to view the presentation - IMN

Global Markets
The Fifth Annual new England Public Finance
Conference Boston, MA
The Importance of Swap Pricing
Marko Issever, Managing Director
October 22-23 2007

Agenda
I. Introduction to The Bank of New York Mellon
II. Current Swap Opportunities
III. How to rebalance existing CMS swaps in the current market environment
IV. What are some of the reasons BMA vs. LIBOR swaps move?
V. Relationship Contacts
Page 2

Section I.
Introduction to The Bank of New York Mellon

The Bank of New York Mellon
• One of the largest U.S. bank
holding companies
• Average assets of $140 billion
• $1 trillion in assets under
management
• Presence in 37 countries
• Subcustodian Network spanning more
than 100 markets
• Current market capitalization over
$32 billion
• $18 trillion under custody and
administration worldwide
• The nation’s oldest bank, founded by
Alexander Hamilton in 1784
Page 4

Overview of Derivatives Capabilities
Bank of New York Mellon’s Strengths
• Major dealer in a broad range of derivative
products (interest rates, FX, and equity)
• Strong credit rating; Moody’s: Aaa, S&P: AA-
• Consultative sales approach – client driven
business
• Market leadership in OTC options and
structured products
• BK is a market leader in Bermuda options
market
• Robust client risk management
Key Takeaways
• BK is a global leader in derivatives
• BK provides risk management structuring and
solution ideas
• BK is a highly rated derivative (Aaa, AA-) and
provides competitive pricing
• BK provides information flow, advice and
counterparty diversity
Breadth of Products
• Tax Exempt Swaps and Options
• Taxable Indices – Libor Based Percentage
Swaps Applied to Tax-Exempt Market
• Basis Swaps – BMA, CP, Fed Funds,
LIBOR, Prime, T-Bill
• Interest Rate Swaps & Treasury Locks
• Swaptions and Forward Rate Agreements
• Cross Currency Swaps
• Interest Rate Options - Simple & Exotic
• OTC Treasury Options
• Equity Derivatives
Page 5

Section II.
Current Swap Opportunities

Benefits of Swaps and Derivatives
• Swaps enable issuers and investors to make efficient financial decisions.
• Most often, it will be advantageous to execute a transaction either purely in
the “cash market’ or synthetically in the “cash and derivative markets”.
• Derivatives can be used in two ways:
Arbitrage
Hedging
Cash Flow matched
Statistical
Perfect
Close but imperfect
Perfect
Close but imperfect
Page 7

Interest Rate Management – Issuance Hedging
Forward Starting Interest Rate Swap (Cash flows at start of forward date)
Today, Issuer and Counterparty enter into forward starting interest rate swap
All documentation and terms of the swap are put into place today
Forward start date to match expected fixed rate bond issuance date
Embedded forward premium is cost of the hedge
Timeline
Execute Swap to
lock in forward
fixed rate swap
Option 1: Issue fixed
rate bonds and
terminate swap
or
Option 2: Issue floating
rate bonds and swap
payments begin
Tax-Exempt
Issuer
Fixed Swap Rate
Floating Index (BMA, %of
Libor)
The Bank of
New York
Mellon
Swap and
bonds mature
Today
Option 1 – Issue fixed and terminate swap:
If rates rise, the swap is in-the-money. The cash received from the unwind offsets the higher issuing cost.
If rates decline, the swap is out-of-the money. The all-in cost for the issuance will be in line with the forward swap rate.
Option 2 – Issue floating and leave swap outstanding:
If issuing the fixed rate is less advantageous, the fixed rate term funding could be synthetically achieved by leaving the swap
intact and issuing floating.
Page 8
Issue Date and Swap Effective Date
Indicative Forward Starting Swap Pricing – Based on 67% of 1-Month LIBOR (as of 9/20/07)
5-Year Swaps
10-Year Swaps
30-Year Swaps
Start Date/
Lock Period Forward Rate Spot Rate Premium Forward Rate Spot Rate Premium Forward Rate Spot Rate Premium
3-Months 3.271% 3.271% 0.000% 3.511% 3.503% 0.008% 3.688% 3.686% 0.003%
6-Months 3.290% 3.271% 0.019% 3.526% 3.503% 0.023% 3.696% 3.686% 0.010%
12-Months 3.355% 3.271% 0.084% 3.574% 3.503% 0.072% 3.719% 3.686% 0.033%
Maturity

Flexible Start Date Swap
Situation
An issuer would like to hedge its interest rate exposure associated with a planned debt
issuance to fund a capital project. The problem is that the project start date and debt issuance
timing is not certain, but will occur from 2 to 6 months from today. This makes it difficult to
effectively hedge the interest rate exposure associated with the debt issuance.
Solution
Issuers can lock in a fixed rate with a swap with a flexible start
date to hedge a debt issuance with an uncertain closing date.
Under the terms of the swap, the issuer pays fixed and
receives 67% of 1-month LIBOR on a monthly basis.
The future interest cost of project is locked in today and can
be accurately forecasted over the life of the project without yet
knowing the exact starting date of the project.
Today’s flat yield curve environment allows for locking in the
future interest expense at a relatively low cost to the issuer.
Indicative Pricing for a Flexible Start Date Swap
Start Date of Sw ap w ill be from 2 to 6 months
Notional
$50mm Amortizing
Sw ap Start Date
2-months to 6-months
Sw ap End Date
30-Years
Floating Rate Index for Sw ap
67% of LIBOR
Fixed Sw ap Rate for Sw ap starting in 2-months 3.687%
Fixed Sw ap Rate for Sw ap starting in 6-months 3.696%
Flexible Start Date Sw ap Rate (Starts in 2 to 6 months) 3.72%
Client enters into
Flexible Starting
Swap
Client Exercises
Swap
Exercise Window
Today 2-Months 6-Months*
Swap Rate is
Locked in
First Day Swap
Can be exercised.
Last day of window.
*Swap must be exercised by this date.
Page 9

Issue Tax-Exempt Fixed or Swap to Fixed?
In the current market environment, it is attractive to issue floating rate debt and
synthetically swap the debt to fixed.
4.80%
4.60%
4.40%
4.20%
4.00%
3.80%
3.60%
3.40%
3.20%
3.00%
MMD Tax-Exempt Yield Curve versus SIFMA and 67% of
LIBOR Swap Curves
VRDB 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
MMD "AAA" SIFMA Swap Rate 67% of LIBOR
Sources: BNY Capital Markets, Inc., The Bank of New York, Municipal Market Data
Page 10
Tenor 5 10 15 20 25 30
Issue Tax-Exempt Fixed 3.63% 3.96% 4.29% 4.47% 4.58% 4.62%
SIFMA Swap 3.48% 3.80% 4.00% 4.11% 4.15% 4.20%
Difference Vs. Issue Fixed -0.15% -0.16% -0.29% -0.36% -0.43% -0.42%
67% of LIBOR Swap 3.23% 3.45% 3.55% 3.59% 3.60% 3.60%
Difference vs. Issue Fixed -0.40% -0.51% -0.74% -0.88% -0.98% -1.02%

Issue Tax-Exempt Fixed or Swap to Fixed?
• As a result of the Fed tightening cycle
which began in mid-2004 and strong
demand by foreign investors for longdated
US Treasuries, the LIBOR swap
curve has flattened considerably.
• Spread between 2-Year and 30-Year
LIBOR swap rates (a measure of the
curve’s “steepness”) has declined from
over 375 bps July 2003 and is
approximately 86 bps today.
• The “flatness” of the LIBOR swap
curve has approached current levels
for only brief periods over the past 10
years.
• This flatness provides an Issuer with
an opportunity to enhance its existing
or new swap structures by going
further out on the yield curve using a
Constant Maturity Swap (CMS).
Historical LIBOR-Based Swap Yield Curves
6.00
September 2006
5.00
September 2007
4.00 September 2005
3.00
2.00 September 2004
1.00
1yr 3yr 5yr 10yr 15yr 20yr 30yr
400
350
300
250
200
150
100
50
0
-50
Historical Spread between 2Yr-30 Yr Swap Rates
9/20/94
9/20/95
9/20/96
9/20/97
9/20/98
9/20/99
9/20/00
9/20/01
9/20/02
9/20/03
9/20/04
9/20/05
9/20/06
9/20/07
Page 11

What is a CMS Swap?
CMS Swap Mechanics
• In a CMS Swap based on the LIBOR index, an issuer receives a percentage of term LIBOR (such as a percentage of
10-Year LIBOR, the 10-year constant maturity for LIBOR) instead of receiving a percentage of 1-Month LIBOR.
• Identical to swaps based on 1-Month LIBOR, the variable rate index (percentage of 10-Year LIBOR) will be reset on any
desirable frequency.
Bondholders
Issuer
Fixed
Rate
Bank of New
York Mellon
Actual Auction
Rate
% of 10-Year LIBOR
Execute CMS Transactions in Flat Curve Environment and Benefit When Curve Steepens
Yield (%)
8.00
Current Flat Yield Curve Environment
Yield (%)
8.00
Traditional Steep Yield Curve
7.00
6.00
10-Year LIBOR
7.00
6.00
CMS
Benefit
10-Year LIBOR
5.00
5.00
4.00
1-month LIBOR
1m 3m 1yr 3yr 5yr 7yr 10yr
Maturity
4.00
1-month LIBOR
1 m 3m 1yr 3yr 5yr 7yr 10yr
Maturity
Page 12

Considerations of Utilizing CMS
Benefits
• A CMS provides economic benefit during periods
when the yield curve is normally shaped (upward
sloping)
• A CMS adds diversification to an Issuer’s swap
portfolio
Considerations
• The primary risk associated with LIBOR CMS is the
long-term continuation of a flat or inversion of the
LIBOR curve (long term rates are lower than short
term rates)
• Will not qualify for hedge accounting.
• A CMS enhancement has historically mitigated
“compression” risk often experienced in low interest
rate environments
Historical Comparison of the 10-Year Treasury vs. the 3-Month Treasury Bill
23.0
19.0
15.0
11.0
7.0
3.0
(1.0)
(5.0)
Page 13
Spread 3m T-bill 10yr Treasury
CMS transactions
mitigated basis risk during
the recent yield
compression period
04/02/62 05/21/66 07/09/70 08/27/74 10/15/78 12/03/82 01/22/87 03/12/91 04/30/95 06/18/99 08/06/03 09/24/07
24.0
20.0
16.0
12.0
8.0
4.0
0.0
(4.0)

Plain Vanilla Interest Rate Swap Mechanics
Interest Rate Swap
• A swap is priced in order to equate the fixed rate payments to the expected floating
rate payments
− PV floating = PV fixed
• Floating rate cash flows are calculated from the market’s expectations of a forward
interest curve
• Fixed rate is the IRR of forward rate meaning that initially, a swap has a zero NPV to
both parties
• The swap will take on a positive or negative value throughout its duration based on
market rates at the time or valuation
• Floating rate exposures can create volatility in interest expense
• A swap to fixed can synthetically convert floating rate exposure to a fixed rate
• Benefits include:
− Predictable interest expense
− Can eliminate exposure to volatile movements in short term interest rates
Rate
= Forward rates
Maturity
Forward curve
Fixed rate
Indicative Swap Pricing for a $100mm 30-Year Swap that began August 1, 2007
Floating
Index
Issuer
Floating
Rate Debt
Fixed Rate
Floating Index
Bank of
New York
Mellon
Swap Start Date: 8/1/07
Swap End Date: 8/1/37
Notional:
$100mm (no amortization)
Tax-Exempt Issuer pays fixed on a monthly, 30/360 day count basis
Tax-Exempt Issuer receives floating index on a monthly, actual/actual day count basis
Floating Index
Fixed Rate
SIFMA 4.28%
67% 1-M LIBOR 3.84%
67% 5-Y CMS 4.02%
Page 14

Example of Monthly Cash Flow for SIFMA Swap
Swap Details
This is an example of swap payment flows for a hypothetical trade in August 2007.
Swap Start Date: 8/1/07
Swap End Date: 8/1/37
Notional:
$100mm (no amortization)
Tax-Exempt Issuer receives SIFMA on a monthly, actual/actual day count basis
Tax-Exempt Issuer pays 4.28% fixed on a monthly, 30/360 day count basis
Floating Leg Interest Calculation – August 2007
PERIOD START DATE: 08/01/07
END DATE: 09/01/07
PERIOD DAY COUNT: Actual/Actual
Fixed Leg Interest Calculation – August 2007
PERIOD START DATE: 08/01/07
END DATE: 09/01/07
PERIOD DAY COUNT: 30/360 Unadjusted
ACTUAL # OF DAYS IN PERIOD: 31
DATE TO # OF DAYS BMA RATES RESET DATE
8/1/2007 08/02/07 1 3.61000 3.61000% 07/25/07 WED
8/2/2007 08/09/07 7 3.52000 24.64000% 08/01/07 WED
08/09/07 08/16/07 7 3.51000 24.57000% 08/08/07 WED
08/16/07 08/23/07 7 3.69000 25.83000% 08/15/07 WED
08/23/07 08/30/07 7 3.89000 27.23000% 08/22/07 WED
08/30/07 09/01/07 2 3.95000 7.90000% 08/29/07 WED
NUMBER OF DAYS IN PERIOD: 30
SWAP FIXED RATE: 4.280%
Issuer pays BK $100mm X 3.84% X 30 days / 360 days per year = $356,666.67
# OF DAYS: 31 BMA Weighted: 3.67032%
# OF RATES: 6 100% of BMA Weighted: 3.67032%
BK pays Issuer $100mm X 3.67032% X 31 days / 365 days in year = $311,726.03
Swap Payment Flows for August 2007
Bank of New York Mellon Pays Tax-Exempt Issuer for month of August: $311,726.03
Tax-Exempt Issuer Pays Bank of New York Mellon for month of August: $356,666.67
NET PAYMENT: Tax-Exempt Issuer pays BK $44,940.64.
Page 15

Example of Monthly Cash Flow for 67% of 1-Month LIBOR Swap
Swap Details
This is an example of swap payment flows for a hypothetical trade in August 2007.
Swap Start Date: 8/1/07
Swap End Date: 8/1/37
Notional:
$100mm (no amortization)
Tax-Exempt Issuer receives 67% of 1-month LIBOR on a monthly, actual/actual day count basis
Tax-Exempt Issuer pays 3.84% fixed on a monthly, 30/360 day count basis
Floating Leg Interest Calculation – August 2007
PERIOD START DATE: 08/01/07
END DATE: 09/01/07
PERIOD DAY COUNT: Actual/Actual
Fixed Leg Interest Calculation – August 2007
PERIOD START DATE: 08/01/07
END DATE: 09/01/07
PERIOD DAY COUNT: 30/360 Unadjusted
ACTUAL # OF DAYS IN PERIOD: 31
DATE TO # OF DAYS LIBOR RATES RESET DATE
8/1/2007 08/02/07 1 5.32000 5.32000% 07/25/07 WED
8/2/2007 08/09/07 7 5.32750 37.29250% 08/01/07 WED
08/09/07 08/16/07 7 5.35000 37.45000% 08/08/07 WED
08/16/07 08/23/07 7 5.56938 38.98566% 08/15/07 WED
08/23/07 08/30/07 7 5.50000 38.50000% 08/22/07 WED
08/30/07 09/01/07 2 5.56500 11.13000% 08/29/07 WED
NUMBER OF DAYS IN PERIOD: 30
SWAP FIXED RATE: 4.020%
Issuer pays BK $100mm X 3.84% X 30 days / 360 days per year = $320,000.00
# OF DAYS: 31 1-Month LIBOR Weighted: 5.44123%
# OF RATES: 6 67% of 1-Month LIBOR Weighted: 3.64562%
Page 16
BK pays Issuer $100mm X 3.64562% X 31 days / 365 days in year= $309,628.40
Swap Payment Flows for August 2007
Bank of New York Mellon Pays Tax-Exempt Issuer for month of August: $309,628.40
Tax-Exempt Issuer Pays Bank of New York Mellon for month of August: $320,000.00
NET PAYMENT: Tax-Exempt Issuer pays BK $10,375.60.

Example of Monthly Cash Flow for
67% of 5-Year LIBOR Swap
Swap Details
This is an example of swap payment flows for a hypothetical trade in August 2007.
Swap Start Date: 8/1/07
Swap End Date: 8/1/37
Notional:
$100mm (no amortization)
Tax-Exempt Issuer receives 67% of 5-year LIBOR on a monthly, actual/actual day count basis
Tax-Exempt Issuer pays 4.02% fixed on a monthly, 30/360 day count basis
Floating Leg Interest Calculation – August 2007
PERIOD START DATE: 08/01/07
END DATE: 09/01/07
PERIOD DAY COUNT: Actual/Actual
Fixed Leg Interest Calculation – August 2007
PERIOD START DATE: 08/01/07
END DATE: 09/01/07
PERIOD DAY COUNT: 30/360 Unadjusted
ACTUAL # OF DAYS IN PERIOD: 31
DATE TO # OF DAYS CMS RATES RESET DATE
8/1/2007 08/02/07 1 5.40450 5.40450% 07/25/07 WED
8/2/2007 08/09/07 7 5.30100 37.10700% 08/01/07 WED
08/09/07 08/16/07 7 5.31550 37.20850% 08/08/07 WED
08/16/07 08/23/07 7 5.17250 36.20750% 08/15/07 WED
08/23/07 08/30/07 7 5.08750 35.61250% 08/22/07 WED
08/30/07 09/01/07 2 5.01850 10.03700% 08/29/07 WED
NUMBER OF DAYS IN PERIOD: 30
SWAP FIXED RATE: 4.020%
Issuer pays BK $100mm X 4.02% X 30 days / 360 days per year = $335,000.00
# OF DAYS: 31 5-Year CMS Weighted: 5.21216%
# OF RATES: 6 67% of 5-Year CMS Weighted: 3.49215%
BK pays Issuer $100mm X 3.49215% X 31 days / 365 days in year= $296,593.40
Swap Payment Flows for August 2007
Bank of New York Mellon Pays Tax-Exempt Issuer for month of August: $296,593.40
Tax-Exempt Issuer Pays Bank of New York Mellon for month of August: $335,000.00
NET PAYMENT: Tax-Exempt Issuer pays BK $38,406.60.
Page 17

Interest Rate Management - Pros & Cons of Utilizing
Alternative Indices
Variable Leg
Advantages (Hedges)
Disadvantages (Does not hedge)
BMA Index
Percentage of LIBOR
(LIBOR*)
Percentage of
5 year CMS (CMS*)
Interest Rate Risk
Federal Tax Exemption risk
Interest Rate Risk
Provides additional pick-up over
BMA based swap
Interest Rate Risk
Assuming a traditional upward
sloping yield curve environment
most cost-effective and provides
additional pick-up over percentage
of LIBOR swap
Most expensive
State Tax Exemption
Basis risk between BMA and actual issuer
specific reset rate
Federal and State Tax Exemption
Basis risk between LIBOR* and actual
issuer specific reset rate
Federal and State Tax Exemption
Basis risk between CMS* and actual issuer
specific reset rate
If the yield curve inverts there could be
additional costs.
Page 18

Section III.
How to rebalance existing CMS swaps in the current market
environment to deal with “negative carry”

Stepped 67% of 5-Year CMS (LIBOR) Swap
CMS Swap Mechanics
Issuer
3.84%
67% of 5-Yr LIBOR X Coefficient
Bank of New
York
Floating
Rate
Bondholders
Proposed Basis Swap Overlay
Start Date: 8/1/2007
End Date: 8/1/2037
Notional: $100mm (no amortization)
Tax-Exempt Issuer pays 3.84%, monthly, 30/360 unadjusted
BK pays 67% of 5-year CMS multiplied by the following coefficients, monthly, actual/360:
Year Coefficient % of 5-Year LIBOR
Year 1: 1.20 80.40%
Year 2: 1.11 74.37%
Year 3: 1.05 70.35%
Year 4: 1.01 67.67%
Year 5: 1.00 67.00%
Year 6: 0.90 60.30%
Year 7: 0.86 57.62%
Year 8: 0.83 55.61%
Year 9: 0.80 53.60%
Years 10+: 0.77 51.59%
Page 20

Overlay Stepped CMS Basis Swap
Step CMS Swap is Expected to Produce Positive Revenue while mitigating risk of Negative Carry
• These numbers are generated by a BK internal proprietary statistical model
and assures within a 95% confidence interval that the trade should
not result in negative cash flow on a cumulative, yearly basis. We
used a mean-reverting model calibrated to the previous 17 years of
LIBOR/swap rate data. The model's results assume historical term-structure
dynamics found within this historical period will continue to hold going
forward.
• In order to come up with these coefficients we ran a Monte Carlo analysis using
data that goes back to late 1980's and projecting 25,000 scenario paths going to
the maturity of the trade. 97% of the generated paths produced no negative
cash flow on a cumulative, annual basis.
• According to our model, at the end of the maturity of the proposed basis swap:
– The expected future revenue of the basis swap is $29,349,000.
– 97% of the paths generated have resulted in positive cumulative future
cash flow.
Page 21

Example of Monthly Cash Flow for
67% of 5-Year LIBOR Swap
Swap Details
This is an example of a swap payment flows for a hypothetical trade in August 2007.
Swap Start Date: 8/1/07
Swap End Date: 8/1/37
Notional:
$100mm(no amortization)
Tax-Exempt Issuer receives 67% of 5-year LIBOR times a coefficient on a monthly, A/A basis
Tax-Exempt Issuer pays 3.84% fixed on a monthly, 30/360 day count basis
Year Coefficient % of 5-Year CMS
Year 1: 1.20 80.40%
Year 2: 1.11 74.37%
Year 3: 1.05 70.35%
Year 4: 1.01 67.67%
Year 5: 1.00 67.00%
Year 6: 0.90 60.30%
Year 7: 0.86 57.62%
Year 8: 0.83 55.61%
Year 9: 0.80 53.60%
Years 10+: 0.77 51.59%
Floating Leg Interest Calculation – August 2007
PERIOD START DATE: 08/01/07
END DATE: 09/01/07
PERIOD DAY COUNT: Actual/Actual
ACTUAL # OF DAYS IN PERIOD: 31
DATE TO # OF DAYS LIBOR RATES RESET DATE
8/1/2007 08/02/07 1 5.40450 5.40450% 07/25/07 WED
8/2/2007 08/09/07 7 5.30100 37.10700% 08/01/07 WED
08/09/07 08/16/07 7 5.31550 37.20850% 08/08/07 WED
08/16/07 08/23/07 7 5.17250 36.20750% 08/15/07 WED
08/23/07 08/30/07 7 5.08750 35.61250% 08/22/07 WED
08/30/07 09/01/07 2 5.01850 10.03700% 08/29/07 WED
Fixed Leg Interest Calculation – August 2007
PERIOD START DATE: 08/01/07
END DATE: 09/01/07
PERIOD DAY COUNT: 30/360 Unadjusted
NUMBER OF DAYS IN PERIOD: 30
SWAP FIXED RATE: 3.840%
Tax-Exempt Issuer pays BK $100mm X 3.84% X 30 days / 360 days in year = $320,000.00
# OF DAYS: 31 5-Year CMS Weighted: 5.21216%
# OF RATES: 6 1.20 * 67% of 5-Year CMS +10 bps: 4.29058%
BK pays Tax-Exempt $100mm X 4.29058% X 31 days / 365 days in year = $364,405.42
Swap Payment Flows for August 2007
Bank of New York Mellon Pays Tax-Exempt Issuer for month of August: $364,405.42
Tax-Exempt Issuer Pays Bank of New York Mellon for month of August: $320,000.00
NET PAYMENT: BK pays Tax-Exempt Issuer $44,405.42.
Page 22

Section IV.
What are some of the reasons BMA vs. LIBOR swaps move?

Cash Market vs. Swap Market
• The relationship between the cash market and the swap market has shifted due to the
creation of Municipal Structured Products over the last 2-years.
April 2006
4.80%
4.60%
4.40%
4.20%
4.00%
3.80%
3.60%
3.40%
3.20%
3.00%
MMD Tax-Exempt Yield Curve vs. BMA and 67% of LIBOR
Swap Curves
VRDB1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Sources: BNY Capital Markets, Inc., The Bank of New York, Municipal Market Data
MMD "AAA" BMA Swap Rate 67% of LIBOR
September 2007
MMD Tax-Exempt Yield Curve versus BMA and 67% of LIBOR
Swap Curves
4.80%
4.60%
4.40%
4.20%
4.00%
3.80%
3.60%
3.40%
3.20%
3.00%
VRDB1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
MMD "AAA" BMA Swap Rate 67% of LIBOR
Sources: BNY Capital Markets, Inc., The Bank of New York, Municipal Market Data
• In April 2006, 10-Year BMA swap rates were 45 basis points higher than 10-year 67% of
1-month LIBOR rates.
• Today, BMA swap rates are approximately 35 basis points higher.
• The demand for municipal structured products by investors has made BMA fixed payer
swaps more attractive for municipal issuers.
Page 24

BMA/LIBOR Ratios
BMA/LIBOR ratios are influenced by demand for municipal structured products
10-Year BMA Swap Ratio
The creation of structured notes
have driven the BMA/LIBOR
ratio lower
Page 25
Source: Bloomberg

A Typical Structured Note Issued in the Marketplace
• 8% + 10 * (65% of 1-month LIBOR – SIFMA)
• Capped at 8.50%
• Floored at 0%
• 10-year maturity
• The average coupon would have been 7.20% if this note was launched in the last
13 years.
• If tax rates fall below 35%, SIFMA would be higher than the constant 65%
LIBOR. This would lower the coupon on the notes, potentially resulting in a zero
coupon note.
• Dealers need to receive percentage of LIBOR and pay BMA in order to hedge the
resulting exposure in these notes.
Page 26

Dealers Need to Receive Percentage of LIBOR and Pay BMA
in Order to Hedge the Resulting Exposure in These Notes
Bank of New
York Mellon
% of LIBOR
BMA
Market
Formula: Constant + multiplier * (65% LIBOR – BMA)
Investor
Page 27

Section V.
Relationship Contacts

Relationship Contacts
Tax Exempt Derivatives Team
Marko Issever
Managing Director
mjissever@bankofny.com
Timothy Comerford
Vice President
tcomerford@bankofny.com
Martin Woros
Vice President
mworos@bankofny.com
Casey Kutner
Vice President
ckutner@bankofny.com
Phone: 1-212-804-2137 Fax: 212-495-1015/16
Websites
www.bankofny.com
http:// globalmarkets.bankofny.com or http://gm.bankofny.com
This document has been prepared solely for informational and discussion purposes, for private circulation, and is not an offer or solicitation to buy or sell any
financial product or to participate in any particular strategy. The Bank of New York Mellon, and its broker dealer affiliates, may have long or short positions in
any currency, derivative or instrument discussed herein. The Bank of New York Mellon has included data in this document from information generally
available to the public from sources believed to be reliable. Any price or other data used for illustrative purposes may not reflect actual current conditions.
No representations or warranties are made, and The Bank of New York Mellon assumes no liability, as to the accuracy or completeness of any data. Price
and other data are subject to change at any time without notice.
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