 Sr 3.502% 2016 CCCT 13-1A Sr 1.596% 2015 EAGLE 10-2 Sr 3.474% 2015 CARDS 13-1 Sr 1.984% 2016 CARDS 10-2 Sr 3.096% 2015 CCCT 10-1A Sr 3.444% 2015 CCCT 12-1A Sr 2.306% 2015 GOLDEN 10-1A Sr 3.824% 2015 GLOCCT 04-1A Sr 5.376% 2014 30 Nov-13 Jun-14 Dec-14 Jul-15 Jan-16 Aug-16 Mar-17 Sep-17 Apr-18 Oct-18 May-19 Source: BMO Capital Markets; As at March 31, 2014 Table 1: Spread Performance - Credit Card ABS 3-year term 5-year term QTD Q1/14 Change 2013 Change QTD Q1/14 Change 2013 Change Current Current Avrg. Depo Notes Bankcard Glacier Source: BMO Capital Markets As at March 31, 2014 bps bps 66 (5) 62 (7) 69 (8) % bps (7.1%) (6) (10.1%) 4 (10.4%) 4 % bps bps (7.2%) 77 (7) 6.2% 71 (12) 5.5% 79 (12) % (8.5%) (14.5%) (13.2%) bps % (11) (11.4%) 1 1.2% (1) (1.1%)  Fixed Income Quarterly—Asset-Backed Securities Page 3 Table 2: Spread Performance - Auto ABS 3-year term Current QTD Q1/14 Change 2013 Change bps bps % bps % RY deposit notes Bankcard Ford Source: BMO Capital Markets As at March 31, 2014 66 (5) 62 (7) 65 (8) (7.1%) (6) (10.1%) 4 (11.0%) (10) (7.2%) 6.2% (12.0%) Table 3: Summary of Credit Card ABS New Issuance Issuer Originator Series Tranche Coupon (%) Curr. Amount (C$ mm) Settlement Date Expected Maturity Credit Rating (sf) (DBRS/S&P/Moody's) Asset Class WAL to Call Cusip Credit Card ABS Issuance - 2014 Golden RBC Golden RBC Golden RBC Golden RBC 2014-1 Sr 2014-1 Sub 2014-2 Sr 2014-2 Sub 3m LIBOR + 24 bps USD 450 2.851 CAD 24 1m LIBOR + 45 bps USD 550 3.459 CAD 29 03/26/2014 03/26/2014 03/26/2014 03/26/2014 03/15/2017 03/15/2017 03/15/2019 03/15/2019 AAA/AAA/Aaa BBB(high)/--/Baa1 AAA/AAA/Aaa BBB(high)/--/Baa1 Credit Card Credit Card Credit Card Credit Card na 380881CD2 na 380881CE0 na 380881CC4 na 380881CF7 Total 2014 Credit Card ABS Issuance - C$ 53 Total 2014 Credit Card ABS Issuance - US$ US 1,000 Credit Card ABS Issuance - 2013 CARDS II CARDS II CARDS II CARDS II Golden Golden CCCT CCCT CCCT MCCT II MCCT II MCCT II MCCT II MCCT II MCCT II MCCT II MCCT II MCCT II Golden Golden Eagle Eagle Eagle MCCT II MCCT II MCCT II Glacier Glacier CIBC CIBC CIBC CIBC RBC RBC NBF NBF NBF BMO BMO BMO BMO BMO BMO BMO BMO BMO RBC RBC PC Bank PC Bank PC Bank BMO BMO BMO CTC/C CTC/C 2013-1 A 2013-1 B 2013-2 A 2013-2 B 2013-1 A 2013-1 B 2013-1 A 2013-1 B 2013-1 C 2013-1 A 2013-1 B 2013-1 C 2013-2 A 2013-2 B 2013-2 C 2013-3 A 2013-3 B 2013-3 C 2013-2 A 2013-2 B 2013-1 A 2013-1 B 2013-1 C 2013-4 A 2013-4 B 2013-4 C 2013-1 Sr 2013-1 Sub 1.984 2.784 1m CDOR + 1m CDOR + 1m LIBOR + 3.087 1.596 2.106 2.756 1.432 1.898 2.196 1.423 2.284 2.581 1m LIBOR + 1.640 2.280 1m LIBOR + 3.408 2.849 3.469 3.869 2.723 3.223 3.623 2.755 3.275 15 bps 65 bps 25 bps 43 bps 43 bps CAD 1,000 CAD 70 CAD 500 CAD 53 USD 500 CAD 24 CAD 400 CAD 15 CAD 12 CAD 724 CAD 15 CAD 27 CAD 724 CAD 15 CAD 27 USD 500 USD 11 USD 19 USD 600 CAD 29 CAD 372 CAD 14 CAD 14 CAD 1,000 CAD 21 CAD 37 CAD 250 CAD 15 01/16/2013 01/16/2013 01/15/2013 01/15/2013 02/28/2013 02/28/2013 04/02/2013 04/02/2013 04/02/2013 04/26/2013 04/26/2013 04/26/2013 04/26/2013 04/26/2013 04/26/2013 07/31/2013 07/31/2013 07/31/2013 09/24/2013 09/24/2013 10/07/2013 10/07/2013 10/07/2013 11/14/2013 11/14/2013 11/14/2013 11/27/2013 11/27/2013 01/15/2016 01/15/2016 01/15/2014 01/15/2014 02/16/2016 02/16/2016 09/24/2015 09/24/2015 09/24/2015 04/21/2014 04/21/2014 04/21/2014 04/21/2015 04/21/2015 04/21/2015 07/21/2016 07/21/2016 07/21/2016 09/15/2016 09/15/2016 10/17/2018 10/17/2018 10/17/2018 11/21/2018 11/21/2018 11/21/2018 11/20/2018 11/20/2018 AAA/--/Aaa BBB/--/A3 AAA/--/Aaa BBB/--/Baa1 AAA/AAA/Aaa BBB(high)/--/Baa1 AAA/AAA/-- A/A/-- BBB/BBB/-- AAA/--/-- AA/--/A2 BBB/--/Baa2 AAA/--/-- AA/--/A2 BBB/--/Baa2 AAA/--/Aaa AA/--/A2 BBB/--/Baa2 AAA/AAA/Aaa BBB(high)/--/Baa1 AAA/--/Aaa A/--/A2 BBB/--/Aaa2 AAA/--/Aaa AA/--/A2 BBB/--/Baa2 AAA/AAA/-- A/A/-- Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card Credit Card na 14161ZBJ6 na 14161ZBK3 na Retained na Retained na 380881BX9 na na na 13594ZAG2 na 13594ZAH0 na 13594ZAJ6 na Retained na 576339AE5 na 576339AF2 na Retained na 576339AH8 na 576339AJ4 na 576339AK1 na 576339AL9 na 576339AM7 na 380881BZ4 na 380881CB6 na 26948ZAG7 na 26948ZAH5 na 26948ZAJ1 na 57634ZAA4 na 57634ZAB2 na 57634ZAC0 na 37638ZAS3 na 37638ZAT1 Total 2013 Credit Card ABS Issuance - C$ 5,357 Total 2013 Credit Card ABS Issuance - US$ US 1,629 Source: SEDAR, BMO Capital Markets  Page 4 Fixed Income Quarterly—Asset-Backed Securities Table 4: Summary of Auto ABS New Issuance Issuer Originator Series Tranche Coupon (%) Curr. Amount (C$ mm) Issue Date Expected Maturity Credit Rating (sf) (DBRS/Fitch/S&P/Moody's) Asset Class WAL to Call Cusip Auto ABS Issuance - 2014 FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit 2014-R2 A1 2014-R2 A2 2014-R2 A3 2014-R2 B 2014-R2 C 2014-R2 D 1.353 CAD 224 1.593 CAD 247 1.972 CAD 129 2.409 CAD 19 2.602 CAD 13 2.800 CAD 13 04/02/2014 04/02/2014 04/02/2014 04/02/2014 04/02/2014 04/02/2014 09/27/2014 01/15/2016 07/02/2017 06/10/2018 07/16/2018 07/16/2018 AAA/AAA Retail Auto Loan AAA/AAA Retail Auto Loan AAA/AAA Retail Auto Loan AA(high)/AA+ Retail Auto Loan AA/A+ Retail Auto Loan A/BBB+ Retail Auto Loan 0.49 Y 1.79 Y 3.25 Y 4.19 Y 4.29 Y 4.29 Y 345213EE8 345213EG3 345213EJ7 345213EL2 345213EN8 345213EQ1 Total 2014 Auto ABS Issuance 644 Auto ABS Issuance - 2013 FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FAST Ford Credit FFAST Ford Credit FFAST Ford Credit FFAST Ford Credit FFAST Ford Credit 2013-R1 A1 2013-R1 A2 2013-R1 A3 2013-R1 B 2013-R1 C 2013-R1 D 2013-R4 A1 2013-R4 A2 2013-R4 A3 2013-R4 B 2013-R4 C 2013-R4 D 2013-F1 A 2013-F1 B 2013-F1 C 2013-F1 D 1.485 CAD 194 1.676 CAD 209 1.999 CAD 98 2.523 CAD 16 2.772 CAD 11 3.118 CAD 11 1.487 CAD 271 1.824 CAD 270 2.275 CAD 116 2.920 CAD 21 3.175 CAD 14 3.422 CAD 14 2.063 CAD 400 2.383 CAD 18 2.633 CAD 26 2.833 CAD 16 01/30/2013 01/30/2013 01/30/2013 01/30/2013 01/30/2013 01/30/2013 10/01/2013 10/01/2013 10/01/2013 10/01/2013 10/01/2013 10/01/2013 06/24/2013 06/24/2013 06/24/2013 06/24/2013 07/31/2013 11/18/2014 04/15/2016 01/15/2018 05/15/2018 01/15/2019 04/01/2014 07/20/2015 01/18/2017 12/20/2017 01/14/2018 01/14/2018 06/15/2016 06/15/2016 06/15/2016 06/15/2016 AAA/--/--/Aaa AAA/--/--/Aaa AAA/--/--/Aaa AA/--/--/Aa1 A/--/--/Aa2 BBB/--/--/A1 AAA/--/AAA/-- AAA/--/AAA/-- AAA/--/AAA/-- AA(high)/--/AA+/-- AA/--/AA/-- A/--/A+/-- AAA/--/--/Aaa AA/--/--/Aa1 A/--/--/Aa2 BBB/--/--/A1 Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Retail Auto Loan Dealer Floorplan Dealer Floorplan Dealer Floorplan Dealer Floorplan 0.50 Y 1.80 Y 3.21 Y 4.13 Y 4.51 Y 5.09 Y 0.50 Y 1.80 Y 3.30 Y 4.22 Y 4.29 Y 4.29 Y 3.00 Y 3.00 Y 3.00 Y 3.00 Y 345213DE9 345213DG4 345213DJ8 345213DL3 345213DN9 345213DQ2 345213DS8 345213DU3 345213DW9 345213DY5 345213EA6 345213EC2 34528TAU2 34528TAV0 34528TAW8 34528TAX6 Total 2013 Auto ABS Issuance 1,703 Source: SEDAR, BMO Capital Markets Table 5: Summary of Other ABS New Issuance Source: SEDAR, BMO Capital Markets Table 6: Summary of Credit Card ABS 2014 Remaining Maturities (C$ mm, unless noted otherwise) Issuer Originator Series Tranche Coupon (%) Curr. Amount (C$ mm) Issue Date Expected Maturity Credit Rating (DBRS/Moody's) Asset Class WAL to Call Cusip Other ABS Issuance - 2013 Hollis Scotiabank 2013-1 A 2.235 CAD 500 10/02/2013 09/26/2016 AAA/Aaa Line of Credit na 43562ZAA0 Genesis TD 2013-1 A 2.295 CAD 1,000 10/04/2013 02/15/2017 AAA/Aaa Line of Credit na 37185ZAA9 Total 2013 Other ABS Issuance 1,500 Issuer Seller Coupon % Maturity AAA Sub Series Notes Gloucester Glacier Master CARDS II CARDS II TD (formerly MBNA Canada) 5.38% Canadian Tire 4.41% BMO 1.43% CIBC Floating CIBC Floating 05/15/2014 05/20/2014 05/21/2014 07/15/2014 09/15/2014 254 47 239 14 724 42 500 52 US 1,000 68 2004-1 2006-2 2013-1 Snr Retained 2012-3 Retained 2012-4 Total C$ Maturities 1,716 223 Total US$ Maturities US 1,000 Source: DBRS, BMO Capital Markets, Bloomberg  Fixed Income Quarterly—Asset-Backed Securities Page 5 Table 7: Summary of Credit Card ABS 2015 Maturities (C$ mm, unless noted otherwise) Issuer Seller Coupon % Maturity AAA Sub Series Notes MCCT BMO 1.42% 04/21/2015 04/24/2015 05/15/2015 05/15/2015 07/15/2015 07/24/2015 09/15/2015 09/15/2015 09/24/2015 10/21/2015 11/20/2015 12/17/2015 724 42 330 22 900 42 325 15 US 650 31 550 37 600 47 US 700 32 400 27 US 750 US 44 2013-2 2012-1: 2010-1: 2010-2: 2012-3: 2010-1: 2010-3: 2012-5: 2013-1: 2012-2 Snr Retained Sub Retained Cl. B Retained CCCT NBF Golden RBC Golden RBC Golden RBC CCCT NBF CARDS II CIBC Golden RBC CCCT NBF MCCT BMO Glacier CTC/C Eagle PC 2.31% 3.82% Floating Floating 3.44% 3.10% 0.79% 1.60% 0.78% 3.16% 3.47% 250 326 15 2010-1: 25 2010-2: Total C$ Maturities 4,404 334 Total US$ Maturities US 2,100 US 44 Source: DBRS, BMO Capital Markets, Bloomberg  Page 6 Fixed Income Quarterly—Asset-Backed Securities Table 8: Summary of Auto ABS Senior Notes Outstanding Estimated Expected Repayment Remaining Average Life Issuer Series Tranche Outstanding Coupon FAST 2010-R1 A-3 2010-R3 A-3 2011-R1 A-3 2011-R3 A-2 A-3 2012-R1 A-2 A-3 2013-R1 A-2 A-3 2013-R4 A-1 A-2 A-3 2014-R2 A-1 A-2 A-3 2011-1 A-3 2011-2 A-3 2012-1 A-2 A-3 $9,052,264 $65,660,192 $79,861,449 $23,155,620 $119,930,000 $109,641,869 $101,900,000 $203,069,362 $97,974,000 $133,307,605 $269,528,000 $115,732,000 $223,636,000 $247,175,000 $129,309,000 $124,499,997 $100,108,887 $43,508,341 $115,140,000 3.836% 2.714% 3.020% 1.960% 2.482% 2.017% 2.347% 1.676% 1.999% 1.487% 1.824% 2.275% 1.353% 1.593% 1.972% 3.321% 2.773% 2.025% 2.384% May 2, 2014 0.08 August 16, 2014 0.37 October 13, 2014 0.53 May 13, 2014 0.11 March 19, 2015 0.96 September 25, 2014 0.48 November 8, 2015 1.60 January 9, 2015 0.77 June 14, 2016 2.20 July 28, 2014 0.32 September 14, 2015 1.45 February 13, 2017 2.87 September 27, 2014 0.49 January 15, 2016 1.79 July 2, 2017 3.25 October 2, 2014 0.50 December 18, 2014 0.71 June 29, 2014 0.24 June 22, 2015 1.22 CCARAT II 2014 Maturities $912,432,225 Source: Servicer Reports, Bloomberg As at March 31, 2014 Table 9: Summary of ABS New Issuance Room Issuer Seller Public ABS (C$ Equivalent mm) Pool Balance Minimum Seller's Interest New Issuance Room CAD USD Total 31-Jan-14 (C$ mm) CARDS II Trust Golden Credit Card Trust Master Credit Card Trust II Gloucester Credit Card Trust Glacier Credit Card Trust Canadian Credit Card Trust Eagle Credit Card Trust CIBC RBC BMO TD Canadian Tire NBF Loblaw (PC Bank) 3,133 2,002 5,134 2,747 4,413 7,160 4,932 1,330 6,262 300 0 300 1,417 0 1,417 1,365 0 1,365 750 0 750 9,719 7% 3,949 7,996 7% 312 7,083 8% 297 1,726 5% n/a 3,879 7% n/a 1,583 7% 115 1,972 7% n/a Total 14,644 7,745 22,388 33,958 4,672 Note: n/a - with ABCP and/or private placements Source: BMO Capital Markets, DBRS, Company Reports  Fixed Income Quarterly—Asset-Backed Securities Page 7 Table 10: Performance Data - Canadian Credit Card ABS 31-Jan-13 28-Feb-13 31-Mar-13 30-Apr-13 31-May-13 30-Jun-13 31-Jul-13 31-Aug-13 30-Sep-13 31-Oct-13 30-Nov-13 31-Dec-13 31-Jan-14 3-month Average Previous 3-months LTM 2013 2012 Change 3-months Avg PAYMENT RATE m/m 0.42% 0.60% m/m y/y Broadway Cards II CCCT Eagle Glacier Gloucester Golden MCCT 19.90% 17.18% 40.33% 33.99% 38.52% 32.70% 52.77% 44.75% 24.62% 20.38% 21.74% 18.06% 45.01% 39.43% 41.38% 35.10% 18.16% 36.48% 35.42% 48.07% 21.87% 18.69% 42.08% 38.22% 19.74% 20.47% 18.66% 40.68% 41.24% 37.17% 41.69% 42.89% 36.89% 54.22% 53.94% 47.91% 23.83% 24.40% 22.38% 21.09% 21.00% 18.44% 47.81% 48.25% 43.73% 42.69% 44.31% 39.10% 21.64% 19.39% 19.50% 43.74% 39.29% 38.71% 44.99% 38.54% 39.62% 57.64% 51.12% 50.80% 26.04% 23.12% 23.09% 21.96% 19.94% 19.82% 50.45% 45.58% 45.67% 45.13% 42.32% 40.79% 21.07% 18.94% 20.08% 42.19% 34.50% 38.51% 40.86% 37.17% 43.46% 54.31% 49.05% 58.28% 24.72% 21.87% 24.17% 21.04% 19.48% 20.61% 47.26% 44.85% 49.91% 44.23% 41.04% 44.03% 20.50% 19.84% 19.99% 36.00% 36.34% 40.06% 40.58% 40.40% 39.67% 50.96% 52.76% 52.08% 23.62% 23.22% 23.64% 20.33% 20.14% 20.27% 46.35% 47.04% 46.17% 42.41% 42.49% 42.45% 19.61% 19.56% 38.54% 38.90% 39.57% 39.40% 51.75% 51.91% 23.29% 23.37% 20.04% 20.16% 45.95% 45.84% 41.61% 41.53% 18.32% 39.17% 36.91% 51.83% 24.83% 20.37% 44.25% 39.81% (2.51%) (2.88%) (7.32%) (0.55%) (0.28%) (3.56%) (1.62%) (4.33%) (0.15%) (3.73%) 0.73% 0.69% (0.42%) (0.13%) 0.87% 0.05% 2.06% (1.81%) (1.00%) (1.41%) 1.34% 1.03% PORTFOLIO YIELD Broadway Cards II CCCT Eagle Glacier Gloucester Golden MCCT 19.54% 21.66% 21.78% 24.14% 22.20% 24.69% 23.75% 26.57% 21.70% 20.84% 22.84% 17.96% 20.16% 19.36% 22.69% 23.32% 17.91% 21.78% 21.59% 23.31% 19.63% 19.36% 20.66% 22.92% 20.45% 19.67% 20.91% 23.10% 22.45% 23.26% 23.94% 23.63% 23.39% 26.56% 25.08% 24.94% 21.15% 21.01% 20.77% 17.20% 19.83% 17.15% 22.61% 22.60% 19.87% 23.65% 23.22% 22.57% 20.00% 19.98% 20.71% 22.11% 22.86% 22.93% 23.90% 23.18% 23.73% 25.33% 25.05% 25.34% 20.94% 21.03% 21.04% 20.92% 19.14% 15.91% 23.04% 21.31% 21.48% 23.24% 22.94% 23.25% 19.62% 20.77% 19.58% 22.47% 22.60% 21.93% 22.56% 23.77% 22.35% 24.47% 25.57% 25.51% 20.70% 21.07% 20.83% 13.66% 18.69% 19.25% 21.98% 21.43% 22.73% 23.92% 22.66% 23.68% 20.00% 20.12% 20.10% 21.50% 22.01% 22.75% 22.81% 22.98% 23.16% 24.25% 25.11% 24.95% 20.64% 20.85% 20.92% 16.14% 18.03% 16.24% 21.03% 21.73% 21.59% 23.39% 23.24% 23.37% 20.11% 20.07% 22.59% 22.62% 23.30% 23.24% 25.17% 25.12% 20.80% 20.89% 17.93% 18.49% 21.51% 21.44% 23.23% 23.17% 18.74% 22.35% 22.81% 24.59% 21.16% 18.65% 20.83% 22.31% 0.42% 0.46% 0.01% (0.43%) (0.28%) (0.74%) (0.18%) 0.16% (0.08%) 1.79% 0.14% (0.13%) 0.46% 0.61% 0.50% (1.06%) (6.70%) 0.87% 0.70% (1.26%) (0.19%) (3.11%) (1.70%) (0.29%) NET CHARGE OFFS Broadway Cards II CCCT Eagle Glacier Gloucester Golden MCCT 5.85% 6.28% 3.53% 4.00% 3.98% 5.47% 3.66% 3.96% 5.47% 5.59% 4.62% 4.57% 2.22% 2.41% 3.84% 4.17% 6.06% 3.73% 4.12% 3.87% 6.19% 4.46% 2.35% 3.51% 5.58% 6.54% 5.95% 3.65% 3.66% 3.88% 4.10% 4.09% 4.04% 3.69% 4.21% 3.39% 5.88% 5.92% 5.45% 3.79% 4.90% 4.61% 2.55% 2.42% 2.29% 3.55% 3.43% 3.42% 5.18% 5.97% 4.93% 3.30% 3.39% 3.21% 3.90% 4.03% 3.72% 3.59% 3.67% 3.49% 5.47% 5.53% 5.64% 3.79% 4.25% 3.44% 2.07% 2.09% 2.20% 3.24% 3.45% 3.09% 5.09% 4.94% 5.15% 3.09% 3.77% 3.41% 3.99% 4.41% 4.12% 3.54% 3.70% 3.31% 5.51% 5.84% 5.86% 2.45% 3.75% 3.94% 1.96% 2.19% 1.86% 3.06% 2.83% 2.82% 4.48% 4.86% 5.33% 4.26% 3.81% 3.23% 3.37% 3.97% 3.91% 3.12% 3.38% 3.57% 5.51% 5.74% 5.56% 3.28% 3.66% 3.38% 2.00% 2.02% 2.08% 2.89% 2.85% 3.20% 5.51% 5.63% 3.61% 3.55% 4.11% 4.16% 3.63% 3.67% 5.70% 5.70% 3.94% 4.05% 2.20% 2.22% 3.29% 3.37% 6.67% 4.13% 4.17% 4.09% 6.55% 5.17% 2.52% 3.81% (0.67%) (1.37%) (0.47%) 0.85% 0.73% 0.58% 0.05% (0.19%) 0.18% 0.28% (0.07%) (0.35%) (0.75%) (0.19%) (0.35%) (0.66%) 0.14% 0.07% (0.61%) (0.54%) 0.04% (1.34%) (0.22%) (0.95%) EXCESS SPREAD Broadway Cards II CCCT Eagle Glacier Gloucester Golden MCCT 5.91% 6.18% 14.24% 13.90% 13.57% 13.35% 14.55% 14.44% 14.85% 12.05% 12.60% 7.74% 9.53% 5.78% 4.28% 7.32% 13.37% 14.52% 14.73% 14.68% 15.54% 16.17% 15.60% 15.93% 15.83% 11.58% 11.48% 12.16% 11.83% 10.59% 8.34% 17.77% 17.99% 15.42% 17.07% 17.16% 16.51% 7.01% 6.98% 6.51% 14.78% 14.95% 14.96% 16.46% 16.40% 16.49% 15.69% 15.42% 15.97% 12.17% 12.28% 12.30% 12.95% 12.24% 10.29% 19.24% 18.15% 16.53% 17.45% 16.94% 17.60% 5.25% 4.44% 2.13% 15.06% 14.51% 14.26% 16.02% 16.01% 15.74% 15.57% 15.42% 16.31% 12.18% 12.14% 12.06% 11.90% 10.51% 12.39% 17.26% 16.48% 18.11% 18.31% 17.22% 18.25% 1.65% 2.74% 6.25% 13.93% 14.23% 14.99% 15.78% 15.84% 16.31% 15.98% 15.90% 15.65% 11.99% 12.07% 12.25% 11.90% 11.60% 11.48% 16.28% 16.96% 17.32% 17.90% 17.79% 17.61% (0.48%) (0.33%) 0.04% (0.33%) (0.07%) (0.49%) (1.83%) (0.36%) (4.26%) (0.31%) 2.20% 1.43% (2.86%) (0.70%) 1.34% 2.08% (3.51%) (0.76%) (0.47%) 0.25% (0.19%) 0.12% (0.36%) 0.18% 5.74% 13.69% 13.96% 14.28% 11.48% 5.27% 5.63% 14.39% 14.41% 15.55% 15.36% 15.54% 15.42% 11.99% 12.23% 10.85% 10.91% 16.79% 16.67% 17.24% 17.07% 4.66% 13.60% 13.64% 14.43% 10.47% 7.82% 15.12% 14.91% 14.94% 13.61% 15.81% 16.11% 14.59% 16.37% DELINQUENCY Broadway Cards II CCCT Eagle Glacier Gloucester Golden MCCT 1.88% 2.92% 2.30% 2.37% 1.88% 1.84% 1.78% 1.81% 3.01% 3.09% 3.14% 3.21% 2.38% 2.40% 3.46% 3.57% 2.88% 2.34% 1.93% 1.80% 2.98% 3.14% 2.33% 3.57% 2.67% 2.48% 2.44% 2.06% 1.89% 1.94% 1.66% 1.40% 1.41% 1.68% 1.56% 1.59% 2.81% 2.61% 2.67% 2.92% 2.71% 2.62% 2.04% 1.77% 1.84% 3.22% 2.79% 2.92% 2.49% 2.34% 2.31% 1.93% 1.90% 1.90% 1.38% 1.33% 1.63% 1.60% 1.62% 1.65% 2.61% 2.77% 2.80% 2.60% 2.67% 2.78% 1.79% 1.91% 1.94% 2.91% 2.95% 3.14% 2.42% 2.41% 2.39% 1.97% 2.11% 2.20% 1.61% 1.59% 1.97% 1.68% 1.65% 1.63% 2.82% 2.85% 2.81% 2.73% 2.66% 2.79% 1.94% 2.00% 2.13% 3.06% 2.96% 3.11% 2.43% 2.41% 2.36% 2.23% 2.18% 1.92% 1.87% 1.81% 1.52% 1.81% 1.70% 1.65% 3.01% 2.89% 2.80% 2.71% 2.72% 2.73% 2.29% 2.14% 1.93% 3.23% 3.10% 3.05% 2.52% 2.47% 2.07% 2.08% 1.64% 1.64% 1.67% 1.67% 2.82% 2.82% 2.80% 2.83% 2.03% 2.04% 3.12% 3.14% 2.82% 2.29% 1.80% 1.80% 3.37% 3.46% 2.08% 3.08% 0.04% 0.55% 0.05% 0.26% 0.29% 0.05% 0.09% (0.01%) 0.21% 0.05% 0.03% (0.07%) (0.01%) 0.03% 0.00% (0.43%) (0.09%) (0.23%) (0.10%) 0.18% 0.20% (0.08%) 0.16% 0.12% POOL BALANCE Broadway Cards II CCCT Eagle Glacier Gloucester Golden MCCT $1,124 $1,101 $12,994 $12,982 $1,074 $12,865 $1,060 $1,043 $1,031 $13,033 $13,152 $13,259 $1,012 $1,001 $13,063 $13,168 $990 $967 $961 $963 $934 $952 $986 $1,011 $1,027 $1,274 (2.97%) (3.21%) (5.03%) (6.22%) (3.25%) (2.04%) (5.13%) (3.87%) (16.92%) (3.44%) $13,352 $13,052 $1,581 $1,591 $1,584 $1,591 $1,609 $1,630 $1,609 $1,634 $1,619 $1,606 $1,807 $1,805 $1,793 $1,815 $1,844 $1,875 $1,841 $1,876 $1,889 $1,813 $3,920 $3,899 $3,898 $3,898 $3,955 $3,971 $3,950 $3,964 $3,960 $3,894 $1,797 $1,784 $1,798 $1,775 $1,778 $1,801 $1,771 $1,772 $1,752 $1,748 $8,300 $8,223 $8,129 $8,225 $8,296 $8,322 $8,255 $8,314 $8,336 $8,240 $6,912 $6,865 $6,757 $6,897 $7,090 $7,154 $7,031 $7,221 $7,190 $7,073 $9,939 $1,657 $1,855 $3,936 $1,756 $8,279 $7,291 $10,041 $9,719 $1,667 $1,583 $2,103 $1,972 $4,009 $3,879 $1,762 $1,726 $8,428 $7,996 $7,369 $7,083 $9,900 $1,636 $1,977 $3,941 $1,748 $8,234 $8,297 $8,254 $8,279 $7,400 $7,248 $7,161 $7,085 $7,071 $7,159 (25.21%) (24.95%) $13,191 $12,302 $12,575 $13,428 $1,620 $1,615 $1,860 $1,873 $3,939 $3,934 $1,757 $1,769 $1,775 $1,973 0.17% 9.18% (1.06%) (3.95%) (0.53%) (3.66%) (0.75%) 2.47% 1.21% $1,615 $1,575 $1,860 $1,873 $3,938 $3,926 1.02% 6.30% 0.04% Source: Issuer reports, DBRS Page 8 Fixed Income Quarterly—Asset-Backed Securities Table 11: Pre-payment Rate (1 month ABS) By Vintage (CCARAT II) Schedule Source: Servicer Report Table 12: Cumulative Net Loss Rate By Vintage (CCARAT II) Schedule Source: Servicer Report Table 13: Pre-payment Rate (1 month ABS) By Vintage (FASTR) Schedule Months: 6 12 18 24 28-Feb-14 Period 2011-1 2011-2 2012-1 0.45 0.75 0.89 1.03 0.88 0.87 1.24 1.01 1.13 1.35 1.29 1.09 1.14 37 1.17 33 1.19 27 Months: 6 12 18 24 28-Feb-14 Period 2011-1 2011-2 2012-1 0.042% 0.109% 0.055% 0.099% 0.077% 0.147% 0.203% 0.290% 0.166% 0.190% 0.237% 0.314% 0.389% 37 0.224% 33 0.400% 27 Months: 6 12 18 24 28-Feb-14 Period 2010-R1 2010-R3 2011-R1 2011-R3 2012-R1 2013-R1 2013-R4 0.93 0.76 0.60 1.17 0.72 0.98 0.82 1.08 1.40 1.51 0.82 1.12 1.16 NA 1.02 1.10 0.94 1.17 1.41 1.21 0.93 1.36 1.40 NA NA NA NA NA 1.14 50 0.97 42 1.12 37 1.17 30 1.17 22 1.09 14 1.16 6 Source: Servicer Report Table 13: Cumulative Net Loss Rate By Vintage (FAST) Schedule Months: 6 12 18 24 28-Feb-14 Period 2010-R1 2010-R3 2011-R1 2011-R3 2012-R1 2013-R1 2013-R4 0.066% 0.237% 0.065% 0.176% 0.057% 0.196% 0.062% 0.188% 0.039% 0.200% 0.050% 0.184% 0.047% NA 0.381% 0.304% 0.323% 0.366% 0.370% NA NA 0.468% 0.412% 0.494% 0.540% NA NA NA 0.737% 50 0.601% 42 0.669% 37 0.637% 30 0.441% 22 0.238% 14 0.047% 6 Source: Servicer Report  Fixed Income Viewpoint Pipelines – April 2014 Sector Rating: Market Perform Relative Value to its peers given its business mix, underpinned by its cost- of-service oil sands transpor- tation segment. Risks External – Development of pipeline infrastructure is de- pendent upon government and aboriginal support, the long-term attractiveness of oil and natural gas prices and economic viability of resource plays. M&A – We are not concerned with M&A risk (large-sized transactions) over the short term given the sheer size of the sector’s organic growth initiatives. 5-Year: 10-Year: 30-Year: Market Perform Market Perform Market Perform Spread View – During Q1/14, the Pipeline sector outperformed from a broad perspective as a result of a 26 bps tightening in long Canada’s given the naturally long duration of the sector. The FTSE TMX Canada Universe Corporate Bond Index nar- rowed by 9 bps (2.95% total return), with the short, mid and long buckets moving in by 9 bps (1.39%), 14 bps (3.85%), and 9 bps (6.06%), respectively. By comparison, Energy – Pipelines narrowed by 6 bps (3.87%) from a broad perspective, moving in by 4 bps (1.34%) in the short bucket, 5 bps (3.69%) in mids, and 7 bps (5.70%) in longs. We are maintaining our Market Perform rating for the sector given the positive market signals for energy infrastructure as a result of commodity price dislocations. Underpinning these development initiatives is an overwhelm- ing demand from producers for flexible energy transportation capacity, as evidenced by the current commercially secured project backlog, which is quickly approaching $100 billion and showing no signs of slowing down in 2014. In addition, we expect continued development with respect to LNG export initiatives in British Columbia and the corresponding pipeline/ processing/power infrastructure required. Credit Curve – During the year, the Pipeline 2s-5s curve flat- tened by 1 bp to 21 bps, the 5s-10s curve steepened by 1 bp to 36 bps, and the 10s-30s curve flattened by 9 bps to 32 bps. In light of the relative steepness, we see better value in the middle part of the curve. Sector Value – We highlight the relative value opportunities available in owning the midstream/energy infrastructure issu- ers. 2013 was a pivotal year for the midstream entities in our coverage universe given the significant progress made with respect to de-risking development portfolios and securing com- mercial arrangements for additional infrastructure projects. At the heart of these initiatives is the focus on fee-for-service and cost-of-service cash flows, which bodes well for long-term industry fundamentals. Recommendation Top Picks – We believe Enbridge Inc. bonds look inexpensive relative to TransCanada, especially in the belly of the curve. In the midstream space our top pick is Inter Pipeline Ltd. We believe the company warrants a premium valuation relative Mark Laing, CPA, CA, CFA Regulatory – The increasing use of negotiated settlements has reduced regulatory risk; however, permitting for large-scale pipelines has become a more arduous process. Trading Liquidity – We believe the Pipeline sector exhibits aver- age trading liquidity in the Canadian bond market. Enbridge Pipelines, Enbridge Inc. and TransCanada Pipelines provide the greatest liquidity. New Issuance – During 2014, we estimate Canadian dollar is- suance in the Pipeline sector will be approximately $5.6 billion vs. $2.7 billion of issuance in 2013. Other – In order to achieve targeted growth rates, Pipeline is- suers must deliver projects on time and on budget. Moreover, they must effectively mitigate cost pressures and continue to plan and solicit customer interest in new oil pipeline and natural gas processing and transmission opportunities. Credit Profile Sector Financials – As large-scale projects come on line, the Pipeline sector is on track to improve its key financial metrics, which should remain supportive of credit ratings. Sector Fundamentals – Demand for pipeline and energy infra- structure continues to reach peak levels, especially for NGL infrastructure and crude oil transportation assets. Credit Ratings – There were no rating changes in the pipeline sector in Q1/14. BMO Nesbitt Burns Inc. mark.laing@bmo.com (416) 359-4601 Page 2 Viewpoint Over the past quarter, the Pipeline sector outperformed from a broad perspective as a result of a 26 bps tightening in long Canada’s given the naturally long duration of the sector. During Q1/14, the FTSE TMX Canada Universe Corporate Bond Index narrowed by 9 bps (2.95% total return), with the short, mid and long buckets moving in by 9 bps (1.39%), 14 bps (3.85%), and 9 bps (6.06%), respectively. By comparison, Energy – Pipelines narrowed by 6 bps (3.87%) from a broad perspective, moving in by 4 bps (1.34%) in the short bucket, 5 bps (3.69%) in mids, and 7 bps (5.70%) in longs. We are maintaining our Market Perform rating for the sector given the positive market signals for energy infrastructure as a result of commodity price dislocations. Underpinning these development initiatives is an overwhelming demand from pro- ducers for flexible energy transportation capacity, as evidenced by the current commercially secured project backlog, which is quickly approaching $100 billion and showing no signs of slowing down in 2014. In addition, we expect continued de- velopment with respect to LNG export initiatives in British Columbia and the corresponding pipeline/processing/power infrastructure required. While we believe total returns for large Pipeline issuers could be hindered by a heavy issuance calendar in 2014 coupled with a rising interest rate environment, we highlight the relative value opportunities available in owning the midstream/energy infra- structure issuers. 2013 was a pivotal year for the midstream entities in our coverage universe given the significant progress made with respect to de-risking development portfolios and securing commercial arrangements for additional infrastruc- ture projects. At the heart of these initiatives is the focus on fee-for-service and cost-of-service cash flows, which bodes well for long-term industry fundamentals. Top Picks: From a relative value perspective, we believe En- bridge Inc. bonds look inexpensive relative to TransCanada, es- pecially in the belly of the curve. In our view, Enbridge remains well positioned to build the pipeline infrastructure required to address ongoing crude oil transportation constraints and price differentials in North America. In addition, we take notice of the ongoing capital program, which will increase investments held at the Enbridge Inc. level. Enbridge Pipelines is our top fundamental investment recom- mendation among the large Canadian Pipeline issuers due to the combination of strong cash flow generation, solid manage- ment team, and manageable financing needs in 2014. In the midstream/energy infrastructure space our top pick is Inter Pipeline Ltd. We believe the company warrants a premium valuation relative to Pembina and AltaGas due to its business mix, underpinned by its cost-of-service oil sands transporta- tion segment. For context, Inter Pipeline has recently traded Fixed Income Quarterly—Pipelines Chart 1: 10-Year Indicative Pipeline Spreads 600 bps 500 bps 400 bps 300 bps 200 bps 100 bps Alliance Pipeline Limited Partnership Enbridge Inc. Enbridge Pipelines TransCanada Pipelines Westcoast Energy 0 bps Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Source: BMO Capital Markets as much as 20 bps through Pembina in the middle part of the credit curve vs. 9 bps currently. Historically, we have recommended investors own other mid- stream/energy infrastructure issuers (AltaGas, Inter Pipeline, Pembina) over Westcoast Energy; however, we take notice of the substantial narrowing of Westcoast’s premium valuation relative to peers. For example, on an indicative basis, Westcoast 10s now trade 3-20 bps through AltaGas, Inter Pipeline and Pembina, compared to 25-45 bps in early 2013. We recommend holding a Market Weight position in Enbridge Income Fund bonds; however, we highlight the name as a great “higher beta” option amongst the midstream/energy infrastructure issuers. Going forward, we expect the fund to continue to diversify and grow, removing reliance on any particular assets (i.e., Alliance Pipeline). A majority of these growth opportunities will likely come from Enbridge Inc., which remains a majority owner and strong sponsor of the fund. In the event another drop-down transaction is completed in the near term (of similar size to years past), incremental debt issuance will be required. This will likely increase outstanding debt to approximately $2 billion, which should bode well for liquidity. Key Themes New Issuance – Enbridge Inc. was the only active domestic pipeline issuer during Q1/14, successfully issuing $1.53 billion of fixed and floating rate notes. Of note, Pembina wasted little time coming to the market in Q2/14 via its $600 million un- secured 30-year offering in early April. For 2014, we estimate the pipeline sector will issue approximately $5.6 billion (Table 2). The companies with the largest undertakings remaining in 2014 include TransCanada Pipelines, Inter Pipeline Ltd. and Enbridge Pipelines Inc. We estimate these entities will issue Fixed Income Quarterly—Pipelines Page 3 approximately $2.55 billion in public debt in 2014 (or approxi- mately 63% of the $4.1 billion of total expected remaining issuance in the year – $3.5 billion if you include Pembina’s recent $600 million 30-year notes). Our issuance expectations do not account for additional drop-down activities (and cor- responding issuance) at Enbridge Income Fund, which we believe are highly probable. Cash Flow Growth – The need for incremental pipeline infra- structure required to expand the geographical and pricing scope of Canada’s vast natural resources bodes well for the Pipeline issuers in our coverage universe. All of the Pipeline issuers we cover – Alliance Pipeline, Enbridge Pipelines, En- bridge Inc., and TransCanada Pipelines appear well positioned to benefit from this need for further infrastructure. In addi- tion, we believe the midstream/energy infrastructure issuers in our coverage universe, including AltaGas, Enbridge Income Fund, Inter Pipeline, Pembina, and Westcoast are well suited to provide regional support for oil sands, power generation, natural gas processing and LNG export initiatives. Curve Steepness – During the year, the Pipeline 2s-5s curve flattened by 1 bp to 21 bps, the 5s-10s curve steepened by 1 bp to 36 bps, and the 10s-30s curve flattened by 9 bps to 32 bps. In light of the relative steepness, we see better value in the middle part of the curve. Credit Ratings – There were no rating changes in Q1/14 in the pipeline sector. Table 3 sets out the credit ratings for the Pipeline corporate credit universe. Table 3: Corporate Credit Ratings – Pipelines Table 1: Pipeline New Issuance Q1 2014 Note: Includes all investment grade Pipeline issuance with settlement dates in Q1/14, excluding Maples Source: BMO Capital Markets Table 2: Pipeline New Issuance - 2014E Maturity 13-Mar-2017 11-Mar-2021 11-Mar-2044 28-Mar-2064 Issuer Size Issue Date Coupon (C$ mm) Enbridge Inc. Enbridge Inc. Enbridge Inc. Enbridge Inc. $500 11-Mar-2014 $400 11-Mar-2014 $500 11-Mar-2014 $130 28-Mar-2014 3M BA + 45 3.160% 4.570% 4.560% Total Issuance $1,530 Capex Issuer Maturities Funding 2014 Expected Issuance ($mm) YTD 2014 Issuance ($mm) 2014E Remaining Issuance ($mm) ($mm) ($mm) Alliance Pipeline LP Enbridge Inc. Enbridge Income Fund Enbridge Pipelines Inc. $0.0 $0.0 $0.0 $1,530.0 $290.0 $10.0 $0.0 $550.0 $0.0 $0.0 $0.0 $1,530.0 $1,530.0 $0.0 $300.0 $0.0 $550.0 $0.0 $300.0 $550.0 Inter Pipeline Ltd. $288.6 $711.4 $1,000.0 $0.0 $1,000.0 Inter Pipeline (Corridor) Inc. Maritimes & Northeast Pipeline Pembina Pipeline Corp.(1) $0.0 $0.0 $0.0 $0.0 $175.0 $425.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $600.0 $0.0 $600.0 TransCanada Pipelines $875.0 $125.0 $1,000.0 $0.0 $1,000.0 TransQuebec and Maritimes Pipeline Veresen Inc. Westcoast Energy $75.0 $0.0 $200.0 $0.0 $0.0 $350.0 $75.0 $0.0 $200.0 $0.0 $350.0 $0.0 $75.0 $200.0 $350.0 Total $1,903.6 $3,701.4 $5,605.0 $1,530.0 $4,075.0 Source: BMO Capital Markets, Company Reports Senior Unsecured Credit Ratings - Pipelines Universe DBRS S&P Moody's Outlook Rating Outlook Issuer Rating Outlook Rating Alliance Pipeline Limited Partnership1 Enbridge Inc. Enbridge Income Fund Enbridge Pipelines Inc. Inter Pipeline (Corridor) Inc. Inter Pipeline Ltd. Maritimes & Northeast Pipeline L.P.1 NOVA Gas Transmission Ltd. Pembina Pipeline Corp. Trans Quebec & Maritime Pipeline Inc. TransCanada PipeLines Ltd. Westcoast Energy Inc. Veresen Inc. AL Stable BBB+ AL Stable A- BBBH Stable nr A Stable A- A Stable A BBBH Stable BBB+ A Stable A AL Stable A- BBB Stable BBB AL Stable BBB+ AL Stable A- AL Stable BBB BBBH Stable BBB Stable Stable A3 Stable Baa1 Stable Baa2 Stable Stable nr Stable Stable nr A2 Stable Stable Stable Stable nr Stable nr A2 Stable A3 Stable Stable Stable nr Stable nr A3 Stable As at March 31, 2014 Note: (1) Senior Secured Source: DBRS, Standard and Poor’s and Moody’s  Page 4 Fixed Income Quarterly—Pipelines Table 4: Indicative Spread Changes 5 Yr. Indicative Spreads 10 Yr. Indicative Spreads 30 Yr. Indicative Spreads Absolute Spread as of Change 31-Mar-14 Q1/14 Percentage Change Q1/14 Absolute Spread as of Change 31-Mar-14 Q1/14 Percentage Change Q1/14 Absolute Spread as of Change 31-Mar-14 Q1/14 Percentage Change Q1/14 Alliance Pipeline Limited Partnership Enbridge Inc. Enbridge Income Fund Enbridge Pipelines 126 -5 -3% 92 -7 -7% 117 3 2% 67 -5 -6% 158 -1 -1% 130 -3 -2% 155 -6 -4% 103 -1 -1% - NA NA 154 -11 -6% - NA NA 130 -4 -3% Inter Pipeline Ltd. Pembina Pipeline 99 -8 -7% 103 -8 -7% 132 -12 -8% 141 -8 -5% 170 -19 -10% 177 -12 -6% TransCanada Pipelines Westcoast Energy Inc. 74 -7 -8% 100 -12 -10% 110 -1 -1% 129 -12 -9% 142 -3 -2% 157 -9 -5% Pipelines Average 103 -7 -6% 141 -5 -4% 155 -9 -6% As at March 31, 2014 Source: BMO Capital Markets Table 5: Pipeline Credit Curve 16 26 27 29 23 42 16 20 32 18 18 32 18 19 26 16 26 38 21 9 33 19 38 19 43 2's - 5's Curve 5's - 10's Curve 10's - 30's Curve Historical Thresholds 31-Mar-14 31-Dec-13 31-Dec-12 Narrow Wide Historical Thresholds 31-Mar-14 31-Dec-13 31-Dec-12 Narrow Wide Historical Thresholds 31-Mar-14 31-Dec-13 31-Dec-12 Narrow Wide Alliance Pipeline Enbridge Inc. Enbridge Income Fund 20 21 21 11 30 11 34 14 47 33 29 33 22 45 39 35 43 25 43 39 47 55 31 63 32 33 38 32 61 24 31 35 30 65 40 98 153 34 114 Enbridge Pipelines Inter Pipeline Fund Pembina Pipeline 37 33 40 17 37 34 38 50 24 48 39 39 36 26 40 27 29 30 18 44 38 44 45 34 54 36 39 67 35 72 TransCanada Pipelines Westcoast Energy Inc. 18 36 9 30 10 32 37 31 33 22 47 30 30 42 20 38 32 33 38 32 61 28 24 30 21 57 Group Average 21 22 29 13 36 36 35 42 23 45 32 41 54 29 66 * Thresholds are based on the historical 10th (low) and 90th (high) percentile of weekly spreads. Source: BMO Capital Markets As at March 31, 2014  Fixed Income Viewpoint Gas & Electric Utilities – April 2014 Sector Rating: Underperform Relative Value 5-Year: Underperform 10-Year: Underperform 30-Year: Underperform Spread View – During Q1/14, performance in the Utility sector bested the FTSE TMX Canada Universe Corporate Bond Index, driven by the 26 bps tightening in long Canada’s. Despite being on the wrong side of the call this quarter, our Underperform stance remains intact. The basis for our Under- perform rating is twofold: (1) in a rising interest rate environ- ment (even moderately) it will be very difficult for the total return of the utility sector to match the broader market given the sector’s naturally long duration; and (2) we do not believe Utility spreads will tighten more than the broad market index, especially given long Utility spreads are beginning to break through their recent trading floor. Fundamentally, we remain optimistic on the sector given our expectation for improving ROEs over the medium term, supportive regulatory mecha- nisms during periods of above-average capex and a continued need for gas and electricity infrastructure development across the country. Credit Curve – During the first quarter, the Utility 2s-5s credit curve flattened by 2 bps to 22 bps, the 5s-10s curve flattened by 2 bps to 36 bps, and the 10s-30s curve flattened by 1 bp to 32 bps (Table 5). In light of the relative steepness, we see better value in the middle part of the credit curve. Sector Value – Using 30-year Hydro One spreads as a proxy, at 129 bps, long utilities are trading through the recent 130- 150 bps trading range. We believe spreads will remain tight in Q2/14 given our expectation for minimal supply in the quarter; however, levels will likely widen slightly in H2/14 in conjunction with increased primary supply. We continue to favour liquid names that possess strong rate base growth, good cash flow visibility and favourable regulatory regimes. Recommendation Top Picks – Hydro One and AltaLink, L.P. remain our top picks in the Electric Utility corporate credit universe. In the Gas Util- ity space, our preferred issuer is Enbridge Gas Distribution. Risks External – Cost-of-service and performance-based regulation mitigates many external risks such as commodity price volatility and interest rate movements. M&A – Save SNC’s potential sale of AltaLink, we do not expect any material M&A activity in the near term. How- ever, we believe utility and power companies are likely to complete “tuck-in” acquisi- tions in the U.S. given pre- mium valuations in Canada. Regulatory – We believe there will continue to be a produc- tive regulatory environment in Canada for Utilities, including attractive ROEs and deemed equity thickness as well as the allowance for construction work-in-progress in rate base in selective jurisdictions. Mark Laing, CPA, CA, CFA BMO Nesbitt Burns Inc. mark.laing@bmo.com (416) 359-4601 Trading Liquidity – The Utility sector exhibits average trading liquidity in the Canadian bond market. Enbridge Gas Distribu- tion and Hydro One provide the greatest liquidity. New Issuance – For 2014, we estimate the Utility sector will issue approximately $6.5 billion. In terms of timing, we expect regulated utility issuance levels will be stronger in H2/14, which should bode well for spread performance in the first half of the year given the expected lack of supply. Credit Profile Sector Financials – Elevated capex and financing needs will continue to pressure the sector’s financial position in 2014; however, as we are nearing the peak of the current capital cycle, short-term balance sheet pressure should lead to future earnings and cash flow growth. Sector Fundamentals – Ongoing rate base growth momentum in the context of a productive regulatory environment will have a positive long-term impact on credit fundamentals. Credit Ratings – There were a number of rating actions during Q1/14: (1) S&P revised its outlook on A- rated AltaLink L.P. and AltaLink Investments L.P to Stable from Negative; (2) Moody’s revised its outlook on TransAlta Corp. to Negative from Stable; (3) DBRS revised its outlook on FortisAlberta to Positive from Stable; and (4) S&P revised its outlook on Brook- field Renewable to Positive from Stable. We expect a number of outstanding rating actions to be resolved in 2014, including those affecting the Emera and Fortis-related entities. Page 2 Fixed Income Quarterly—Gas & Electric Utilities Viewpoint During Q1/14, Utilities outperformed from a broad perspective despite slightly underperforming in the short, mid and long buckets, reflecting the above-average duration of the sector. Within the FTSE TMX Canada Universe Corporate Bond Index, Broad Energy – Distribution generated a total return of 4.92%, which is above the 2.95% Broad All Corporates total return. More specifically, the short bucket return was 1.31% compared to the Short All Corporates return of 1.39%, mid- dated Energy - Distribution paper generated a return of 3.56% vs. 3.85% for Mid All Corporates, while longs came in at 5.97% vs. 6.06% for Long All Corporates. Infrastructure – Utility generated a broad total return of 4.83%, which was above the Broad All Corporates total return of 2.95%. In the short bucket, Infrastructure – Utility generated a total re- turn of 1.53%, above the Short All Corporates return of 1.39%. In the middle of the curve, Infrastructure – Utility generated a total return of 3.83% vs. 3.85% for the Mid All Corporates, while longs came in at 6.15% vs. 6.06% for the Long All Corporates. Energy – Generation outperformed from a broad perspective (4.40% vs. 2.95%). We note the outperformance from a total return perspective in the short (1.95% vs. 1.39% for the Short All Corporates) and middle (4.42% vs. 3.85% for the Mid All Corporates) and the underperformance in longs (5.32% vs. 6.06% for the Long All Corporates). Broadly speaking, we are expecting continued strong results from the Canadian Utilities, largely driven by rate base additions due to the large capital expenditure programs currently in place (i.e., Hydro One, AltaLink and CU Inc.). Recommendations: During Q1/14, performance in the Utility sector bested the FTSE TMX Canada Universe Corporate Bond Index, driven by the 26 bps tightening in long Canada’s. Despite being on the wrong side of the call this quarter, our Underperform stance remains intact. The basis for our Underperform rating is twofold: (1) in a rising interest rate environment (even moderately) it will be very difficult for the total return of the Utility sector to match the broader market given the sector’s naturally long dura- tion; and (2) we do not believe Utility spreads will tighten more than the broad market index, especially given long Utility spreads are beginning to break through their recent trading floor. We stress that our Underperform recommendation is interest-rate-driven, as we remain optimistic on industry fundamentals. Underpinning this optimism is our expectation for improving ROEs over the medium term, supportive regulatory mechanisms during periods of above-average capex and a continued need for gas and electric- ity infrastructure development across the country. Hydro One is our top pick fundamentally among the large Utility issuers. Looking ahead, we believe the company is well positioned to benefit from rate base growth as the Province of Ontario works to rebuild its aging infrastructure and to integrate renewable en- ergy projects into the grid. While it is logical to expect Hydro One Chart 1: 10-Year Indicative Utility Spreads 400 350 300 250 200 150 100 50 CU Inc. Hydro One FortisBC Union Gas Ltd. Ontario 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Source: BMO Capital Markets bonds to face relative weakness on the back of significant financ- ing needs over the next few years, we believe the bonds should trade at a premium to its peer group given Hydro One’s strong cash flow outlook, forecasted rate base growth, stable regulatory environment and above-average trading liquidity. In the Gas Utility space, our preferred issuer is Enbridge Gas Distribution given the company’s enviable franchise area, growth rate, liquidity and strong financial metrics. While Union Gas bonds appear to have an attractive valuation relative to Enbridge Gas Distribution, we believe technicals will continue to trump fundamentals in 2014. Our thesis is that Enbridge Gas Distribu- tion bonds will continue to trade at a premium valuation given manageable supply expectations coupled with the myriad “BBB” options available at wider spread levels (relative to BBB+ rated Union Gas) that investors with credit rating constraints have to choose from. We recommend an Overweight position in AltaLink, L.P. bonds and take notice of the current slate of electric transmission oppor- tunities in Alberta, a regulatory environment that we continue to admire. Our thesis remains that the emergence of cash flows once projects are completed will begin to complement a regulated asset base over the next few years. In addition, for investors comfortable with the inherent risks of owning utility holdco paper, we highlight the likely scarcity value of owning AltaLink Investments, L.P. (AILP) given the reduced need for AILP issuance going forward (other than maturities), as AltaLink’s capex needs are expected to decline significantly in 2015 and beyond. We recommend holding a Market Weight position in EPCOR Utilities Inc. While we suspect S&P’s Positive outlook will ulti- mately result in a rating upgrade to A-, we believe this is already priced in given the significant spread compression. EPCOR bonds are currently trading 9-10 bps wider across the curve relative to Hydro One, versus 34-37 bps wider at the beginning of 2013. Fixed Income Quarterly—Gas & Electric Utilities Page 3 Following a detailed overview of the company’s near-term outlook, we have revised our outlook on TransAlta bonds with a maturity date no later than 2020 to Market Perform from Underperform. We are maintaining our cautious outlook on the longer-dated bonds given the uncertainty surrounding replacement growth initiatives coupled with the credit rating implications of a changing business risk profile as contracted capacity declines. We have an Underweight recommendation on the debt securi- ties of Nova Scotia Power. Our recommendation is based upon our view of more near-term headwinds than tailwinds leading up to the resolution of S&P’s current Negative outlook on the company’s BBB+ rating. We expect the outlook to be resolved following the closing of the Maritime Link project financing. Key Themes Debt Issuance – Domestic Utility fixed and floating rate new issuance during Q1/14 totalled $675 million (Table 1), represent- ing 3.3% of the $20.5 billion total corporate debt new issuance in the quarter. For 2014, we estimate the Utility sector will issue approximately $6.5 billion. The companies we expect to undertake the greatest issuance include Hydro One, AltaLink L.P. and CU Inc. In aggregate, we estimate these companies will issue ap- proximately $3.0 billion of public debt in 2014 (or 46% of total 2014E Utility issuance). We note that our estimates exclude one- off bond project financings for power generation facilities (save Table 2: 2014E Issuance Table 1: Utility New Issuance (2014) Note: Includes all fixed rate investment grade utility sector issuance with settlement date in Q1 2014, excluding Maples Source: BMO Capital Markets Lower Mattagami Energy LP), for which $450 million of bonds have been issued year to date. In terms of timing, we expect issuance levels will be stronger in H2/14 (similar to how things unfolded in 2013), which should bode well for spread performance in the first half of the year given the expected lack of supply. Of note, Hydro One was the only “pure play” Utility issuer to date, having completed two “niche” offerings: (1) a 50-year, $50 million offering in January; and (2) a $125 million, 5-year FRN in March. While we would never rule out the possibility of opportunistic financings, issuers finished off 2013 with minimal amounts drawn on credit facilities and, at times, healthy cash levels. However, as the year unfolds and the ongoing “above average” capital programs progress, we expect material issuance, especially from the regulated names. Issuer Size Issue Date Coupon Maturity (C$ mm) AltaGas Ltd. AltaGas Ltd. Algonquin Power Co. Hydro One Inc. Hydro One Inc. $100 13-Jan-2014 $200 13-Jan-2014 $200 17-Jan-2014 $50 29-Jan-2014 $125 21-Mar-2014 5.160% 4.400% 4.650% 4.293% 3M BA + 35 13-Jan-2044 15-Mar-2024 15-Feb-2022 29-Jan-2064 21-Mar-2019 Total Issuance $675 Maturities Capex Adj. 2014 Expected YTD 2014 2014E Remaining Issuer ($mm) Funding ($mm) Issuance ($mm) Issuance ($mm) Issuance ($mm) ($mm) Algonquin Power AltaGas Ltd. AltaLink Investments, L.P. AltaLink L.P. BRP Finance ULC Canadian Utilities Ltd. Capital Power L.P. CU Inc. Emera Inc. Enbridge Gas Distribution ENMAX Corp. EPCOR Utilities FortisAlberta FortisBC FortisBC Energy Inc. Fortis Inc. Gaz Metro Inc. Hydro One Inc. Hydro Ottawa Holding Inc. Lower Mattagami Newfoundland Power Nova Scotia Power PowerStream Toronto Hydro TransAlta Corp. Union Gas Windsor Canada Utilities Ltd. $0.0 $200.0 $200.0 $100.0 $0.0 $200.0 $0.0 $1,000.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $100.0 $900.0 $250.0 $0.0 $400.0 $0.0 $0.0 $0.0 $0.0 $200.0 $200.0 $125.0 $140.0 $60.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $750.0 $250.0 $0.0 $0.0 $0.0 $450.0 $29.4 $0.0 $0.0 $0.0 $0.0 $150.0 $0.0 $300.0 $200.0 $0.0 $150.0 $100.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $250.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $200.0 $200.0 $0.0 $300.0 $300.0 $0.0 $200.0 $0.0 $1,000.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $1,000.0 $0.0 $250.0 $0.0 $400.0 $0.0 $250.0 $0.0 $200.0 $0.0 $325.0 $0.0 $200.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $200.0 $1,000.0 $0.0 $0.0 $0.0 $1,000.0 $250.0 $400.0 $250.0 $200.0 $325.0 $200.0 $0.0 $0.0 $0.0 $825.0 $0.0 $450.0 $0.0 $0.0 $150.0 $300.0 $0.0 $250.0 $0.0 $1,000.0 $175.0 $0.0 $0.0 $450.0 $0.0 ($29.4) ($0.0) $0.0 $0.0 $0.0 $0.0 ($200.0) $0.0 $250.0 $0.0 $0.0 $0.0 $150.0 $0.0 $300.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Total $2,419.4 $4,035.0 $20.6 $6,475.0 $675.0 $5,800.0 Source: BMO Capital Markets, Company Reports  Page 4 Fixed Income Quarterly—Gas & Electric Utilities Recent Regulatory Developments – • The Alberta Utilities Commission (AUC) is expected to commence an oral hearing on May 26, 2014, for the 2013 and 2014 Generic Cost of Capital proceeding, which will include a full review of capital structure and return on equity (currently set at 8.75%). • On March 25, 2014, the British Columbia Utilities Commission (BCUC) issued a decision on Stage 2 of its Generic Cost of Capital proceeding. Stage 1 established the allowed ROE and capital structure for FortisBC Energy at 8.75% and 38.5%, respectively, effective January 1, 2013, to December 31, 2015. Stage 2 effectively establishes cost of capital and deemed equity for: • FortisBC Electric – capital structure of 40% and an equity risk premium of 40 bps for an ROE of 9.15%; • Fortis BC (Vancouver Island) – capital structure of 41.5% and an equity risk premium of 50 bps for an ROE of 9.25%; and, • FortisBCEnergy(Whistler)–capitalstructureof41.5% and an equity risk premium of 75 bps for an ROE of 9.50%. • On March 6, 2014, Emera announced that it had finalized the Federal Loan Guarantee for the $1.5 billion Maritime Link Project (subsea cable between Newfoundland and Nova Scotia). The company expects to put the project financing in place (up to $1.3 billion) during Q2/14. • On February 27, 2014, FortisBC Energy Inc. announced that it had received approval from the BCUC to amalgamate FortisBC Energy Inc., FortisBC Energy (Vancouver Island) Inc. (Moody’s: A3), FortisBC Energy (Whistler) Inc., and Terasen Gas Holdings Inc. (DBRS: BBB (high), Moody’s: Baa2). The BCUC determined that the amalgamation is “beneficial and in the public interest.” The regulated natural gas utilities will amalgamate under one legal name, FortisBC Energy Inc., following consent from the Lieutenant Governor in Council and the receipt of all other necessary approvals. • On January 17, 2014, the Alberta Electric System Operator (AESO) announced the five companies selected to compete for the opportunity to build, finance, own and operate the proposed $1.6 billion Fort McMurray West Transmission Project. Canadian Utilities Ltd., AltaLink, EPCOR, TransAlta and TransCanada were among the five proponent partnerships selected to bid. The project consists of a 500-kv transmission line from Edmonton to Fort McMurray designed to support increasing growth in northeastern Alberta. The AESO is expected to select the winning bid for the project, which will be determined based on the company that can undertake the lowest life-cycle cost, in December 2014. • • On January 17, 2014, ATCO Pipelines received approval from the AUC for its $600 million Urban Pipeline Replacement (UPR) application. Construction of the UPR project, which is designed to replace and relocate high-pressure natural gas pipelines in the Calgary and Edmonton areas into the surrounding transportation utility corridors, will be completed over the next five years. On December 19, 2013, Toronto Hydro received approval from the Ontario Energy Board for Phase II of its 2014 work program under the Incentive Regulation Mechanism/ Incremental Capital Module. Total approved capital expenditures in 2014, in addition to expenditures relating to the $194.9 million Copeland Transformer Station, amount to $398.8 million. Curve Steepness – During the quarter, the Utility 2s-5s credit curve flattened by 2 bps to 22 bps, the 5s-10s curve flattened by 2 bps to 36 bps, and the 10s-30s curve flattened by 1 bps to 32 bps (Table 5). In light of the relative steepness, we see better value in the middle part of the credit curve. Credit Ratings – On March 31, 2014, S&P revised its outlook on Brookfield Renewable Energy Partners L.P. to Positive from Stable and affirmed the rating at BBB. The Positive outlook reflects the agency’s view of the partnership’s improving level of parent-only cash flow (POCF) and modest amounts of debt at the holding company. An upgrade could occur if POCF-to- debt remains at or about 30% on a sustained basis. On February 24, 2014, Moody’s revised its outlook on TransAlta to Negative from Stable and affirmed the rating at Baa3. The Negative outlook was attributed to FY2013 results that failed to meet the agency’s expectations: (1) FY2013 CFO pre-WC/debt came in at 13.9%, which was below the 19% CFO pre-WC/debt level Moody’s associates with the Baa3 rating – Moody’s 2014 forecasted range of 16–18% is still below this minimum level; and (2) FY2013 cash flow of approximately $700 million came in below the expectation of $800 million – TransAlta management is currently forecasting 2014 FFO guidance of $743–793 million. The agency views the recent initiatives to strengthen the balance sheet, including the 38% dividend cut and the sale of a non-core asset (CE Generation) for US$193.5 million, as positive; however, this may not be able to offset expected weakness embedded into cash flow generation forecasts. Moody’s has indicated that it will resolve the Negative outlook in the next 12–18 months and has assigned a 1-in-3 probability of a one-notch downgrade. Conversely, the outlook could revert to Stable if the company achieves CFO pre-WC/ debt of about 19% on a sustainable basis. On February 24, 2014, DBRS changed the trend on FortisAl- berta Inc. to Positive from Stable and confirmed the rating at A (low). The Positive outlook is a result of DBRS’s assess- ment that FortisAlberta’s business and financial risk profile is reflective of an “A” rating based on the following factors:  Fixed Income Quarterly—Gas & Electric Utilities Page 5 (i) a supportive regulatory regime in Alberta, including the performance-based regulatory period that commenced Janu- ary 2013; (ii) economies of scale due to the company’s size- able customer base, which increased to 518,000 in 2013 from 391,000 in 2003; (iii) the company’s manageable volume risk and lack of commodity price risk; and (iv) continued support from parent company, Fortis Inc., amidst a large ongoing capex program. DBRS expects to upgrade the rating to “A” follow- ing a decision on the capital tracker application (assuming the decision does not materially impact the company’s credit profile), which will be re-filed in May 2014. A final decision is expected by the end of 2014. On January 27, 2014, S&P revised its outlook on AltaLink Investments L.P. (AILP) and its subsidiary AltaLink L.P. (ALP) to Stable from Negative. The agency also affirmed the Table 3: Corporate Credit Ratings – Utilities ratings on the companies at BBB- and A-, respectively. S&P forecasts a decline in ALP’s capital program over the next two years and expects a reduced reliance on SNC-Lavalin Group Inc. to provide equity injections. The agency also stated that “although we continue to expect timely equity injections from SNC sufficient to maintain AILP’s consolidated balance sheet, metrics are robust enough to maintain the aggressive financial risk profile without them.” S&P expects equity injections into AILP of approximately $300 million in 2014 and $60 million in 2015, with no required injections thereafter. Table 3 sets out the credit ratings for the Utility corporate credit universe. Issuer Credit Ratings - Gas and Electric Utilities Universe DBRS S&P Moody's Issuer Rating Outlook Rating Outlook Rating Outlook Algonquin Power Co. BBBL Stable BBB AltaGas Ltd. BBB Stable BBB AltaLink Investments, L.P. BBB Stable BBB- AltaLink, L.P.1 A Stable A- ATCO Ltd. AL Stable nr Brookfield Renewable Energy Partners LP BBBH Stable BBB Canadian Utilities Ltd. A Stable A Capital Power L.P. BBB Stable BBB- CU Inc. AH Stable A Emera Inc. BBBH UR-Developing BBB+ Enbridge Gas Distribution Inc. A Stable A- Enersource Corp. A Stable A EPCOR Utilities Inc. AL Stable BBB+ Fortis Inc. AL UR-Developing A- FortisAlberta Inc. AL Positive A- FortisBC Energy Inc. A Stable nr FortisBC Inc. AL Stable nr Gaz Metro Inc.1 A Stable A+ Hamilton Utilities Corporation nr nr Hydro One Inc. AH Stable A+ Hydro Ottawa Holding Inc. A Stable A 1 Maritime Electric Company, Limited nr A 1 Newfoundland Power Inc. A Stable nr Nova Scotia Power Inc. AL Stable BBB+ PowerStream Inc. A Stable A Toronto Hydro Corporation AH Stable A TransAlta Corporation BBB Stable BBB- Union Gas Ltd. A Stable BBB+ Windsor Canada Utilities Ltd. nr Stable nr Stable nr Stable nr Stable nr nr Positive nr Stable nr Stable nr Stable nr Negative nr Stable nr Stable nr Positive nr Negative nr Negative Baa1 Stable A3 Negative Baa1 Negative Stable nr nr Negative A1 Stable Stable nr Negative nr A2 Stable Negative nr Stable nr Stable nr Stable Baa3 Negative Stable nr A Stable nr As at March 31, 2014 *Ratings are those of senior unsecured obligations or long-term corporate family rating Notes: (1) Ratings are those of senior secured debt Sources: DBRS, Standard and Poor’s and Moody’s.  Page 6 Fixed Income Quarterly—Gas & Electric Utilities Table 4: Indicative Spread Changes Q1/14 5 Yr. Indicative Spreads 10 Yr. Indicative Spreads 30 Yr. Indicative Spreads Absolute Spread as of Change 31-Mar-14 Q1/14 Percentage Change Q1/14 Absolute Spread as of Change 31-Mar-14 Q1/14 Percentage Change Q1/14 Absolute Spread as of Change 31-Mar-14 Q1/14 Percentage Change Q1/14 AltaGas AltaLink LP CU Inc. Enbridge Gas Distribution EPCOR Utilities FortisAlberta FortisBC Energy Inc. FortisBC Gaz Metropolitan Inc. Hydro One Nova Scotia Power PowerStream Inc. Toronto Hydro TransAlta Corp. Union Gas Ltd. 111 -4 -3% 70 -9 -11% 68 -4 -5% 66 -2 -2% 75 -4 -4% 72 -5 -6% 69 -9 -11% 77 -5 -6% 73 -4 -5% 66 -5 -6% 83 -4 -4% - NA NA 69 228 80 -4 -5% -6 -2% -10 -11% 149 -7 -4% 104 -8 -7% 100 -3 -3% 101 0 0% 109 -3 -3% - NA NA 101 -6 -6% 110 -4 -4% 106 -3 -3% 99 -3 -3% 115 -3 -3% - NA NA 102 295 109 -3 -3% -31 -10% -7 -6% 179 -27 -13% 132 -5 -3% 131 -4 -3% 128 -4 -3% 138 -8 -5% 132 -10 -7% 132 -7 -5% 133 -14 -9% 131 -4 -3% 129 -5 -3% 142 -5 -3% 135 -5 -3% 132 -7 -5% 365 -24 -6% 137 -2 -1% Utilities Average 99 -6 -6% 139 -8 -5% 154 -10 -6% Source: BMO Capital Markets Table 5: Utility Credit Curve 2's - 5's Curve 5's - 10's Curve 10's - 30's Curve Historical Thresholds 31-Mar-14 31-Dec-13 31-Dec-12 Narrow Wide Historical Thresholds 31-Mar-14 31-Dec-13 31-Dec-12 Narrow Wide Historical Thresholds 31-Mar-14 31-Dec-13 31-Dec-12 Narrow Wide AltaGas AltaLink LP CU Inc. Enbridge Gas Distribution EPCOR Utilities FortisBC Energy Inc. Gaz Metropolitan Inc. Hydro One Nova Scotia Power Toronto Hydro TransAlta Corp. Union Gas Ltd. 30 27 27 15 43 18 23 31 7 31 18 20 31 8 31 18 19 32 9 32 15 17 27 11 32 16 19 29 9 31 18 20 35 7 34 16 19 29 7 30 21 23 28 11 32 14 18 24 14 32 62 59 61 14 59 22 23 26 9 29 38 41 47 30 66 35 34 35 15 34 33 32 35 15 34 36 34 40 18 37 35 34 36 23 42 33 30 33 18 36 34 33 38 15 37 34 32 35 14 35 33 32 35 22 37 34 33 39 14 37 68 93 118 30 86 30 27 46 17 40 30 50 45 NA NA 28 24 35 20 41 31 31 35 21 40 27 30 30 19 45 29 33 34 26 56 31 31 34 23 61 25 25 38 20 43 30 31 37 21 40 27 28 34 25 56 30 33 39 22 44 70 63 88 41 93 28 22 24 16 56 Group Average 22 24 32 10 35 36 38 45 19 43 32 33 39 23 52 * Thresholds are based on the historical 10th (low) and 90th (high) percentile of weekly spreads. Source: BMO Capital Markets  Fixed Income Viewpoint Infrastructure – April 2014 Sector Rating: Market Perform Relative Value 5-Year: Market Perform 10-Year: Market Perform 30-Year: Market Perform Spread View – We are maintaining our Market Perform sector recommendation for Infrastructure – Transportation given our expectation for range-bound yields over the near term and our belief that investors will prefer product with greater spread in that environment. So far during 2014, Infrastructure – Trans- portation performed roughly in line with the market on both a spread and total return basis in each of the three maturity buckets for the corporate segment of the FTSE TMX Canada Universe Bond Index, although sector spreads were relatively soft in the Mid and Long buckets. On a broad basis, however, Infrastructure – Transportation actually outperformed the corporate component of the index by just over a full percentage point during Q1/14, posting a total return of 4.22%. This outperformance was entirely predi- cated upon the relatively longer duration of the Infrastructure – Transportation sector, which was more than sufficient to offset its more meagre performance in each segment of the curve. With modest upward pressure expected to persist on long-dated GoC yields now that the U.S. Fed has commenced tapering, the longer duration of the Infrastructure sector rela- tive to the index will likely serve as somewhat of an albatross, even though we do believe yields will be relatively range-bound over the near term. From a spread perspective, we expect that a paucity of new issue supply from the sector in the coming years will keep spreads reasonably well behaved. Following a decade of considerable primary market activity from the sector, there are relatively few projects currently under construction that require new financing. In addition, there is little in the way of refinancing requirements for 2014 and into 2015, unless some issuers decide to opportunistically take advantage of the market’s historically low rates. Thus, although sector spreads trade tight on an absolute spread basis to provies, we believe there is room for further compression due to this lack of sup- ply. Also, we believe it is possible spreads for some issuers in the Infrastructure sector may eventually trade on top of, or through, certain provinces. Credit Curve – Despite relative steepness along the 2s-5s seg- ment, which makes the short part of the Infrastructure curve look more attractive, we believe the long end of the Infra- structure curve is more likely to outperform due to the higher quality it offers versus other sectors in the current uncertain global environment, as well as demonstrated periodic investor skittishness towards higher beta in that part of the curve. We also believe lack of supply and demand for high quality long-dated product will play a role. Sector Value – Our preferred issuer in the Infrastructure sector remains 407 Inter- national, or more specific- ally, 407 bonds issued under the older covenant struc- ture. Part of our justification is predicated upon relative valuation, wherein GTAA currently trades three basis points through 407 across the curve. Historically, this relation- ship has seen GTAA trade well back of 407. While we laud GTAA’s annual traffic performance during 2013, the airport authority’s compressing margins juxtapose starkly to 407. 407 has demonstrated the ability to generate strong and consistent revenue growth, despite a moderate traffic performance, due to annual toll rate increases and the high inelasticity of demand for the highway. Recommendation Top Pick – We prefer 407 International in the short and middle parts of the curve as GTAA spreads versus 407 are now at the tighter end of the historical range. In the longer area of the curve, however, we believe a predominance of 407 bonds with the newer covenant structure will weigh on performance, and thus expect GTAA to outperform. Risks External – Most issuers in the sector face above-average geo- political risk, as well as the effect of currency risk on trans- border traffic movements and health risks that lead to travel advisories. The impact of rising fuel costs shows commodity price risk. M&A – We do not expect any ownership structure changes in the near term. Regulatory – Stricter security at the U.S. border has dampened traffic. Also, most issuers are governed by federal or provincial legislation, which may be modified, but we do not expect chan- ges that would materially alter their rate-setting ability. Jason Parker, CFA BMO Nesbitt Burns Inc. jason.parker@bmo.com (416) 359-5410 Page 2 Fixed Income Quarterly—Infrastructure New Issuance – We expect issuance in the sector to be modest again this year, which should support spreads. We still expect BC Ferries to refinance its upcoming maturity some time in the near future, while 407 will come to market to finance capex and GTAA may transact opportunistically. Trading Liquidity – GTAA possesses above-average trading liquidity within the sector and relative to the market. Older vintage 407 bonds have become harder to purchase in size since the covenant change. Other – Each issuer faces above-average headline risk. Credit Profile Sector Financials – We expect moderate economic conditions to weigh on financial results again in 2014, but note strong rate-setting capabilities will continue to help offset the impact of any ensuing sluggish traffic and allow sector financials to recover more meaningfully over the medium term. Sector Fundamentals – We believe traffic growth will remain challenged in the near term due to escalated fuel costs and economic headwinds. Credit Ratings – Although rating activity in the sector has been decidedly positive the past couple of years, we are cautious about NAV CANADA due to the solvency deficit in its pension plans, as well as the negative outlook currently in place for Leisureworld by S&P. Teranet also possesses a negative outlook from S&P due to challenging conditions for real estate activity in Ontario and was recently downgraded by DBRS. Viewpoint Long Bonds Equal Big Gains in Q1/14 The topsy-turvy world of the fixed income market continued into 2014 as the year started with escalating yields on con- cerns the onset of tapering would take rates in a straight line upwards. However, mixed economic numbers across the globe, trepidation about growth in China and the emergence of geopolitical concerns in Eurasia together underpinned a meaningful rally in government bonds and a material bull flat- tening of the curve. This occurrence was consistent with our belief that yields would remain range-bound over the near to medium term and create a long-bottomed u-shape to the future movement of yields, rather than a v-shaped snap back after bouncing off the secular bottom in the first half 2013. In this range-bound yield environment, we expected that the Infrastructure – Transportation sector would perform more in line with the market since we believed investor would be more inclined to add sectors with greater spread. And, for the most part, this is what transpired during Q1/14. The year-to-date total return of 1.27% for Infrastructure – Transportation in the Short bucket was within a few basis points of the Chart 1: Infrastructure Sector 10-yr Indicative Spreads 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 GTAA 407 Intl. NAV CANADA BC Ferry Teranet Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Source: BMO Capital Markets corporate component of the FTSE TMX Canada Universe Bond Index, while its total returns of 3.23% and 5.42% in the Mid and Long buckets, respectively, were about 60 basis points below the index. Similarly, spreads for Infrastructure – Transportation were in line with the market in the Short bucket at a narrowing of 8 basis points. By comparison, sectors spreads underperformed by several basis points in Mids and Longs after tightening by 8 basis points and 6 basis points, respectively, during Q1/14. On a broad basis, however, Infrastructure – Transportation actually outperformed the corporate component of the index by just over a full percentage point during Q1/14, posting a total return of 4.22%. This outperformance was entirely predicated upon the relatively longer duration of the Infrastructure – Transportation sector, which was more than sufficient to offset its more meagre performance in each segment of the curve. With modest upward pressure expected to persist on long-dated GoC yields now that the U.S. Fed has commenced tapering, the longer duration of the Infrastructure sector relative to the index will likely serve as somewhat of an albatross, even though we do believe yields will be relatively range-bound over the near term. From a spread perspective, we expect that a paucity of new issue supply from the sector in the coming years will keep spreads reasonably well behaved. Following a decade of considerable primary market activity from the sector, there are relatively few projects currently under construction that require new financing. In addition, there is little in the way of refinancing requirements for 2014 and into 2015, unless some issuers decide to opportunistically take advantage of the market’s historically low rates. Thus, although sector spreads trade tight on an absolute spread basis to provies, we believe there is room for further compression due to this lack of Fixed Income Quarterly—Infrastructure Page 3 Table 1: Infrastructure Sector - Ratings Comparison Senior Unsecured Credit Ratings - Infrastructure DBRS S&P Moody's Issuer Rating Outlook Rating Outlook Rating Outlook 407 International Inc.1 Aeroports de Montreal1 British Columbia Ferry Services Inc.1 Edmonton Regional Airports Authority1 Greater Toronto Airports Authority (GTAA)1 Leisureworld Senior Care LP1 NAV CANADA1 Ottawa Macdonald-Cartier International Airport Authority1 Teranet Holdings LP1 A Stable AH Stable A Stable AH Stable A Stable A Stable AA Stable AH Stable BBB Stable A Stable nr nr A1 AA- Stable nr A Positive A1 A Stable A1 A- Negative nr Stable Stable Stable Stable Stable AA A+ BBB+ Stable Aa2 Stable Aa3 Negative nr Vancouver International Airport Authority AAL Stable AA Stable nr Winnipeg Airports Authority Inc.1 nr A Stable A2 Stable As of March 31, 2014 1 Ratings are those of senior secured debt Source: DBRS, Moody’s, S&P supply. Also, we believe it is possible spreads for some issuers in the Infrastructure sector may eventually trade on top of, or through, certain provinces. We are maintaining our Market Perform sector recommenda- tion for Infrastructure – Transportation given our expectation for range-bound yields over the near term and our belief that investors will prefer product with greater spread in that environment. Our preferred issuer in the Infrastructure sector remains 407 International, or more specifically 407 bonds issued under the older covenant structure. Part of our justification is predicated upon relative valuation, wherein GTAA currently trades three basis points through 407 across the curve. Historically, this relationship has seen GTAA trade well back of 407. While we laud GTAA’s annual traffic performance during 2013, the airport authority’s compressing margins juxtapose starkly to 407, which has demonstrated the ability to generate strong and consistent revenue growth, despite a moderate traffic perform- ance, due to annual toll rate increases and the high inelasticity of demand for the highway. Key Themes Traffic Growth Remains Challenged – As a general rule, we expect traffic growth for most issuers in the Infrastructure sec- tor to be roughly in line with GDP growth. We believe traffic growth will remain challenged over the near to medium term as sovereign risk in Europe and U.S. economic woes create headwinds for global economic growth. At the same time, key credit strengths of many Infrastructure issuers include an autonomous rate-setting ability and mandate to operate on a breakeven basis, which mitigate some of the financial impact of slower traffic growth. During fiscal Q1/14, air traffic for NAV CANADA rose by 2.5%, which was roughly in line with its full-year guidance of 2.4%. As has been our position for some time, we believe air traffic growth for NAV CANADA will likely remain under pressure over the near term as discretionary spending is be- ing hampered across the globe due to sovereign problems and ongoing austerity in Europe, as well as economic uncertainty in the U.S. and Asia. We also believe underlying geopolitical discord in the Middle East, despite several recent examples of entente in the region, may keep upward pressure on oil prices and hence stifle traffic growth. Passenger traffic for GTAA continued to experience demon- strable improvement during Q4/13, posting its strongest quar- terly growth rate of the year at 4.6% to 8.5 million, compared to increases of 4.1%, 3.9% and 1.0% through the first three quarters of 2013. What’s more, the pace of improvement re- mained well above the airport authority’s compound annual growth rate of 1.7% between 2000 and 2013. Unlike the first three quarters of 2013, the pace of growth during Q4/13 was driven by the international segment, which expanded by 6.0% to 2.7 million. With growth of only 1% in Q4/12, the hurdle rate this year was less challenging; neverthe- less, a 6% level represents a strong result and perhaps an early indication that the cancellation of international services and focus on load factors that plagued the 2012 results had fully run its course. For its part, GTAA noted that its long-term plan is to focus on international activity, building upon the strong growth it has experienced already to Asia, the Middle East and Latin America, which is driven by rising economic and  Page 4 Fixed Income Quarterly—Infrastructure cultural linkages. For example, during 2013, GTAA replaced its incentive programs with an air service incentive program that targeted the introduction of new international air carriers to Toronto Pearson. Toward this end, the airport authority observed that, on a net basis, air carriers servicing Toronto Pearson increased service on nine routes, representing either completely new service or increased capacity on existing routes. The result for Q4/13 reaffirms our longstanding belief that ongoing diversity in the GTA’s demographic and business profile will encourage a strong international component to the air traffic composition of Pearson. For the full-year 2013, passenger traffic grew by 3.4% to 36.1 million. Although 2013 represented the third year in a row of declining growth, the level is still well above GTAA’s compound historical annual growth rate of 1.7%, which in and of itself is a remarkable accomplishment in light of the solid growth experienced in the previous several years. In contrast to passenger traffic growth, the amount of aircraft movements actually declined by 0.6% during 2013 to 431,300, which GTAA attributed to the ongoing trend of airlines adjusting their fleet mixes and flight schedules to improve financial performance, and hence a focus on load factors. The airport authority observed that the average load factor rose by 160 basis points during 2013 to 79.8%. The use of larger planes, for instance, resulted in a 1.1% rise in maximum takeoff weight (MTOW) to 14.3 million tonnes in 2013, and an expansion of 1.3% for arrived seats to 22.6 million. We view GTAA’s Q4/13 and full-year 2013 traffic results as positive. Passenger traffic experienced solid growth of 4.6% and 3.4% for the quarter and year, respectively. Although mo- mentum slowed again for the third straight year, the results in and of themselves remain impressive, especially in a globally challenged economic environment. The fact that quarter after quarter and year after year a different segment of GTAA’s pas- senger base steps forward to drive traffic performance speaks volumes to the growing economic and demographic diversifica- tion of the GTA, as well its importance to the airport itself. Traffic for 407 International was relatively unchanged in Q4/13, with total trips increasing only slightly to 29.22 million, while average workday trips were up 0.6% to 387,121. VKT and average trip length were relatively flat y/y; however, unbillable traffic continues to improve, dipping a further 17 basis points in Q4/13 to 2.09% due mainly to improved readability of li- cence plates due to continuing enhancements to the company’s tolling system and procedures. The transponder penetration rate of 82.3% rose slightly while the number of transponders in circulation grew 4.9% to 1,157,830. Similar to the Q4/13 results, the total number of trips for the full-year 2013 was roughly unchanged, rising by 0.1% to 114.9 million. Average workday trips also increased a touch to 381,226. VKT was up 0.7% to 2,356 million as average trip length rose by a similar amount to 20.5 kilometres. Unbillable traffic declined by 11 bps to 2.28%. We view the Q4/13 and full-year 2013 traffic results at 407 as neutral from a corporate debt perspective. Despite relatively high fuel costs and challenging economic conditions in the Ontario region, we believe the inelasticity of the highway remains well demonstrated and stems from a strong value proposition to customers with regard to time savings and reduced gas usage, coupled with superior safety. These factors have particular appeal to the portion of the local population that are in a socioeconomic position to readily absorb the an- nual toll rate increases implemented by the company and are willing to pay for a higher level of service. Furthermore, it is this inelasticity that underpins 407 International’s consistently sound operating and financial performance. Nonetheless, we do believe traffic performance will continue to be challenged over the medium term as fuel price pressures and economic challenges persist. We likewise believe exogenous risks, such as fiscal problems in the U.S. and Europe, are still a credible threat to global economic growth. Especially import- ant to monitor are ongoing geopolitical forces in the Middle East, which at any time could put further upward pressures on fuel prices, despite the recent move toward entente by Iran. During fiscal Q3/14, BC Ferries vehicle traffic increased by 0.8% to 1.7 million, while passenger traffic likewise improved by 1.0% to 4.3 million. Unlike the earlier couple of quarters in fiscal 2014 when traffic was adversely affected by the tim- ing of holidays or inclement weather, the traffic improvement experienced during Q3/14 was across the board with both non-commercial and commercial traffic, including drop-trailer traffic, rising. While trying not to place too much stock in the results from one quarter, we are reasonably encouraged as the company is hopefully back on track to the decent traffic momentum that was building prior to the end of fiscal 2013, especially as commercial traffic, including drop trailer traffic, remained a stalwart of activity all throughout. For the full fis- cal year 2014, BC Ferries expects its traffic levels to be roughly flat, but notes that it is undertaking planned terminal upgrades that will cause a temporary reduction in traffic on some of its routes later this year. From an operating standpoint, BC Ferries delivered an on-time performance of 93.1% during Q3/14, up 40 bps versus fiscal Q3/13. Capacity utilization was flat at 46.3%. As we noted last quarter, working with the regulator and the province to reduce the number of sailings over the next few years will obviously enhance both operating efficiency and capacity utilization. Toward this end, the Province of British Columbia confirmed on February 5, 2014 a service level adjustment plan to achieve roughly $19 million in net savings over the remainder of per- formance term three, which ends March 31, 2016. The plan  Fixed Income Quarterly—Infrastructure Page 5 includes the elimination of 6,900 underutilized roundtrips over 15 routes. On a segmented basis, vehicle traffic on BC Ferries’ Major Routes expanded 1.7% to 1 million, while Other Routes declined 0.4% to 698,666 and Northern Routes rose by 6.1% to 4,676. With regard to passenger traffic, the Major Routes experienced an increase of 1.8% to 2.7 million, with Other Routes declining 0.6% to 1.5 million, and Northern Routes growing by 6% to 12,268. The company noted that vehicle traffic on its Major Routes was helped by growth in com- mercial traffic, with drop trailer traffic on two of its Major Routes expanding 15%. We view BC Ferries’ fiscal Q3/14 traffic performance as neu- tral. We acknowledge the improvement in the third quarter compared to traffic declines in the first two quarters of fiscal 2014 and thus are hopeful the company has resumed the posi- tive momentum that was starting to build at the end of fiscal 2013. At the same time, we remain cautious as the ongoing, albeit improving, weak employment situation in the U.S. and other challenging economic conditions will continue to weigh on tourism to the region. We also believe challenged economic conditions in Canada and the U.S. over the near to medium term will likely weigh on commercial traffic, as will relatively high fuel prices. As we have noted for a while, we expect economic growth in the B.C. region to recover over the longer term, particularly on the Major Routes. Likewise, we believe improving operating performance by BC Ferries will underpin modest traffic growth and that recent capital upgrades, including the launch of a number of new modern vessels and terminal refurbishments, will encourage revenue diversification (e.g., service upgrades, greater concessionary selections).  Page 6 Fixed Income Quarterly—Infrastructure Table 2: Airport Authority Comp Sheet OPERATING FIGURES Toronto Vancouver Montreal Edmonton Ottawa 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Passenger Statistics (in thousands) Domestic Transborder International Total Passengers Aircraft Movements (in thousands) Air Cargo Volume (in thousand tonnes)1 13,646 9,465 11,801 34,912 434.0 NA 13,079 8,979 11,378 33,435 428.8 NA 9,171 4,284 4,142 17,597 296.4 227.9 8,875 4,165 3,992 17,033 296.9 223.9 5,334 3,231 5,245 13,810 243.4 185.0 5,226 3,203 5,240 13,669 253.3 189.3 5,110 1,174 393 6,676 142.0 36.3 4,814 1,085 378 6,277 136.9 35.7 3,454 3,429 775 750 457 445 4,686 4,625 90.7 90.9 NA NA FINANCIAL FIGURES ($millions) Revenues Aeronautical Fees Airport Improvement Fees Concessions & Car Parking Other Total Revenues Expenses Ground Rent Goods, Services, & Other Salaries and Benefits Payment in lieu of Municipal Taxes Total Operating Expenses EBITDA Amortization Interest Expense Net Income (Surplus/(Deficiency) Cash Flow from Operations b/f Working Capital Capex Free Cash Flow Cash Capital Assets Total Debt Less Debt Reserve Fund Net Debt 547.4 304.3 214.5 71.5 1,137.6 130.5 214.4 119.9 27.6 492.4 645.2 217.0 414.0 14.3 660.6 95.8 564.7 201.1 5,325.7 7,104.7 528.2 6,577 563.9 299.3 199.8 73.1 1,136.0 131.0 216.0 111.0 27.6 485.6 650.4 210.2 457.3 (17.1) 656.7 94.5 562.2 475.3 5,441.2 7,710.5 593.4 7,117 120.3 121.6 107.1 89.7 102.6 96.1 73.6 61.8 403.6 369.3 39.1 34.8 74.1 74.1 44.0 41.9 22.6 19.7 179.8 170.5 223.7 198.7 108.0 108.1 31.5 31.6 84.2 59.0 186.6 160.0 106.0 59.9 80.7 100.1 142.2 66.6 1,590.6 1,589.9 547.6 547.4 NA NA 548 547 159.1 142.0 102.5 31.9 435.5 44.2 96.7 65.1 40.2 246.2 189.3 97.9 85.7 5.6 177.5 188.9 (11.4) 156.8 1,628.2 1,606.2 49.2 1,557 152.0 141.9 101.9 31.2 427.0 43.4 104.8 56.7 40.3 245.1 181.9 87.0 89.5 5.4 174.2 96.1 78.1 125.8 1,531.9 1,510.6 48.7 1,462 39.5 37.3 71.1 54.0 48.0 43.3 11.8 9.7 170.4 144.3 13.9 11.3 46.5 38.6 26.8 23.0 NA NA 87.2 72.9 83.2 71.4 55.3 34.5 38.2 22.5 (10.3) 14.3 44.0 43.6 151.7 243.0 (107.6) (199.4) 76.0 97.2 1,006.7 926.3 961.6 857.7 32.2 21.4 929 836 35.5 35.1 39.4 37.7 22.6 21.9 8.4 8.3 105.8 103.1 7.6 7.3 27.4 26.3 18.6 17.9 5.0 4.8 58.6 56.4 47.3 46.7 22.3 22.2 19.7 18.8 5.3 5.7 26.7 26.3 24.4 27.1 2.3 (0.8) 0.0 0.0 388.9 348.4 10.7 10.6 339 338 391.0 349.3 Operating Statistics Debt per Enplaned Passenger Net Debt per Enplaned Passenger Total Revenue per Enplaned Passenger Aeronautical Fees per Enplaned Passenger Concession & Parking per Enplaned Passenger Total Expenses per Enplaned Passenger Operating Expenses per Enplaned Passenger Debt to Total Revenues EBITDA Margin Interest Coverage (x)* Cash Flow/Total Debt (%) $407 $461 $377 $426 $65 $68 $31 $34 $12 $12 $64 $69 $28 $29 624.5% 56.7% 57.3% 1.6 1.4 9.3% 8.5% 678.7% $62 $64 $62 $64 $46 $43 $14 $14 $12 $11 $36 $36 $20 $20 135.7% 55.4% 148.2% 53.8% 7.1 6.3 34.1% 29.2% $233 $221 $225 $214 $63 $62 $23 $22 $15 $15 $62 $62 $36 $36 368.9% 43.5% 42.6% 2.2 2.0 11.1% 11.5% 353.8% $288 $273 $278 $266 $51 $46 $12 $12 $14 $14 $54 $41 $26 $23 564.4% 48.8% 49.5% 2.2 3.2 4.6% 5.1% 594.4% $149 $151 $144 $146 $45 $45 $15 $15 $10 $9 $43 $42 $25 $24 330.0% 44.7% 45.3% 2.4 2.5 7.6% 7.6% 338.1% 1 The EAA figure includes only EIA cargo volume *Includes capitalized interest. As at December 31, 2012 Source: Company Reports  Fixed Income Viewpoint Telecom/Media/Cable – April 2014 Sector Rating: Outperform Relative Value 5-Year: Outperform 10-Year: Market Perform 30-Year: Outperform Spread View – We rate the sector Outperform based on solid industry fundamentals supported by generally growing revenue and EBITDA. We view ongoing regulatory issues as modestly negative but manageable for industry participants. Event risk appears low in the short term. New issue activity is expected to be manageable in 2014, which is a constructive factor for spreads. This high-beta sector remains sensitive to investor macro risk aversion. Credit Curve – The 10s-30s curve continues to be one of the steepest in our universe. The sector’s 10s-30s curve widened slightly in Q1/14 to ~49 bps from ~45 bps at December 31, 2013. The 5s-10s curve flattened to ~50 bps from ~52 bps in Q4/13. We think the long end of the curve is attractive. The nature of the long-term fundamental risks in the sector (technology, regulatory and M&A risks) likely deters some investors from extending further out the curve. Sector Value – With average spreads of 114 bps in the 5-year term and 212 bps in the long end, the sector still offers a good pick-up in spread over other sectors, although not as attractive as in prior years. Spread of 164 bps in the 10-year term is rich relative to other sectors. Recommendation Top Pick – Our top pick is TELUS whose bonds are generally reasonably valued. The company has the best-in-class balance sheet and good earnings prospects led by its strong wireless segment. Risks External – Modest GDP and consumer spending growth fore- casts still support telecom services. BMO Economics forecasts GDP to grow in the area of 2.3% in 2014 (2.0% 2013) and consumer spending growth to pick-up slightly to 2.5% (2.2% 2013). The 2009 recession demonstrated the resiliency of the sector, supported by the essential nature and affordability of communication services. Trading Liquidity – Liquid- ity improved over the past three years with over ~$33 billion issuance. Bell Cana- da and TELUS are the most liquid. New Issuance – We expect moderate new issuance in 2014 in the area of $5 billion. With year-to-date issuance of $3.8 billion, including U.S. dollar issuance, we anticipate another $1.0 to $1.3 billion of issuance in the remainder of 2014. Trevor Bateman, CPA, CA, CFA BMO Nesbitt Burns Inc. trevor.bateman@bmo.com (416) 359-8238 Other – There is heightened regulatory risk as the government is focused on lowering wireless roaming fees, promoting a fourth wireless carrier and pursuing the unbundling of television channels. Credit Profile Sector Financials – Industry revenue and EBITDA are expected to grow at a low-single-digit rate, which supports positive free cash flow. Leverage has risen modestly for some issuers due to the spectrum auction and M&A activity, but remains in manageable levels. Management teams generally strive to grow dividends and return capital to shareholders while nurturing solid investment grade balance sheets. Sector Fundamentals – Wireless sector fundamentals remain intact following the 700 MHz spectrum auction. However, regulatory risk has risen as the federal government plans to continue to aggressively pursue policies that ensure consumer interests are at the core of all government decisions. Wireline business conditions have shown some improvement but re- main sensitive to cable competition, wireless substitution and the overall economy. Cost cutting remains important in light of declining voice revenues. The core cable business model is evolving from the sale and bundling of discrete products (video, data and voice) to the enabling of broadband. Credit Ratings – We expect ratings to be generally stable in the near term. Rogers DBRS credit rating of BBB remains curiously at the same level as that of Bell Aliant, Manitoba Telecom and Shaw Communications. Page 2 Fixed Income Quarterly—Telecom/Media/Cable Viewpoint We maintain our Outperform rating on the sector. We expect Industry fundamentals to continue to be supported by the competitive oligopoly dynamics in Canada and look for mod- est revenue and earnings growth, driven mainly by consumers’ insatiable demand for wireless data consumption as smart- phone adoption continues to rise. The near-term visibility on event risk, or at least known event risk, is benign. Near term, bonds will be driven largely by sector-specific issues (700 MHz network deployment, wireless competition, M&A, regulatory change, revenue mix shifts, technology evolution and increasing IPTV competition), which have become more significant influencing factors over the past year. Nonethe- less, bonds remain vulnerable during periods of “risk-off” sentiment. Outperformance in Q1/14: The high-beta “communications” sector’s bonds outperformed the FTSE TMX Canada Universe Corporate Bond Index in the first quarter on a broad basis due to strength in the long end. In the short end, the sector’s total return of 1.34% was in line with the FTSE TMX Canada Universe Corporate Bond Index total return of 1.39%. In the mid term, the sector’s total return of 4.07% was slightly higher than the universe total return of 3.85%. In the long end, the sector’s total return of 6.93% significantly outperformed the universe total return of 6.06%. Mixed Performance in 2013: The sector’s bonds slightly under- performed the FTSE TMX Canada Universe Corporate Bond Index in 2013 on a broad basis, which was largely attributable to the uncertainty during the “summer of Verizon” concerns. In the short end, a total return of 2.34% was slightly below the FTSE TMX Canada Universe Corporate Bond Index total return of 2.40%. In the mid term, the sector’s total return of 0.26% underperformed the FTSE TMX Canada Universe Cor- porate Bond Index total return of 1.06%. However, in the long end, the sector’s total return of negative 0.16% significantly outperformed the FTSE TMX Canada Universe Corporate Bond Index total return of negative 3.20%. TELUS Our Favorite Carrier: TELUS has the strongest bal- ance sheet, although we anticipate leverage will creep slightly higher in 2014 to ~2.3x from 2.1x (December 31, 2013) on the back of its $1.1 billion cash outlay for 700 MHz spectrum and its NCIB activity. The company is the best-in-class operator reflected by consistently leading financial performance. The wireless segment is expected to generate solid revenue and EBITDA growth in 2014, which supports consolidated rev- enue and EBITDA growth. TELUS has no scheduled bond maturities in 2014. On April 1, 2014 TELUS launched a Chart 1: Telecommunications: 10-Year Indicative Spreads bps 700 600 500 400 300 200 100 0 Dec-03 Dec-05 Dec-07 Dec-09 BCE / Bell Canada Bell Aliant Manitoba Telecom TELUS Corp. Dec-11 Dec-13 Source: BMO Capital Markets As at March 31, 2014 Chart 2: Cable: 10-Year Indicative Spreads bps 450 400 350 300 250 200 150 100 50 Rogers Communications Shaw Communications 0 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source: BMO Capital Markets As at March 31, 2014 two-tranche bond offering of $1 billion to help fund its wire- less spectrum purchase. Key Themes Spectrum Auction – Industry Canada’s 700 MHz spectrum auction was completed in February 2014 and generated over $5 billion proceeds. Rogers spent the most, $3.3 billion, acquir- ing 22 paired licenses, and arguably gives the carrier a network advantage in terms of capacity and operating costs. TELUS spent $1.1 billion to acquire 16 paired block licenses and 14 unpaired block licenses. BCE spent $566 million to acquire 17 paired block licenses and 14 unpaired block licenses. Video- Fixed Income Quarterly—Telecom/Media/Cable Page 3 tron acquired licenses in Quebec, southern Ontario, BC and Alberta; however, we do not anticipate the carrier will embark on an expansion of its wireless business, but instead hold the spectrum as an investment in the near term and evaluate the business case. The auction results did not alter the competi- tive oligopoly. Increased Regulatory Risk – There continues to be heightened regulatory risk related to the government’s actions to pursue unbundled television channels and lower roaming rates as well as promote a fourth wireless carrier in each region. Product Convergence – The growth of triple-play offerings and quad-play offerings will eventually weigh on pricing, margins and free cash flow over the next several years and serve to result in the convergence in operating performance of telephone and cable. Shareholder-Friendly Actions – We are sensitive to the poten- tial for shareholder-friendly actions in this industry. Equity investors continue to pressure for increased returns of capital and higher increased dividends. We do not anticipate large borrowing to fund stock buybacks at this time because Cana- dian industry participants have clearly expressed their goal to maintain solid investment grade ratings; four companies have publicly articulated financial leverage targets (BCE, TELUS, Rogers and Shaw). However, we do see pressure on manage- ment teams to sustain high dividend payouts at the expense of higher leverage (Bell Aliant, MTS). Manageable New Issuance Expected in 2014 – The sector’s aggregate funding levels in 2013 returned to record level of over $9 billion (including U.S. dollar financings), which was comparable to borrowing activity in 2009. Canadian dollar new issuance totalled $6.2 billion and U.S. dollar issuance was $2.9 billion. Notably, ~$2.4 billion of 2014 Canadian dollar bond maturities were redeemed early in 2013. As a result of early refinancing activity in 2013, the bond ma- turity schedule in 2014 is relatively light with only $800 million Canadian dollar bonds and $1.1 billion of U.S. dollar bonds scheduled to mature. Thomson Reuters has C$600 million bond maturing in 2014 as well. Possible M&A remains the perennial wild card for the industry debt issuance in 2014. Issuers could also get a step ahead on their 2015 bond maturities and refinance early in 2014 (C$2.6 billion and ~US$1 billion). Our original estimate for sector new issuance in 2014 was in the range of $3 to $4 billion (including Thomson Reuters). However, Rogers tapped the market for $2 billion (including US$750 million) to help fund its wireless spectrum purchase, which was higher than we anticipated. As such, our full year new issuance outlook is increased to the area of $5 billion. This level of new issuance should be readily absorbed into the market and remains constructive for secondary bond prices. Possible M&A and early redemption of 2015 bond maturities could pose a risk to our outlook. Year-to-date 2014, there has been $3.8 billion new issuance from TELUS ($1 billion), Rogers ($2 billion) and Shaw ($800 million). We anticipate the pace of new issuance will slow in the remainder of the year with only MTS and Thomson expected to be issuing new bonds. We anticipate Thomson Reuters could issue in the range of $750 million to $1 billion and MTS in the range of $200 million to $250 million. Subscription Video Services – The market is mature and growth is generally driven by population growth and household forma- tion. IPTV launches by TELUS (Optik TV) and Bell (Fibe TV) will continue to gain traction. Heavy promotional activity is expected to continue to make gains. IPTV platforms reached over 50% of Canadian households in 2012 compared to 10% in 2008. In 2012, total industry IPTV subscribers reached over 1 million, which was up 53% y/y. IPTV subscribers represented 8.4% of total broadcast distribution subscribers, compared to 2.1% back in 2008 (CRTC Monitoring Report 2013). We believe the telecom companies are strategically incentivized to continue aggressively pursuing market share in video to build scale. BCE’s IPTV customer base (FibeTV) nearly doubled to ~479K (~11% penetration of homes passed) at the end of Q4/13 as its rollout now covers ~4.3 million homes in Toronto and Montreal (targeting more than 5 million by the end of 2014 to ultimately reach 6 million households). While the current IPTV service offers a more compelling user interface for video compared to existing programming guides from cable, which are relatively dated, cable companies are beginning to respond with upgraded user interfaces. Over-the-Top-Video (“OTT”) – While some young people creating new households may be doing so without the tradi- tional subscription TV services, North Americans still want and will still pay for the four pillars of subscription TV: live sports, news, reality TV and first-run drama and comedy, according to Deloitte Canada research. More than 99% of North American TV subscribers will continue to subscribe. If current conventional subscription TV service providers do not evolve with consumer behaviour and offer their own OTT services, the trends could be troubling in the longer term. We think the risk of disintermediation from over-the-top-video (a.k.a. cord cutting) services is manageable in the short term. More than 80% of Netflix Canadian customers also subscribe to cable or satellite services, according to Media Technology Monitor. In the short term, large vertically integrated broad-  Page 4 Fixed Income Quarterly—Telecom/Media/Cable casting distributors will likely continue to have an advantage over pure-play OTT services in acquiring Canadian program- ming rights on all screens. The overall economic model of the media infrastructure is based on subscription and advertising platforms. Therefore, we believe content producers will be re- luctant to move to an OTT or à la carte model to protect their ability to monetize their rights of new commercially successful product. We are mindful of the potential for a generational shift in consumer behaviour that could negatively impact the subscription video model. Over the longer term, we anticipate earnings mix shifting away from video subscription services to broadband services. Those carriers that offer both services have a natural hedge. Consumer Choice in Programming Services – The CRTC is concerned that consolidation and vertical integration in the Canadian broadcasting industry could have a considerable negative impact on consumer choice. The CRTC expects Table 1: Senior Unsecured Debt Ratings firms to make “significant strides” to offer consumers more choices in their near-term future with respect to their BDU offerings. The federal cabinet directed the CRTC to study the unbundling of television channels and report its conclusions by April 30, 2014. Wireless Roaming Fees – In December 2013, the federal gov- ernment announced it would amend the Telecommunications Act to prevent wireless carriers from charging smaller carriers more than its own customers, even though CRTC work was far from completion. Defined Benefit Pension Plans – Modest increases in interest rates expected in 2014 provide relief for industry balance sheets. BMO Economics forecasts 10-year government of Canada yields to increase to 3.15% in Q4/14 (2.46% March 2014) and 30-year government of Canada yields to increase to 3.68% in Q4/14 (2.96% March 2014). DBRS S&P Moody's Issuer: Rating Outlook Rating Outlook Rating Outlook Bell Aliant BBB Bell Canada AL Cogeco BBBL MTS BBB Rogers BBB Shaw BBB TELUS AL Thomson Reuters BBBH Stable BBB Stable BBB+ Stable BBB Stable BBB Stable BBB+ Stable BBB- Stable BBB+ Stable BBB+ Stable nr Stable Baa1 Stable nr Stable nr Stable Baa1 Positive Baa3 Stable Baa1 Stable Baa2 Stable Stable Stable Stable Stable Note: Cogeco Cable’s rating is on Senior Secured Debt Source: BMO Capital Markets, Credit rating agencies As at March 31, 2014  Fixed Income Quarterly—Telecom/Media/Cable Page 5 Table 2: Canadian Telecom Industry Operating Statistics Company Bell Canada 2015E 2014E FYE 2013 FYE 2012 FYE 2011 FYE 2010 FYE 2009 FYE 2008 High- Local Speed Access Internet Wireless Lines Subs Subs (000) (000) (000) 4,585 2,305 8,193 4,899 2,245 7,993 5,242 2,185 7,778 5,645 2,115 7,681 6,102 2,113 7,427 6,476 2,097 7,242 6,861 2,057 6,833 7,309 2,054 6,497 2,132 1,012 157 2,225 982 152 2,353 952 147 2,491 918 144 2,629 896 136 2,776 869 125 2,916 808 121 3,092 762 114 440 218 506 463 213 503 487 208 501 1,030 194 497 1,125 189 496 1,173 185 484 1,193 182 458 1,224 177 435 1,183 2,036 9,703 1,168 2,011 9,603 1,153 1,961 9,503 1,074 1,858 9,433 1,052 1,793 9,335 1,003 1,686 8,977 937 1,619 8,494 840 1,571 7,942 1,400 1,931 0 1,380 1,911 0 1,361 1,893 0 1,360 1,891 0 1,345 1,896 0 1,233 1,877 0 1,097 1,823 0 830 1,678 0 612 1,566 0 3,016 1,510 8,332 3,127 1,460 8,072 3,254 1,395 7,807 3,406 1,326 7,670 3,593 1,242 7,340 3,739 1,167 6,971 3,966 1,128 6,524 4,246 1,096 6,129 Video Subs (000) 2,578 2,428 2,278 2,150 2,088 2,020 1,949 1,852 278 228 178 123 77 49 33 0 111 108 105 97 95 90 87 85 1,940 2,021 2,127 2,214 2,297 2,305 2,296 2,320 1,870 1,938 2,011 2,040 2,190 2,290 2,333 2,290 2,248 1,065 945 815 678 509 314 170 78 Total RGU's (000) 17,661 17,565 17,483 17,591 17,729 17,835 17,700 17,712 3,579 3,587 3,630 3,677 3,738 3,819 3,878 3,968 1,275 1,287 1,301 1,818 1,906 1,932 1,920 1,920 14,862 14,803 14,744 14,579 14,477 13,971 13,346 12,673 6,089 6,125 6,159 6,194 6,341 6,309 6,159 5,699 5,319 13,943 13,629 13,296 13,113 12,729 12,254 11,876 11,674 Bell Aliant Regional Communications Manitoba Telecom Rogers Communications Inc. Shaw Communications Inc. TELUS Corp. 2015E 2014E FYE 2013 FYE 2012 FYE 2011 FYE 2010 FYE 2009 FYE 2008 2015E 2014E FYE 2013 FYE 2012 FYE 2011 FYE 2010 FYE 2009 FYE 2008 2015E 2014E FYE 2013 FYE 2012 FYE 2011 FYE 2010 FYE 2009 FYE 2008 2015E 2014E Q1/14 FYE 2013 FYE 2012 FYE 2011 FYE 2010 FYE 2009 FYE 2008 2015E 2014E FYE 2013 FYE 2012 FYE 2011 FYE 2010 FYE 2009 FYE 2008 Note: Shaw FYE 2012 results were restated; MTS FYE 2013 and future estimates exclude Allstream Source: BMO Capital Markets estimates, company reports As at March 31, 2014  Fixed Income Viewpoint Retailing/Consumer Products – April 2014 Sector Rating: Underperform Relative Value 5-Year: Underperform 30-Year: Underperform Spread View – We rate the sector Underperform, reflecting challenging conditions in grocery retail (intensifying compe- tition, value-conscious consumer). The sector’s underlying credit fundamentals deteriorated in the summer of 2013 as both Loblaw and Sobeys leveraged up their balance sheets to make significant acquisitions. New issuance has significantly surprised on the high side in 2013 due to M&A; however, we expect more modest issuance in 2014. The sector also remains vulnerable to underperformance if investors’ global risk toler- ance deteriorates. Credit Curve – The 10s-30s indicative curve for the retail sec- tor narrowed in Q1/14 to 47 bps from 61 bps at December 31, 2013, and is substantially narrower than 96 bps at December 31, 2012. We expect the sector to maintain a relatively steeper curve given the uncertainties the sector faces and lower credit quality. Sector Value – The sector average spread in the long end of 214 bps is the widest amongst sectors. The 30-year basis to utilities narrowed significantly to 59 bps from 85 bps in Q4/13 and down substantially from 125 bps in December 31, 2012. The Retail sector’s short total return in Q1/14 of 1.58% slightly outperformed the short bucket of the FTSE TMX Canada Universe Corporate Bond Index total return of 1.39%. Recommendation Top Pick – Our preferred credit is Loblaw. Same-store sales and margin continue to be supported by investment in customer proposition. While additional debt incurred to acquire Shop- pers will raise leverage sharply, the acquisition is a strategic positive, in our view. There is a short-term trading opportunity in Metro’s two outstanding bonds as uncertainty over the gro- cer’s strategy to maintain its market position and profitability weigh too heavily on spreads. Risks External – Consumer spending growth is expected to pick up in 2014 but remain at modest levels. Unemployment trends are encouraging, though we do not anticipate a significant change in consumer spending. Consumer insolvencies declined in January 2014 after increasing slightly in 2013. The consumer remains vulnerable owing to the high debt burden. Competition – Food price competition remains fierce and is expected to intensify. U.S. retailers are expected to continue expanding. Am- azon has launched its Cana- dian e-commerce store. Trading Liquidity – Sec- ondary trading is relatively limited for certain names, with Loblaw and Canadian Tire the most liquid. REIT debt issues in the future are expected to replace tradi- tional retail unsecured bond issuance. Trevor Bateman, CPA, CA, CFA BMO Nesbitt Burns Inc. trevor.bateman@bmo.com (416) 359-8238 . New Issuance – After a busy year of M&A-driven bond issu- ance, we expect a more manageable pace of new issuance in 2014. Eagle Credit Card Trust (Loblaw) and Glacier Credit Card Trust (Canadian Tire) have demonstrated access to the ABS market. Other – Shareholder activism was seen at Tim Hortons when a couple of hedge funds publicly argued for increased share- holder returns. Credit Profile Sector Financials – We generally expect low-single-digit growth in revenues, a range of EBITDA growth performance and posi- tive free cash flows. Positive free cash flow is expected to be used to repay elevated debt levels at Loblaw and Sobeys. Sector Fundamentals – We believe food retailers are a defensive play, as the consumer is still under pressure with unemployment at elevated levels and moderate economic growth expected in 2014. However, our view is tempered by an intensifying competitive landscape in grocery retail as Walmart and Tar- get increase their competitive position. Industry retail square footage is expected to grow at a faster pace than domestic grocer store networks. Retail food price competition remains as intense as ever. Credit Ratings – Ratings are generally stable after DBRS’ downgrade of Sobeys and the Negative outlook by S&P. DBRS recently wrote that Metro and Sobeys are most at risk of nega- tive credit rating pressure. Page 2 Fixed Income Quarterly—Retailing/Consumer Products Viewpoint We rate the sector Underperform, reflecting challenging mar- ket conditions in light of intensifying competition in grocery retail, elevated financial risk following strategic M&A activity in 2013, and increasingly value-conscious consumer spending against the backdrop of high household debt. After a flurry of new issuance over the summer and fall, we expect a moder- ate amount of bond issuance in 2014. The “high beta” sector also remains vulnerable to underperformance if an industry price war breaks out and/or investors’ global risk tolerance deteriorates. Retail Outperforms in Q1/14: Retail sector bonds generated a total return of 1.58% in Q1/14 in the short end, which slightly outperformed the short bucket of the FTSE TMX Canada Universe Corporate Bond Index total return of 1.39%. In the mid-term, the sector’s total return of 4.84% slightly outpaced the universe total return of 3.85%. In the long end, the sector’s total return of 7.94% was better than the universe total return of 6.06%. For full-year 2013, the retail sector underperformed by 28 bps in the short term and 109 bps in the mid term. In the long end, the sector outperformed by ~400 bps, resulting in overall outperformance of 31 bps on a broad basis. Loblaw bonds generally outperformed in Q1/14, illustrated by the 2023 bond tightening by 27 bps, or by 15%, compared to the Tim Hortons 2023 bond that tightened by 14% and Sobeys 2023 bond that tightened by 12% (measured by spread to curve). The long Metro 2035 bond now trades ~13 bps wider than the Loblaw 2035 bond, which we believe signals market un- certainty about Metro’s plans to restore its debt leverage to more normal levels in the 2.5x area (currently 2.0x December 31, 2013) and pursue growth opportunities to combat in- creasingly competitive grocery retail environment driven by the consolidation (Loblaw/Shoppers, Sobeys/Safeway) and Walmart’s expansion in Quebec. We think there is a short-term trading opportunity, as we do not expect Metro’s leverage will rise above Loblaw’s leverage. Key Themes Canadian Economy to Pick-up Modestly in 2014 – BMO Eco- nomics expects Canadian economic growth to pick-up mod- estly to 2.3% in 2014 from 2.0% in 2013. Consumer spending growth is expected to remain modest in 2014, at 2.5% compared to 2.2% in 2013. Consumer insolvencies increased in 2013 for the first year since 2009 by 0.2% after the number of filings (bankruptcies + proposals) declined 3.7% in 2012. However, 2014 has started strong with a 5.6% y/y decline in consumer insolvency filings in January, which is an improvement from a 4.5% y/y increase in January 2013. The unemployment rate is expected to improved slightly in 2014 and decline below 7.0% to 6.9%, the lowest level since the credit crisis, but still higher than pre-credit crisis levels. While the trend in the unemploy- ment rate is encouraging, we do not expect a strong recovery for Canadian consumer spending, and we expect consumers to maintain their preference to eat at home and continue to be focused on value. Rising Indebtedness of Canada’s Household Sector – The Bank of Canada and others continue to express concern regarding the high level of indebtedness of Canada’s households. The Bank of Canada wrote in its December 2013 Financial System Review that the level of indebtedness is still elevated, and the Bank’s stress tests suggest that households are vulnerable to adverse economic shocks. The central bank also notes hous- ing valuations remain stretched, in certain markets, and there continue to be signs of overbuilding. These imbalances will take some time to correct since they were built over a long period of time. The Bank cautioned that while a gradual un- winding of imbalances is expected, there is a risk of a sharper correction. Retail Food Inflation – Wholesale food inflation has accelerated at faster pace than the rate of growth in retail food inflation, which puts pressure on gross margins, all else equal. BMO Economics expects food price inflation to pick-up in 2014 to 1.5% compared to 1.2% for 2013, which is still lower than 2.4% in 2012. We remain cautious about grocers’ ability to pass along price increases to consumers in light of intensify- ing competition in grocery retail, driven in part by the excess supply of selling space. Increasing Competition – Food retailing is becoming more competitive with Walmart’s continued expansion activity in Canada and its stated goal of being the fastest growing retailer in the region, as well as Target Canada’s 2013 entry. Walmart Canada currently has 247 supercentres and 142 conventional stores in Canada (February 4, 2014). The company plans to complete 35 supercentre projects in fiscal 2015, as well as expand its distribution network and its e-commerce business. Eventually, Walmart plans to convert all Canadian stores to Supercentres. Target Corp. plans to add nine more stores to its current network of 124 stores (as of January 29, 2014). On October 31, 2013, Amazon unveiled its new grocery, health and beauty, and automotive e-commerce offering. In the quick-service restaurant sector, McDonalds has elevated the treatment of its coffee offering to a level just as critically important as it treats its iconic french fries. Grocery Retail Square Footage – Industry square footage growth is a threat, as the growth in supply has continued to outpace demographic-driven demand. Over the last six years, industry square footage has grown 1.8% CAGR, which has exceeded annual population growth of 1.0% (DBRS), further intensifying competitive pressure in the industry. E-commerce – On October 31, Amazon unveiled its new food, health and beauty, and automotive product offering on its amazon.ca website. On the surface, Amazon could be disruptive to food retailing in Canada as it has in music and  Fixed Income Quarterly—Retailing/Consumer Products Page 3 videos since none of the major grocers has an online food offering. That said, prices on amazon.ca are not as low as consumers may expect, which likely will mute the impact of Amazon. In automotive, if Amazon can provide consumers with competitive prices, it could become a threat to Canadian Tire. Walmart plans to expand on its e-commerce offering walmart.ca in 2014. Online retail sales have grown by over 30% since 2009 to over $20 billion in 2013. Online sales are expected to grow 65% over the next five years to over $33 billion (Forrester Research/ DBRS). Further Grocery Retail Industry Consolidation? – Now that Safeway Canada has been acquired by Sobeys, there is not much else remaining of size in the grocery industry for ac- quisition. Metro Inc. has historically signalled its willingness to make further acquisitions, but there is no obvious grocer available to acquire at this time. Ethnic Retailing – We continue to expect ethnic food retailing growth to accelerate in the coming years. Those retailers that recognize and act on this trend should benefit. Loblaw acted early to enter the ethnic food segment with its purchase of T&T Supermarkets in 2009. Retail Real Estate Strategy – Both Loblaw and Canadian Tire sold real estate into newly public real estate investment trusts with the aim to optimize their capital structures. As a result, we anticipate reduced new issuance out of the traditional retail Chart 1: Food Retailers – 5-Year Indicative Spreads bps 500 450 Metro 400 Weston entity (absent M&A transactions) as REIT structures begin to issue unsecured debt. We think the strategy is notionally negative for existing bondholders due to increased capital structure complexity, structural subordination of real estate assets and the beginning of a trend to monetize real estate holdings, which diminish asset coverage. Shareholder Activism – Recent events at Tim Hortons in 2013 illustrate the emerging trend of shareholder activism to boost share price. New Issuance – The retail sector primary new issuance re- turned to life in 2013, driven by M&A activity. Sobeys issued $1.0 billion in July 2013 to help fund its purchase of Canada Safeway. Loblaw issued $1.6 billion on September 5, 2013, to help fund its purchase of Shoppers Drug Mart. As well, Tim Hortons issued $450 million in November 2013 to help fund its share repurchase program. Tim Hortons also issued $450 million in late March 2014 in the 5-year term to complete its funding for its planned share buyback activity. We expect that Metro Inc. will eventually return to the bond market in the near term as it strives to restore its leverage to more normal levels of ~2.5x from the current 2.0x level. The company has the capacity to add up to $350 million of debt to restore leverage to ~2.5x (S&P methodology), assuming a modest decline in EBITDA in 2014. Chart 2: Other Consumer Products/Retailers – 5-Year Indicative Spreads Loblaws 0 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 As at March 31, 2014 Source: BMO Capital Markets bps 500 450 400 350 300 250 200 150 100 50 Can Tire Molson Coors Shoppers 350 300 250 200 150 100 50 0 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 As at March 31, 2014 Source: BMO Capital Markets Page 4 Fixed Income Quarterly—Retailing/Consumer Products Table 1: Canadian Retail Credit Ratings DBRS S&P Moody's Issuer: Rating Outlook Rating Outlook Rating Outlook Canadian Tire BBBH George Weston BBB Loblaw BBB Metro BBB Shoppers Drug Mart 1 AL Sobeys BBBL Stable BBB+ Stable BBB Stable BBB Stable BBB UR-Neg. BBB+ Stable BBB- Stable nr Stable nr Stable nr Stable nr CW-Neg. nr Negative nr 1. Shoppers Drug Mart was downgraded by DBRS to BBB (Stable) on April 1, 2014 and by S&P to BBB (Stable) on April 3, 2014 As at March 31, 2014 Source: BMO Capital Markets, Credit Rating Agencies  Fixed Income Quarterly—Canadian Fixed Income Issuers Page 1 Canadian Fixed Income Issuers DBRS S&P Moody's Rating Outlook Rating Outlook Rating Outlook Issuer Industry 407 East Development Group General Partnership1 INFRA 407 International Inc.1 INFRA AL Negative A- Stable nr A Stable A Stable nr Aeroports de Montreal1 INFRA AH Stable nr A1 Stable Algonquin Power Co. UTIL - Gas/Elec BBBL Stable BBB Stable nr Alliance Pipeline Limited Partnership1 PIPE AL Stable BBB+ Stable A3 Stable AltaGas Ltd. UTIL - Gas/Elec BBB Stable BBB Stable nr AltaLink Investments, L.P. UTIL - Gas/Elec BBB Stable BBB- Stable nr AltaLink, L.P.1 UTIL - Gas/Elec A Stable A- Stable nr American Express Canada Credit Corp. FIN AH Stable A- Stable A2 Stable BAC Canada Finance Company BANK AL Stable A- Negative Baa2 Stable Bank of Montreal BANK AA Stable A+ Stable Aa3 Stable Bank of Nova Scotia BANK AA Stable A+ Stable Aa2 Stable Bell Aliant Regional Communications Limited Partnership TEL BBB Stable BBB Stable nr Bell Canada TEL AL Stable BBB+ Stable Baa1 Stable BMO Capital Trust BANK AL Stable BBB Baa2 Stable BMW Canada Inc. AUTO A Stable A+ Stable A2 Stable BNS Capital Trust (Scotiabank Capital Trust) BANK AL Stable BBB+ Baa1 Stable British Columbia Ferry Services Inc.1 INFRA A Stable AA- Stable nr Brookfield Corporation (BAM) REAL ESTATE AL Negative A- Stable Baa2 Stable Brookfield Office Properties REAL ESTATE BBB Stable BB+ CW-Developing nr Brookfield Renewable Energy Partners LP UTIL - Gas/Elec BBBH Stable BBB Positive nr Caisse Centrale Desjardins BANK AA Stable A+ Stable Aa2 Stable Calloway Real Estate Investment Trust REAL ESTATE BBB Stable nr nr Canada Life Assurance Co.2 INS AAL Stable AA- A2 Stable Canada Life Capital Trust INS AH Stable A+ nr Canadian Imperial Bank of Commerce BANK AA Stable A+ Stable Aa3 Stable Canadian Natural Resources Ltd. O&G BBBH UR-Developing BBB+ Stable Baa1 Stable Canadian Pacific Railway Company INFRA BBBL Positive BBB- CW-Positive Baa3 UR-Positive Canadian Tire Corp., Limited RETAIL BBBH Stable BBB+ Stable nr Canadian Utilities Ltd. UTIL - Gas/Elec A Stable A Stable nr Canadian Western Bank BANK AL Stable nr nr Capital Desjardins Inc. BANK AAL Stable A Stable A2 Stable Capital Power L.P. UTIL - Gas/Elec BBB Stable BBB- Stable nr Caterpillar Financial Services Ltd. FIN A Stable A Stable A2 Stable Choice Properties REIT REAL ESTATE BBB Stable BBB Stable nr CI Financial Corp. FIN AL Stable BBB+ Stable nr CIBC Capital Trust BANK AL Stable BBB Baa2 Stable Citigroup Finance Canada BANK AL Stable A- Negative Baa2 Stable Cogeco Cable Inc.1 CABLE BBBL Stable BBB Stable nr Cominar REIT REAL ESTATE BBBL Stable nr nr CU Inc. UTIL - Gas/Elec AH Stable A Stable nr Edmonton Regional Airports Authority1 INFRA AH Stable A Positive A1 Stable Emera Inc. UTIL - Gas/Elec BBBH UR-Developing BBB+ Negative nr Enbridge Gas Distribution Inc. UTIL - Gas/Elec A Stable A- Stable nr Enbridge Inc. PIPE AL Stable A- Stable Baa1 Stable Enbridge Income Fund PIPE BBBH Stable nr Baa2 Stable Enbridge Pipelines Inc. PIPE A Stable A- Stable nr Encana Corporation O&G BBB Stable BBB Negative Baa2 Stable Enersource Corp. UTIL - Gas/Elec A Stable A Stable nr ENMAX UTIL - Gas/Elec AL Stable BBB+ Stable nr EPCOR Utilities Inc. UTIL - Gas/Elec AL Stable BBB+ Positive nr Fairfax Financial Holdings FIN BBB Stable BBB- Stable Baa3 Stable Finning International Inc. IND AL Stable BBB+ Stable nr First Capital Realty Inc. REAL ESTATE BBBH Stable nr Baa2 Stable Fortis Inc. UTIL - Gas/Elec AL UR-Developing A- Negative nr FortisAlberta Inc. UTIL - Gas/Elec AL Positive A- Negative Baa1 Stable FortisBC Energy Inc. UTIL - Gas/Elec A Stable nr A3 Negative FortisBC Holdings Inc. UTIL - Gas/Elec BBBH Stable nr Baa2 Negative FortisBC Inc. UTIL - Gas/Elec AL Stable nr Baa1 Negative Gaz Metro Inc.1 UTIL - Gas/Elec A Stable A+ Stable nr GE Capital Canada Funding Company FIN nr AA+ Stable A1 Stable George Weston Ltd. RETAIL BBB Stable BBB Stable nr Granite REIT REAL ESTATE BBB Stable nr Baa3 Positive Greater Toronto Airports Authority (GTAA)1 INFRA A Stable A Stable A1 Stable Great-West Lifeco Inc. INS AAL Stable A+ Stable nr H&R REIT REAL ESTATE BBB Stable nr nr Honda Canada Finance Inc. AUTO AH Stable A+ Stable A1 Stable HSBC Bank Canada BANK AAL Stable AA- Negative nr Husky Energy Inc. O&G AL Stable BBB+ Stable Baa2 Stable Hydro One Inc. UTIL - Gas/Elec AH Stable A+ Negative A1 Stable As at March 31, 2014 Notes: * Ratings are those of senior unsecured obligations or long-term corporate family rating 1 Ratings are those of senior secured debt 2 Ratings are those of subordinated debt Industry: ABS: Asset-Backed Security, AUTO: Auto, BANK: Bank, CABLE: Cable, FIN: Financial Services & Other Financials, IND: Industrial Products, INFRA: Infrastructure, INS: Insurance, M&M: Metals and Mining, O&G: Oil and Gas, OTHER: Other, PIPE: Pipeline, PFA: Pension Fund Agency, PP: Printing and Publishing, REAL ESTATE: Real Estate, RETAIL: Retailer, TEL: Telecom, UTIL: Gas/Elec: Gas and Electric Utility  Page 2 Fixed Income Quarterly—Canadian Fixed Income Issuers Canadian Fixed Income Issuers (continued) DBRS S&P Moody's Issuer Industry Rating Outlook Rating Outlook Rating Outlook IGM Financial (formerly Investors Group) FIN Industrial Alliance Insurance and Financial Services Inc.2 INS AH Stable A+ Stable nr A Stable A Stable nr Intact Financial FIN AL Stable nr Baa1 Stable Inter Pipeline (Corridor) Inc. PIPE A Stable A Stable A2 Stable Inter Pipeline Ltd. PIPE BBBH Stable BBB+ Stable nr John Deere Canada Funding Inc. FIN A Stable A Stable A2 Stable Laurentian Bank of Canada BANK BBBH Positive BBB Stable nr Leisureworld Senior Care LP1 INFRA A Stable A- Negative nr Loblaw Companies Ltd. RETAIL BBB Stable BBB Stable nr Manitoba Telecom Services Inc. TEL BBB Stable BBB Stable nr Manufacturers Life Insurance Co.2 INS Manulife Bank Canada ** FIN AH Stable A+ nr AH Stable A+ Stable nr Manulife Financial Capital Trust INS A Stable A nr Manulife Financial Corporation INS AH Stable A Stable nr Maritimes & Northeast Pipeline L.P.1 PIPE A Stable A Stable A2 Stable METRO Inc. RETAIL BBB Stable BBB Stable nr Molson Coors Brewing Co. RETAIL BBB Stable BBB- Positive Baa2 Stable National Bank of Canada BANK AAL Stable A Stable Aa3 Stable NBC Asset Trust BANK BBBH Stable BBB Baa3 Stable NAV CANADA1 INFRA AA Stable AA Stable Aa2 Stable Newfoundland Power Inc.1 UTIL - Gas/Elec A Stable nr A2 Stable Nexen Inc. O&G AH Stable AA- Stable Aa3 Stable NOVA Gas Transmission Ltd. PIPE AL Stable A- Stable A3 Stable Nova Scotia Power Inc. UTIL - Gas/Elec AL Stable BBB+ Negative nr Ontario Power Generation UTIL - Gas/Elec AL Stable A- Negative nr Ottawa Macdonald-Cartier International Airport Authority1 INFRA AH Stable A+ Stable Aa3 Stable Pembina Pipeline Corp. PIPE BBB Stable BBB Stable nr Power Financial Corporation FIN AAL Stable A+ Stable nr RBC Capital Trust BANK AL Stable A- Baa2 Stable RioCan REIT REAL ESTATE BBBH Stable BBB- Stable nr Rogers Communications Inc. CABLE BBB Stable BBB+ Stable Baa1 Stable Royal Bank of Canada BANK AA Stable AA- Stable Aa3 Stable Shaw Communications Inc. CABLE BBB Stable BBB- Positive Baa3 Stable Shoppers Drug Mart Corp.3 RETAIL AL UR-Negative BBB+ CW-Negative nr SNC-Lavalin Group Inc.4 INFRA BBB Negative BBB Negative nr Sobeys Inc. RETAIL BBBL Stable BBB- Negative nr Sun Life Assurance Company of Canada2 INS AH Stable A A2 Stable Sun Life Capital Trust INS A Stable A A3 Stable Sun Life Financial Inc. INS AH Stable A Stable nr Suncor Energy Inc. O&G AL Stable BBB+ Stable Baa1 Stable Talisman Energy Inc. O&G BBBH Stable BBB Negative Baa2 Negative TD Capital Trust BANK AL Stable A- A3 Stable TELUS Corporation TEL AL Stable BBB+ Stable Baa1 Stable Teranet Holdings LP1 INFRA BBB Stable BBB+ Negative nr Thomson Reuters Corporation PP BBBH Stable BBB+ Stable Baa2 Stable Tim Hortons Inc. RETAIL BBB Stable nr nr Toronto Hydro Corporation UTIL - Gas/Elec AH Stable A Stable nr Toronto-Dominion Bank BANK AA Stable AA- Stable Aa1 Stable Trans Quebec & Maritime Pipeline Inc. PIPE AL Stable BBB+ Stable nr TransAlta Corporation UTIL - Gas/Elec BBB Stable BBB- Stable Baa3 Negative TransCanada PipeLines Ltd. PIPE AL Stable A- Stable A3 Stable TransNorthern Pipe PIPE AL Stable nr nr University of Ontario Institute of Technology INFRA BBBH Stable nr A2 Stable Union Gas Ltd. UTIL - Gas/Elec A Stable BBB+ Stable nr Vancouver International Airport Authority INFRA AAL Stable AA Stable nr Veresen Inc. PIPE BBBH Stable BBB Stable nr Viking Rideau1 REAL ESTATE AH UR-Developing nr nr Wells Fargo Canada Corporation BANK AA Stable A+ Negative A2 Stable Westcoast Energy Inc. PIPE AL Stable BBB Stable nr Winnipeg Airports Authority Inc.1 INFRA nr A Stable A2 Stable As at March 31, 2014 Notes: * Ratings are those of senior unsecured obligations or long-term corporate family rating 1 Ratings are those of senior secured debt 2 Ratings are those of subordinated debt 3 Shoppers Drug Mart was downgraded by DBRS to BBB (Stable) on April 1, 2014 and by S&P to BBB (Stable) on April 3, 2014. 4 SNC Lavalin Group’s outlook was revised to Stable by S&P on April 1, 2014. Industry: ABS: Asset-Backed Security, AUTO: Auto, BANK: Bank, CABLE: Cable, FIN: Financial Services & Other Financials, IND: Industrial Products, INFRA: Infrastructure, INS: Insurance, M&M: Metals and Mining, O&G: Oil and Gas, OTHER: Other, PIPE: Pipeline, PFA: Pension Fund Agency, PP: Printing and Publishing, REAL ESTATE: Real Estate, RETAIL: Retailer, TEL: Telecom, UTIL: Gas/Elec: Gas and Electric Utility  Fixed Income Quarterly—Appendix: Disclosures Page 1 Appendix - Disclosure Statement and Analyst’s Certification IMPORTANT DISCLOSURES Analyst’s Certification As to each company covered in this ebook, the analyst hereby certifies that the views expressed in this report accurately reflect the analyst’s personal views about the subject securities or issuers. Each analyst also certifies that no part of his compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their af- filiates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients. Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Ltd. are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restric- tions on communications with a subject company, public appearances and trading securities held by a research analyst account. Company Specific Disclosures For Important Disclosures on the stocks discussed in this report, please go to http://researchglobal.bmocapitalmarkets.com/Public/Company_Disclo- sure_Public.aspx. Company Specific Disclosure Key 1- 2- 3- 4- 5- 6- 7- 8- 9- 10 - 11 - 12 - 13 - 14 - 15 - 16 - 17 - 18 - 19 – BMO Capital Markets has undertaken an underwriting liability with respect to this issuer within the past 12 months. BMO Capital Markets has provided investment banking services with respect to this issuer within the past 12 months. BMO Capital Markets has managed or co-managed a public offering of securities with respect to this issuer within the past 12 months. BMO Capital Markets or an affiliate has received compensation for investment banking services from this issuer within the past 12 months. BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months. This issuer is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO BM Ltd. or an af- filiate within the past 12 months: A) Investment Banking Services; B) Non-Investment Banking Securities Related Services; or C) Non-Securities Related Services. BMO Capital Markets or its affiliates expects to receive or intends to seek compensation for investment banking services from the company in the next 3 months. BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of this issuer. BMO Capital Markets makes a market in this security. A research analyst, associate, or any person (or their household members) directly involved in the preparation of this research report has a financial interest in securities of this issuer. A research analyst and/or associate who prepared this report and/or a household member is a member of the Board of Directors of this company or an advisor or officer of this company. A research analyst who prepared this report received compensation from the company in the past 12 months. A partner, director, officer, employee or agent of BMO Capital Markets is an officer, director, employee of, or serves in an advisory capacity to, this issuer: A partner, director or officer of BMO Capital Markets or the analyst involved in the preparation of this report has provided paid services to this issuer in the preceding 12 months, other than normal course investment advisory or trade execution services. A member of the Board of Directors of Bank of Montreal is also a member of the Board of Directors or is an officer of this issuer: A BMO Nesbitt Burns Inc. research analyst has extensively viewed the material operations of this issuer. The issuer has paid or reimbursed some or all of the BMO Nesbitt Burns Inc. analysts travel expenses. A redacted draft of this report was previously shown to the issuer (for fact checking purposes) and changes were made to the report before pub- lication. Company Specific Disclosures ADS – BMO Financial Group is one of ADS’s largest clients and accounts for a significant percentage of both AIR MILES revenue and overall revenue. AIG –Along with other underwriters of an AIG medium term note offering, BMO Capital Markets Corp. has been named as a defendant in a consolidated class action lawsuit. No assessment of the risks created by these legal actions or of the potential for additional claims against the defendants or others arising from this public offering was undertaken in preparing this report and none is reflected herein. ARX – BMO Nesbitt Burns Inc. (“BMO NBI”) has been retained by ARC Resources Ltd. (“ARC”) to seek proposals for their 11,860 gross (7,838 net) hectares of concentrated Southern Alberta oil producing lands. BMO NBI will be paid a fee based on the successful completion of the transaction. BMO NBI follows information control procedures which prevent its research analysts who are issuing research from having access to non-public information received by BMO NBI’s investment banking personnel in connection with the investment banking advisory mandates  Page 2 Fixed Income Quarterly—Appendix: Disclosures with Talisman. Accordingly, it is possible that individual employees at BMO NBI may have material non-public information or opinions which are not included in, and may not be consistent with, the information and advice in this research report. BMO – Securities legislation in certain Canadian provinces prohibits registrants from recommending, or cooperating with any other person in recommending, in any circular, pamphlet or similar publication that is distributed with reasonable regularity in the ordinary course of its business, that securities of the registrant or a related issuer, or in the case of a distribution, that securities of a connected issuer, be purchased, sold or held unless such publication contains a statement of the relationship or connection between the registrant and the issuer. BMO Nesbitt Burns Inc. is an indirect wholly-owned subsidiary of Bank of Montreal. Accordingly, Bank of Montreal is a related and connected issuer of BMO Nesbitt Burns Inc. TO U.S. RESIDENTS: This publication, to the extent it refers to Bank of Montreal securities, has not been approved or distributed by BMO Capital Markets Corp. or BMO Nesbitt Burns Securities Ltd. and affiliates of BMO Nesbitt Burns Inc. It is intended for distribution in the U.S. by BMO Nesbitt Burns Inc. only to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6 under the Securities Exchange Act of 1934, as amended). BNS – BMO Nesbitt Burns Inc., Scotia Capital Inc. (a subsidiary of Bank of Nova Scotia), along with others, were named as defendants in two proposed Ontario class actions relating to a public offering of securities of Armtec Infrastructure Inc. No assessment of the risks created by these legal actions or of the potential for additional claims against the defendants or others arising from this public offering was undertaken in prepar- ing this report and none is reflected herein. FB – Along with other underwriters for the Facebook IPO which priced on May 17, 2012, BMO Capital Markets Corp. has been named as a defendant in several putative class action lawsuits. No assessment of the risks created by these legal actions or of the potential for additional claims against the defendants or others arising from this public offering was undertaken in preparing this report and none is reflected herein. SNC – BMO Nesbitt Burns Inc., and certain SNC-Lavalin companies are defendants, along with others, in several Canadian legal actions brought by shareholders of Bre-X Minerals Ltd. At present, these actions are either dismissed, provisionally dismissed or largely dormant. No assessment of the risks created by any of the legal actions or of the potential for adverse claims between or among defendants was undertaken in preparing this report and none is reflected herein. SNC – SNC-Lavalin has been named as one of the defendants in a proposed Ontario class action. The action pertains to certain public offerings of Canadian Royalties Inc. securities. Other defendants include Canadian Royalties, and the underwriters (including BMO Nesbitt Burns Inc.). No assessment of the risks created by this legal action or of the potential for additional claims against SNC-Lavalin or others arising from the aforementioned public offerings was undertaken in preparing this report and none is reflected herein. TD – BMO Nesbitt Burns Inc., TD Securities Inc. (a subsidiary of TD Bank), along with others, were named as defendants in two proposed Ontario class actions relating to a public offering of securities of Armtec Infrastructure Inc. No assessment of the risks created by these legal ac- tions or of the potential for additional claims against the defendants or others arising from this public offering was undertaken in preparing this report and none is reflected herein. TLM – BMO Nesbitt Burns Inc. (“BMO NBI”) has been retained as exclusive financial advisor with respect to Talisman’s North Duvernay as- sets. BMO NBI will be paid a fee conditionally based on the successful completion of the transaction. BMO NBI follows information control procedures which prevent its research analysts who are issuing research from having access to non-public information received by BMO NBI’s investment banking personnel in connection with the proposed amendments. Accordingly, it is possible that individual employees at BMO NBI may have material non-public information or opinions which are not included in, and may not be consistent with, the information and advice in this research report. TLM – BMO Nesbitt Burns Inc. (“BMO NBI”) is acting as a financial advisor to Talisman Energy (“Talisman”) on their sale of a minority inter- est in Oleoducto Central S.A. (“Ocensa”) to an investor group led by Advent International (“Advent”). BMO NBI will be paid a fee based on the completion of the transaction. BMO NBI follows information control procedures which prevent its research analysts who are issuing research from having access to non-public information received by BMO NBI’s investment banking personnel in connection with the investment banking advisory mandates with Talisman. Accordingly, it is possible that individual employees at BMO NBI may have material non-public information or opinions which are not included in, and may not be consistent with, the information and advice in this research report. Distribution of Ratings (December 31, 2013) * Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts. ** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as percentage within ratings category. *** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as percentage of Investment Banking clients. **** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts. ***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking services as percentage of Investment Banking clients. Rating Category BMO Rating BMOCM US Universe* BMOCM US IB Clients** BMOCM US IB Clients*** BMOCM Universe**** BMOCM IB Clients***** Starmine Universe Buy Outperform 38.0% 20.4% 49.0% 38.8% 50.4% 52.5% Hold Market Perform 56.1% 13.8% 49.0% 54.0% 46.5% 41.8% Sell Underperform 5.8% 5.6% 2.0% 7.2% 3.1% 5.7%  Fixed Income Quarterly—Appendix: Disclosures Page 3 Rating and Sector Key (as of April 5, 2013) We use the following ratings system definitions: OP = Outperform - Forecast to outperform the analyst’s coverage universe on a total return basis; Mkt = Market Perform - Forecast to perform roughly in line with the analyst’s coverage universe on a total return basis; Und = Underperform - Forecast to underperform the analyst’s coverage universe on a total return basis; (S) = Speculative investment; NR = No rating at this time; and R = Restricted – Dissemination of research is currently restricted. BMO Capital Markets’ seven Top 15 lists guide investors to our best ideas according to different objectives (CDN Large Cap, CDN Small Cap, US Large Cap, US Small Cap, Income, CDN Quant, and US Quant have replaced the Top Pick rating). Prior BMO Capital Markets Rating System (January 4, 2010 – April 4, 2013) http://researchglobal.bmocapitalmarkets.com/documents/2013/prior_rating_system.pdf Other Important Disclosures For Important Disclosures on the stocks discussed in this report, please go to http://researchglobal.bmocapitalmarkets.com/Public/ Company_Disclosure_Public.aspx or write to Editorial Department, BMO Capital Markets, 3 Times Square, New York, NY 10036 or Editorial Department, BMO Capital Markets, 1 First Canadian Place, Toronto, Ontario, M5X 1H3. Dissemination of Research BMO Capital Markets Equity Research is available via our website https://research-ca.bmocapitalmarkets.com/Public/Secure/Login. aspx?ReturnUrl=/Member/Home/ResearchHome.aspx. Institutional clients may also receive our research via Thomson Reuters, Bloomberg, FactSet, and Capital IQ. Research reports and other commentary are required to be simultaneously disseminated internally and externally to our clients. General Disclaimer “BMO Capital Markets” is a trade name used by the BMO Investment Banking Group, which includes the wholesale arm of Bank of Montreal and its subsidiaries BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. in the U.K. and BMO Capital Markets Corp. in the U.S. BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries (“BMO Financial Group”) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. This material is for information purposes only and is not an offer to sell or the solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein. Additional Matters To Canadian Residents: BMO Nesbitt Burns Inc. furnishes this report to Canadian residents and accepts responsibility for the contents herein subject to the terms set out above. Any Canadian person wishing to effect transactions in any of the securities included in this report should do so through BMO Nesbitt Burns Inc. The following applies if this research was prepared in whole or in part by Andrew Breichmanas, Iain Reid, Tony Robson or Edward Sterck: This research is not prepared subject to Canadian disclosure requirements. This research is prepared by BMO Capital Markets Limited and subject to the regulations of the Financial Conduct Authority (FCA) in the United Kingdom. FCA regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 5% or more of the equity of the issuer. Canadian regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 1% or more of the equity of the issuer that is the subject of the research. Therefore BMO Capital Markets Limited will only disclose its and its affiliates ownership interest in the subject issuer if such ownership exceeds 5% of the equity of the issuer.  Page 4 Fixed Income Quarterly—Appendix: Disclosures To U.S. Residents: BMO Capital Markets Corp. furnishes this report to U.S. residents and accepts responsibility for the contents herein, except to the extent that it refers to securities of Bank of Montreal. Any U.S. person wishing to effect transactions in any security BMO Capital Markets discussed herein should do so through BMO Capital Markets Corp. BMO Capital Markets Ltd. and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries (“BMO Financial Group”) has lending To U.K. Residents: In the UK this document is published by BMO Capital Markets Limited which is authorised and regulated by arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections the Financial Conduct Authority. The contents hereof are intended solely for the use of, and may only be issued or passed on to, (I) contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (II) high net worth entities falling within Article 49(2)(a) to (d) that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express or implied, in respect thereof, takes no of the Order (all such persons together referred to as “relevant persons”). The contents hereof are not intended for the use of and may responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this not be issued or passed on to retail clients. report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. This material is for information purposes only and is not an offer to sell or the Unauthorized reproduction, distribution, transmission or publication without the prior written consent of BMO Capital Markets is solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned strictly prohibited. in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Click here for data vendor disclosures when referenced within a BMO Capital Markets research document. Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein. Additional Matters To Canadian Residents: BMO Nesbitt Burns Inc., furnishes this report to Canadian residents and accepts responsibility for the contents herein subject to the terms set out above. Any Canadian person wishing to effect transactions in any of the securities included in this report should do so through BMO Nesbitt Burns Inc. The following applies if this research was prepared in whole or in part by Andrew Breichmanas, Tony Robson, or Edward Sterck: This research is not prepared subject to Canadian disclosure requirements. This research is prepared by BMO Capital Markets Limited and subject to the regulations of the Financial Conduct Authority (FCA) in the United Kingdom. FCA regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 5% or more of the equity of the issuer. Canadian regulations require that a firm providing research disclose its ownership interest in the issuer that is the subject of the research if it and its affiliates own 1% or more of the equity of the issuer that is the subject of the research. Therefore BMO Capital Markets Limited will only disclose its and its’ affiliates ownership interest in the subject issuer if such ownership exceeds 5% of the equity of the issuer. To U.S. Residents: BMO Capital Markets Corp. furnishes this report to U.S. residents and accepts responsibility for the contents herein, except to the extent that it refers to securities of Bank of Montreal. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Capital Markets Corp. and/or BMO Nesbitt Burns Securities Ltd. To U.K. Residents: In the UK this document is published by BMO Capital Markets Limited which is authorised and regulated by the Financial Conduct Authority. The contents hereof are intended solely for the use of, and may only be issued or passed on to, (I) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (II) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together referred to as “relevant persons”). The contents hereof are not intended for the use of and may not be issued or passed on to, retail clients. ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, personal and commercial banking clients are served by BMO Harris Bank N.A., Member FDIC. Investment and corporate banking services are provided in Canada and the US through BMO Capital Markets. BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A, (Member FDIC), BMO Ireland Plc, and Bank of Montreal (China) Co. Ltd. and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member SIPC), and BMO Capital Markets GKST Inc. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Canadian Investor Protection Fund) in Canada, Europe and Asia, BMO Capital Markets Limited in Europe and Australia and BMO Advisors Private Limited in India. “Nesbitt Burns” is a registered trademark of BMO Nesbitt Burns Corporation Limited, used under license. “BMO Capital Markets” is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license. ® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere. TM Trademark Bank of Montreal ©COPYRIGHT 2014 BMO CAPITAL MARKETS CORP. A member of BMO  Financial Group Page 17 January 3, 2014