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Don founded Kamakura Corporation in April 1990 and currently serves as its chairman and chief executive officer where he focuses on enterprise wide risk management and modern credit risk technology. His primary financial consulting and research interests involve the practical application of leading edge financial theory to solve critical financial risk management problems. Don was elected to the 50 member RISK Magazine Hall of Fame in 2002 for his work at Kamakura. Read More

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Kamakura Corporation
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Honolulu HI 96815

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Fax: 808.791.9898
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Projected forward one month Treasury bill rates dropped by as much as 0.26% in 2024 and created the first rate peak in our forecast horizon in recent weeks. Forward 1 month T-bill rates are now projected to rise steadily until reaching a peak at 3.60% in July 2021, down 0.20% from the May 2024 peak at 3.80% implied by last week’s yield curve. The implied forecast shows projected 10 year U.S. Treasury yields rising to 3.85% in 2024, down 0.15% from last week. We also present three potential scenarios consistent with the implied forecast that represent alternative paths for interest rates. This kind of multi-factor scenario generation is essential for comprehensive asset and liability management at banks, insurance firms, pension funds, and endowments.

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Caterpillar Inc. (CAT) is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Caterpillar Inc. issues bondsboth in its own name and via Caterpillar Financial Services Corporation. Caterpillar Financial Services Corporation is the beneficiary of a support agreement, not a guarantee, from Caterpillar Inc.

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Target Corporation (TGT), founded in 1902, is the second largest discount retailer in the United States. In this note, we turn to the U.S. dollar bonds issued by Target Corporation and compare its current default probabilities and credit spreads with those on all heavily traded corporate fixed-rate bonds on June 23, 2014 . A total of 95 trades were reported on 12 fixed-rate bond issues of Target Corporation with June 23 trading volume of $69 million.

Conclusion: We believe that a majority of sophisticated analysts would continue to rank Target Corporation as “investment grade” because of its long-run default probability ranking in the best 20% of the retailing peer group. A web search on Target Corporation turns up the phrase “expect more, pay less,” and that is a good description of the value proposition that Target Corporation bonds offer in today’s market.

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Morgan Stanley (MS) is both one of the world’s most important financial institutions and one of the world’s few survivors of a near-death experience in the financial crisis. In this note, we turn to the U.S. dollar bonds issued Morgan Stanley and compare its current default probabilities with those we reported on April 25, 2014 . Like any forward-looking analysis, the history of the firm in question is an important aid to understanding. We summarized the extensive government-supported borrowings by Morgan Stanley during the credit crisis in our April note, we will not repeat it here.

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In this note, we take a bond market look at one of the few companies in the world that still has the best possible legacy credit rating,Johnson & Johnson (JNJ). Why analyze a company that the rating agencies have given their best rating? That is a simple question to answer. AIG (AIG) had the rating agencies’ best rating in 2005, 3 years before its effective rescue and takeover by the U.S. government in 2008. FNMA and FHLMC both had the agencies’ highest rating on the day of their U.S. government conservatorship in September 2008, triggering an event of default under the rules of ISDA.org.

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