Market Update John Braive Vice Chairman CIBC Global

Market Update John Braive Vice Chairman, CIBC Global Asset Management May 2010

Economy: Global Outlook § While fiscal austerity is not an option, the timing could not be worse: Potential growth is set to slow markedly in the developed world. § Tightening efforts on the fiscal front will act as an additional source of drag on growth. Potential GDP Growth Over the Next 10 years (2010 to 2020) & Fiscal Drag High growth Low growth 1

Economy: U. S. Personal Income § Income growth has been exceptionally weak. § This expansion faces structural headwinds. § The destruction of household wealth should act as a stimulant for household saving. § The consumer won’t be the engine of growth. 2

Economy: U. S. Industrial Production § The manufacturing sector is recovering from its near death expansion of a year ago. § Auto sales are starting to rise and are expected to rise 10% in the next year. § Capital equipment spending is also improving as corporations update their technology. 3

Inflation: U. S. Unit Labour Costs § Unit labor costs are the best determinant of future inflation. § The huge overhang of U. S. unemployed will keep wage pressures contained. § Developed markets have little potential for sustained inflationary pressures. 4

Interest Rates: Fiscal Deficits Source: CIBC Wholesale Banking 5

Interest Rates: Canada 30 Year Gov’t Yield § Interest rates remain in their downward channel. § Rising rates would hurt the US housing market and the consumer. § Large supply will be a constant worry. § CIBC GAM forecasts a range of 3. 50% to 4. 50%. 6

Interest Rates: Consensus vs Reality § The consensus view calls for 10 -year federal bond yields at 4. 10% - well above our forecast. § For the last decade, consensus has always been too pessimistic on Canadian bonds. Canadian 10 Y Bond Yields: 1 Y Consensus Forecast vs. Realized Source: CIBC Global Asset Management Inc. 7

Interest Rates: The Yield Curve - 30 yr less 2 yr § The yield curve remains steep. § Good for financials and governments. § Central banks should be cautious raising administered rates. § European sovereign debt risks will remain high. Source: PC Bond, a business unit of TSX Inc. 8

Investment Outlook § Secular Economic Outlook POS Protracted deleveraging § Inflation Outlook POS Wage costs will remain low § Monetary Policy NEG Policy will tighten, but gradually § Fiscal Policy NEG Deficits, deficits § Demographics POS Sociological shift to savings Conclusion: No dramatic change in bond yields 9

Expected Returns: Yield Forecasts Mar 31 ’ 10 Economic Expansion Sluggish Recovery Failed Recovery % % Bank Rate 0. 25 2. 25 1. 25 0. 50 2 Year 1. 73 3. 25 2. 75 1. 25 10 Year 3. 57 4. 25 3. 50 3. 15 Corporate Yield 3. 95 4. 55 3. 75 4. 45 Corporate Spread 1. 23 0. 65 1. 00 1. 95 RRB Yield 1. 51 2. 10 1. 75 2. 25 10

Expected Returns: Global Market Forecasts 11

Why Corporate Bonds Offer Good Value – The default rates implied by current credit spreads are well above historical averages. – Corporate Canada came into the recession in good shape, and still is relatively healthy. Source: Bank of Canada 12

Why Corporate Bonds Offer Good Value Canadian mid-term corporate spreads over midterm government bond yields (in basis points) Dec’ 07 Credit Spreads at “crisis levels” S&P 500 @1460 – Despite having declined from their highs, credit spreads are still above their historical average, providing a good buying opportunity. Source: PC Bond, a business unit of TSX Inc. . 13

Why Corporate Bonds Offer Good Value US High Yield Spread US Auto Bailout Plan +1985 S p r e a d Dot-Com +906 US Bank Bailout Plan 9/11 & Enron +958 Russian Crisis +1094 Wcom/Tyco/ Actg/Mgmt +995 +648 +639 +473 +466 Gov’t Liquidity HY Inflows Bear Stearns Bailout +780 +817 Beginning of Sub. Prime Mortgage Crisis +312 Year § Spreads have spiked to new highs at each major crisis, but have consistently returned to historical averages afterwards. § High-yield bonds remain attractive, and we have added new issues. § Selection is key. We do rigorous credit research on each issuer. Source: Merrill Lynch and CIBC Global Asset Management Inc. 14

Renaissance Corporate Bond Capital Yield Fund Bond Benchmarks Key Statistics DEX Government Bond Index DEX Universe Bond Index CBCY Fund Benchmark* 3. 27% 3. 49% 4. 86% Macaulay Duration 6. 22 years 6. 03 years 5. 35 years Average Term 8. 98 years 8. 76 years 7. 78 years 100% 80% 0% 0% 20% Average Yield Credit Rating Investment Grade High Yield As at April 30, 2010 * 100% hedged into Canadian dollars 15

Interest Rates: Real Return Bonds Breakeven Inflation (Nominal yield – Real yield) Buy nominals Food inflation scare Buy RRBs Deflation scare Source: PC-Bond, a business unit of TSX Inc. • Think of breakeven inflation as a hurdle rate for RRBs • The current level is a bit high • It’s attractive for RRBs at < 1. 8% 16

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