RBC Dominion Securities - Morning Comment - March 4, 2010

8/14/2019 RBC Dominion Securities - Morning Comment - March 4, 2010

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RBC Dominion Securities

Morning Market CommentariesPORTFOLIO ADVISORY GROUP

Thursday, March 04, 2010

MORNING COMMENTS

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MORNING COMMENTS ....................................................................................................................................................................................CANADIAN EQUITIES .......................................................................................................................................................................................US & INTERNATIONAL EQUITIES....................................................................................................................................................................

IXED INCOME, CURRENCIES AND COMMODITIES......................................................................................................................................CALENDAR OF EVENTS...................................................................................................................................................................................NUMBER CRUNCHING.....................................................................................................................................................................................REQUIRED DISCLOSURES..............................................................................................................................................................................

CANADIAN EQUITIES

What Moved the Market Yesterday

he S&P/TSX Composite Index gained 24.54 points, or 0.21%, to close at 11,852.85. Six of the indexs ten sectors finished inositive territory, led by the Materials, Industrials and Consumer Discretionary sectors. Oil gained $1.19/bbl to close at $80.97+1.49%). Natural Gas gained $0.05 to close at $4.76 (+1.04%). Spot Gold gained $5.20 on the day (+0.46%) to finish at1,139.90. The Canadian dollar also strengthened, gaining 0.36% to close at $1.032/USD.

n the Materials sector, Yamana Gold (YRI), First Quantum Minerals (FM) and Teck Resources (TCK.B) gained 2.9%, 2.5%nd 2.4% respectively. In the Industrials sector, Canadian Pacific Railway (CP) advanced 3.8%. Goldman Sachs initiatedoverage on CP yesterday with a Buy rating. Royal Bank (RY) fell 1.8% on the day after reporting fourth quarter results.

Research Highlights

eritas Research: Royal Bank (RY) - $57.00uy, Intrinsic Value Estimate: $61.00oyals results were in-line with the general themes that have emerged this quarter: lower credit losses on wholesale banking,ood earnings growth in core domestic banking activities, and robust capital markets revenues that exhibited some moderateormalization of trading revenues. While it delivered the qualitative themes, it was a tad light in quantity: earnings were1.03/share adding back amortization of intangible assets, less $0.02/share impact of reversing back into incomenneeded provisions arising from the banks involvement with Enron. The resultant $1.01/share was in-line with Veritass1.00/share expectation but a bit light of published analyst expectations of $1.04/share, which themselves had likely edgedigher given strong results by peers that have already reported Q1. Although headwinds remain especially on legacy creditssets in the U.S. Veritas thinks that conditions are, on the whole, favourable and should continue to be favourable for banksor the near and medium-term. With loan losses subsiding and margins expanding slightly from repricing and lower funding

osts, the banks are positioned to benefit from the transition from economic contraction to expansion. Veritas advises investorso continue to buy shares of RY. The quarter met Veritass expectations though not every aspect of its forecast: RY reportedredit losses and revenues below the level implied by its forecast. Veritas is also adjusting its forward share count to reflect theopularity of the DRIP and options, which is adding roughly 4M shares/quarter. Veritas is increasing its F10 earnings estimateom $4.00/share to $4.27/share but leaving its intrinsic value estimate of $61.00 unchanged.

eritas Research: Shoppers Drug Mart (SC) - $44.17 - On the Back Footell, Intrinsic Value Estimate: $43.00

When the Government of Ontario came out with Bill 102 in 2006, Shoppers Drug Mart (SDM) was able to accelerate its networrowth to offset the negative impact of reduced generic pricing on its sales and earnings. Fast forward to 2010, and Ontario is


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Page 3 March 4, 2010

RBC DOMINION SECURITIE

ack at the discussion table. Unlike 2006, SDM cannot simply increase its store growth plans. Indeed, given recentmanagement guidance of 20 to 35 conventional store openings in 2010 (versus 50 previously), it appears that softer networkrowth is in the offing. In short, avenues open to SDM to minimize the impact of legislative changes are longer term in nature.e. increased generic penetration, introducing private label generic drugs, remote dispensing, etc.). Veritas continues to thinkhat SDM is fairly valued at about $43 a share or thereabouts. In addition to uncertainty associated with legislative changes, itooks as though our expectations for softness in network growth are playing out sooner than expected.

ertilizers CP Rail Carload Data Reflects Improving Demand for Potash

P Rail reported weekly carloads volumes of 3,845 for sulphur and fertilizers for the week of February 27, 2010 compared to,954 carloads during the week of February 28, 2009. Sulphur and Fertilizer Carloads Up 96.8% YOY. More importantly, the

atest carload data is consistent with an ongoing trend of improvement for 2010 to date. Generally, about 60% of CPail's sulphur and fertilizer carload volumes are for potash shipments and each railcar holds approximately 100 tonnes ofotash. The CP Rail carload data appears to be consistent with an overall recovery in potash demand for the year to date. Aseflected in RBC CMs current financial forecasts for the North American potash producers, RBC CM expects potash shipmento continue improving heading into the spring planting season.

oblaw Companies Ltd. (L) $36.70 Highlights From Investor Meetingector Perform, Average Risk, Price Target: $40.00esterday's unstructured conversation covered a wide range of topics but was broadly centered around the SAP

mplementation, the outlook for the next two years and the benefits of a state-of-the art supply chain. While early benefits ofoblaw's investments in IT and supply chain are already apparent and should go a long way toward offsetting the costs,

arnings risk is likely to the downside over at least the next two years, reflecting execution risk of the wide-ranging undertakingnd the substantial costs involved. The catalyst for another round of multiple expansion and share price appreciation is unlikelyo come until investors gain confidence that despite moving into a period of "maximum risk" from mid-2010 to mid-2011 in thisnal phase of its turnaround, profitability gains are attainable. The implementation of a state-of-the-art supply chain shouldustain the margin recovery through: i) lower inventory (frees up working capital); ii) lower cost/case (should drive margins); iii)etter in-store availability (should drive sales); and iv) improved labor productivity (should drive margins). Applying a 15x P/E

multiple and 7.5x EV/EBITDA multiple to RBC CMs revised mid-2011 forecasts generates a price target of $40, unchanged.

ermilion Energy Trust (VET.UN) $34.81 Q4/09 Mixed Amid Expansion of Cardium Inventory and Corrib DelayOutperform, Average Risk, Price Target: $35.00

he Corrib project is now expected to be on-stream by late 2012 due to permitting delays for the onshore pipeline. The timing iyear later than was expected when Vermilion acquired the asset and will result in a reduction to the final payment to the

endor to US$135 million (down ~US$65 million as a result of the delay). There will be no further reductions to the purchaserice if additional delays are experienced. Management has completed additional technical work on its lands in the greaterrayton Valley area and concluded that 100 net sections are prospective for Cardium oil - a substantial increase from therevious estimate of 40 sections. The increase is the result of analysis of logs and core samples on existing lands and, to a

The information contained herein has been obtained from sources, which we believe to be reliable, but we cannot guarantee its accuracy orcompleteness. RBC Dominion Securities Inc. accepts no responsibility for the info contained herein.


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esser extent, acquired acreage. Year-end reserves were 138.0 mmboe, +11.5% from 2008. The growth was entirely due to theorrib transaction, with the development program replacing 63% of production. Cash flow was approximately 10% ahead ofCM CMs estimate for the quarter. Production of 30,000 boe/d was in line with RBC CMs estimate, while netbacks exceededBC CMs forecast due primarily to better than expected price realizations. Overall, RBC CM thinks 2010 was a positive year

or VET given the drilling results in the Netherlands and identification of a significant drilling inventory that should drive growth anadian volumes in 2010 and 2011. RBC CM maintains its Outperform rating and $35 target.

eritas Research: Vermilion Energy Trust (VET.UN) - $34.81 - Fourth Down, Same Field Position

ell, Intrinsic Value Estimate: $32.25 (Oil at $80/bbl)ermilion currently trades at the pre-tax NPV of its booked reserves, based on future net revenue, adjusted for debt and workinapital, before G&A. This works out to $35.33 per unit at 10% discounting and assumes average pricing of US$86 for oil andS$6.90 for gas over the next five years. Reserve upside exists at Corrib (35 MM boe potential vs. 17.5 MM boe booked), 290nbooked Cardium locations (58 MM boe potential) and significant unbooked tight gas. The question is whether thisompensates for taxability (reconversion is planned for September), overhead (G&A of $0.36 per unit in 2009), and theossibility of lower-than-assumed commodity prices. Considering Vermilion's limited tax pools ($593.6 MM at year end), higher&D costs on legacy fields and overall outlook, Veritass valuation of $32.25 per unit at US$80 oil and US$6 midcycle gas,hould not be surprising. Veritas continues to view Vermilion as fully-valued and rate the trust at Sell.

abrador Iron Ore Fund (LIF.UN) $48.57 Solid Q4/09 Results and Special DividendOutperform, Average Risk, Price Target: $53.00abrador generated free cash flow of $0.35/unit during the quarter. For 2009, free cash flow of $1.33/unit was below the

2.00/unit LIF paid to unitholders. Despite the shortfall, LIF had $0.19/unit in cash on its balance sheet at year-end, primarilyue to excess cash that was carried forward from 2008. Both the regular and special dividend will be payable to holders onecord as of March 31, 2010. On March 2, 2010, Iron Ore Company of Canada (IOC) unexpectedly announced that it will beaying a dividend to its shareholders, of which US$11.3 million ($0.37/unit) was payable to Labrador. As a result, LIF was in anancial position to declare a special dividend. Robust Chinese steel production, a continued modest improvement in iron oreemand in Europe and Japan, constrained iron ore production in China, and an insufficient global supply response are expecteo keep iron ore markets very tight in 2010. LIF's unique structure provides investors with excellent leverage to iron oreombined with comparatively low risk. While the share price has increased considerably since the beginning of December 2009ear-term iron ore market developments point to further share price upside potential. In addition, the resumption of thexpansion at IOC could provide another positive catalyst in 2010. Longer-term, potential M&A activity provides additionalpside. RBC CM forecasts that LIF will pay distributions of $3.25/unit in 2010 and $3.00/unit in 2011.

Calfrac Well Services (CFW) - $25.50 - 4Q09 Beats Street, in Line with RBC Estimates

Outperform, Average RiskFW reported EPS of $0.02, in line with RBC at $0.02 and ahead of consensus of $0.00. CFWs EBITDA was $23.2mn, in linewith RBC at $22.9mn and ahead of consensus of $21.3mn. CFW has increased its 2010 capital budget by $11 mn, to $56 mn,lus $14 mn in carryover from 2009. The incremental capital will be used to increase sand handling and storage capacity forpcoming work in the Horn River Basin as well as the addition of 7,500 HP to the Marcellus shale play. RBC CM expects theend in Canada of increasing fracturing revenue per job (+30% YoY, +10% QoQ) to continue, driven by the growth in the use oorizontal drilling and completions in resource plays. This should cause the continuation of the current supply constraints in theressure pumping industry and should lead to pricing power and further margin expansion in 2010. CFW expects growingemand in the Fayetteville shale play to lead to improved pricing in the region from 4Q09 levels, and expects activity levels inhe U.S. Rockies to rise YoY. RBC CM expects U.S. pressure pumping supply to continue to tighten overall, implying positivericing trends and margin expansion for pressure pumping in 2H10.

ort Chicago Energy L.P. (FCE.UN) - $10.48 - Q4/09 Results Broadly in Lineector Perform, Average Risk, Price Target: $10.00

CE reported Q4/09 results broadly in-line with expectations. Q4/09 ACFFO/unit was $0.16 compared to RBC CMs estimate o0.17 and ($0.01) in Q4/08. Management updated its 2010 distributable cash guidance to a range of $0.85 to $1.30 per unit (uom $0.80 to $1.30). The increase was attributed to Aux Sable's strong start to the year and the impact of the Glen Park hydrocquisition. After reviewing its financial forecast, RBC CM has modestly changed its ACFFO estimates for 2010 and 2011 to1.15 and $1.19, respectively (from $1.12 and $1.20, respectively), to reflect higher forecast contribution from Aux Sable and axpected increase in units outstanding due to Fort Chicago's decision to continue the distribution reinvestment plan for 2010,

which RBC CM assumes will also continue in 2011. RBC CMs $10.00 per unit price target (unchanged) represents a roughly.5x multiple of 2011E EBITDA, which is in line with what RBC CM has used to value natural gas infrastructure assets. The

multiple is lower than the group average, reflecting a combination of factors including the business mix, the historically strong


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nancially conservative fashion and its royalty interests produce an attractive, oil-levered cash flow stream. RBC CM maintainsector Perform rating and $14/unit target.

Macquarie Power (MPT.UN) $7.02 Q4/09 Results In Lineector Perform, Above Average Risk, Price Target: $6.50

Macquarie reported Q4/09 ACFFO/unit of $0.34 compared to RBC CMs estimate of $0.35 and $0.30 in Q4/08. Lowerdministrative costs were offset by higher-than-expected maintenance capex and interest expense. Consistent with RBC CMsorecast, management expects higher cash flow contribution in 2010 from the fund's power facilities relative to 2009. Whitecou

expected to significantly improve on its 2009 results as it experienced an extended outage in 2009. Management believes thurrent distribution profile is sustainable through 2014 based on the fund's current portfolio, and expects an average five-yearayout ratio of 70% to 75% (as calculated by the fund). RBC CM has marginally reduced the 2010 and 2011 ACFFO/unitstimates to $0.91 and $0.87, respectively (from $0.93 and $0.88, respectively), primarily to reflect higher expected interestxpense. RBC CMs target price of $6.50 remains unchanged and is consistent with RBC CMs discounted cash flow analysisased on an unleveraged equity discount rate range of 7.5% to 8.5%.

US & INTERNATIONAL EQUITIES

What Moved the Market

What happened yesterday

n the U.S., equity market gains made early in the session, helped by a report showing US companies cut the fewest jobs in twears, were erased before the close as investors digested the Federal Reserves Beige Book business survey results. The&P 500 closed flat, the Dow Jones Industrial Average declined 0.1% and the Nasdaq Composite was also flat for the sessionfizer (PFE) inched down 1.6% on reports that the pharmaceutical group could make an offer worth about $4.08 billion foratiopharm, the generic drugmaker. The stock was also under pressure following news that Dimebon, the Alzheimers diseaserug it jointly developed with Medivation (MDVN), did not meet targets in a late-stage trial. Medivation shares fell 67.5%.

Costco (COST) lost 1.4% after the largest US warehouse-club chain reported second-quarter earnings that fell short ofxpectations. Technology shares were mixed on the day with shares of Cisco Systems (CSCO) and Google (GOOG) up nea%, while hardware stocks such as Hewlett Packard (HPQ), IBM (IBM) and EMC Corp (EMC) all traded lower by roughly.5%. Shares of Qualcomm (QCOM) resumed their strong move higher from Monday, gaining 2% on the day. The Materialsector was the strongest space on the day led by strength in Dow Chemical (DOW) and Monsanto (MON) which added 2.5%nd 2% respectively.

What happened overnight

uropean stocks fell Thursday, as investors digested an interest-rate decision from the Bank of England and awaited a moveom the European Central Bank. The pan-European Stoxx 600 Index wavered in and out of positive territory. London's FTSE00 index is 0.1% lower, Frankfurt's DAX was down 0.3%, and the CAC-40 Index in Paris was 0.2% lower. The BOE left itsank rate and the size of its quantitative-easing program unchanged, as expected. Focus now turns to the ECB, which is widelorecast to signal an end to its unconventional monetary policy in place since the credit crunch. Greece also remains in thepotlight as investors continue to have reservations about Greece's fiscal position. Banks were among the best performers onhe day with shares of Barclays (BCS) and Banco Santander (STD) both higher by 1.2%. Health Care stocks are underressure with shares of Roche (RHHBY) falling 3.4% as the stock trades ex-dividend.

sian shares ended mostly lower Thursday, with Chinese banking and property shares losing ground a day before the

mainland's annual National People's Congress amid concerns about policy tightening. Hong Kong stocks were led down aseavyweight stock China Mobile extended losses after the telecommunications giant said it was in talks to buy a stake inhanghai Pudong Development Bank Co. Japanese stocks declined as a stronger yen hurt exporters, with Mitsubishi Motorslunging after it scrapped talks with PSA Peugeot-Citreon for a capital-alliance. Japan's Nikkei 225 finished off 1.1%, Hongong's Hang Seng Index dropped 1.4%, China's Shanghai Composite fell 2.4%. Industrial & Commercial Bank of ChinaDCBY) fell 1.8% amid concerns about monetary tightening. In Hong Kong, China Mobile (CHL) dropped 2.4%, extending

osses to a third straight session on the company's plan to buy a stake in Shanghai Pudong Development Bank. Locally-aded shares of Chinese banks added to the selling pressure, with China Construction Bank Corp (CICHY) dropping 2.9%nd ICBC shedding 2.5%.


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n Tokyo, Mitsubishi Motors (MMTOY) tumbled 10.6% on news the auto maker couldn't reach an agreement with PSAeugeot-Citreon for a capital-alliance. Sony (SNE) dropped 1.1% and Canon (CJA) lost 0.8%, with both reversing early gain

News

Greece is prepared to turn to the IMF for help if its European neighbors fail to provide the financial assistance it wants afternnouncing the toughest spending cuts in decades. Financial Times

imited Brands (LTD) reported February same store sales growth of 10% vs. consensus of 9.7%. Briefing

General Electric (GE) could pursue a public offering of its 20.85% stake in Turkeys Garanti bank. GE is looking to sell its stakurrently worth $3.5 billion. Reuters

nbev (BUD) reported disappointing fourth-quarter results and gave a cautious outlook for 2010, reflecting weakness in the U.Sconomy that is likely to overwhelm solid economic growth and robust sales in Brazil. Net profit for the quarter was $1.28 billioharply up from last year's $29 million, but the figure was skewed as it included one-time charges linked to the $52 billionurchase of Anheuser-Busch and only six weeks of results from the U.S. brewer. EBITDA, adjusted for one-time items, rose1% to $3.12 billion from $2.81 billion a year earlier, but below analyst expectations for $3.29 billion. Sales stood at $9.3 billion

missing analysts' expectations of $9.47 billion.

Research Highlights

.S. Banks Merger & Acquisition Activity Set to Accelerate in 2011imilar to 1992, RBC CM believes 2011 will be the first year of a multi-year period for bank M&A due to expected weak industr

evenue growth in 2010-11. The industry's earnings recovery in 2010 and 2011 will be driven by lower credit costs. Lookingeyond the credit recovery, revenue growth is expected to be weak due to expected sluggish loan growth prospects. The keyharacteristics in an acquisition target are: 1) the target's franchise is critically important; 2) the most attractive acquisitionargets should have high core deposit concentrations; 3) Expense savings help drive EPS accretion for buyer. High efficiencyatios of targets are attractive to buyers. 4) CEOs and the board of directors have to want to sell for a transaction to take place) Age of CEO The closer to retirement age the more likely a CEO is to sell; 6) Banks that have endured losses due to creditroblems often have difficulty returning to normalcy. Additionally, the CEOs and board of directors are exhausted from thexperience and often choose to sell out into the recovery.

chlumberger (SLB) - $63.28 Use Pullbacks to Build Positions

ocus List, RBC CM - Outperform (PT $82), S&P Hold (PT $64)BC has put out a company update on shares of SLB, reiterating its outperform rating and belief that the stock should beought on any pullbacks as the recently announced Smith International acquisition represents and inflection point for shares ofLB in RBCs view. SLB is expected to differentially benefit from the re-acceleration in E&P spending given the companysxposure to high margin deepwater services, its dominant position in the Middle East, and its extensive portfolio of leading

wireline technologies. From a valuation perspective, RBC believes SLB is the most attractive of the large cap serviceompanies, with shares trading at a 17x multiple to 2011 consensus earnings, the low end of SLB historical forward PE of 17x-9x. Additionally the current P/E premium of SLB vs. its large cap peers is well below its historical averages. SLB currentlyades at a 11% and 2% multiple premium to HAL and BHI respectively, vs. 5yr average of 34% and 24% respectively. RBCees a number of catalysts to spur a potential revision to mean valuation in shares of SLB including; 1) Internationalutperformance as SLB is a low cost provider with deep relations with nations such as Iraq and Russia. 2) Pricing power, with

ot of strength being seen currently in the companys product line, specifically pressure pumping and drilling and measurementD&M). While some may criticize SLBs management for the premium it paid for Smith, RBC note that deals such as that need

e done when they can, not when one would like to. RBC maintains its belief that the transaction will be accretive to earnings i011. RBCs longer term take for the industry is that projects in the oilfield services space are likely to get bigger and become

more complex, requiring a greater array of services and products. Given this view the deal should be a long-term strategicositive for SLB.

Anheuser Busch Inbev (BUD-ADR) - $50.86 - Q4 earnings reviewADR Recommended List, JP Morgan - Overweight

oday, BUD reported Q4 results with revenue of $9.3 billion and EBITA of $3.1 billion, both below consensus of $9.5 billion and3.3 billion, respectively. Volume growth was strong in northern Latin America, but largely offset by weaker growth in southernatin America and Central & Eastern Europe. Most other regions came in close to expectations. JPM notes that normalized


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BITDA was negatively impacted by a $62 million provision reversal, an increaset in sales and marketing spend, and a bonus.Guidance is for underlying fiscal year 2010 organic volume growth of 1%. JPM notes that the first half of 2010 faces toughomps for both volume and sales/marketing expenses. Management expects to see progressively higher organic EBITDArowth as the year unfolds. Management also pointed to slightly higher interest costs for the year. JPM expects this latter issueo drive some EPS estimates lower. JPM expects to follow up with more details following todays conference call, but for the timeing, JPM reiterated its Overweight rating.

teel Industry - JP Morgan is bullishfavours U.S. Steel (X)

P Morgan believes the market is underestimating the impact of raw material cost pressures will have on domestic steel pricesnd thus earnings of the domestic steel producers. The Analyst believes global steel prices will rise in response to these costressures and improving global demand, but U.S. producers will benefit the most given their raw material cost advantage andhe tight domestic supply situation. The Analyst feels that U.S. Steel will benefit the most given its high degree of raw materialelf-sufficiency, and the stock remains their top pick in the metals space. US Steel (X) could actually see a decline of $11/ton ins cash costs in its Flat-rolled segment in 2010 from its iron ore raw material self-sufficiency and favorable met coal contracts

while Chinese integrated steelmakers could experience an increase of $184/ton in 2010. From an earnings leverage standpoin.S. Steel should also benefit the most from increased end market demand as, on a companywide basis, its utilization rates fe

o the lowest levels and therefore should see the greatest benefit from improving demand.

oy Global (JOYG) $54.51 Coming Around the BendBC CM Outperform ($70 from $67), JP Morgan Neutral (PT $60)OYG reported 1Q10 EPS of $0.73 beating RBCs $0.65 forecast and consensus at $0.64. Revenue was $729 million ahead o

he RBC projection for $692 million. As mining companies capex increases in response to an improving commoditiesnvironment, RBC believes that JOYG business in poised to rebound. As a result RBC is increasing its FY10 EPS estimates to3.15 for $3.05 prior, and FY11 to $3.95 from $3.65. Projections are for FY10 revenues to decline 14% to $3.1 billion, compareo the companys forecasted range of $2.8-$3.0 billion in FY10. RBC notes that orders are starting to re-accelerate, with theook-to-bill at 1.1x in Q110, the first time the read has been above 1 since 4Q08. Areas of improving fundamentals includeeveloping markets (China/India), international thermal and met coal, cooper, and iron ore. With the increase to forward EPSstimates, RBC has increased its one year target on shares of JOYG from $67 to $70.

Global Miners RBC CM raises price targets on BHP and Rio TintoBC CM has increased its price targets on BHP Billiton and Rio Tinto. The Analyst observes that metal demand growth remainneven and commodity prices are, to varying degrees, ahead of fundamentals, leaving them vulnerable to corrections. Howeve

nvestment funds flows remain a key driver of commodity prices: RBC CM believes that over the longer term investment demanwill continue to exert a positive influence on commodities, though it leaves prices vulnerable to increased volatility in the short

erm. RBC CM has increased their aluminium, nickel and zinc price forecasts based on year-to-date performance and rising coressures, and decreased our uranium price forecasts based on an anticipated slower recovery from the current marketweakness.

T Hardware PCs & Hard Disk DrivesP Morgan maintained its constructive stance on IT Hardware for 2010. JPM continues to expect most stocks in the group toush higher. For PCs and HDDs, current demand conditions remain favourable. JPM is in the midst of our intra-quarter checks

which have been encouraging, and they head to Asia next week for more field checks. JPM expects the overall read to indicatehat order momentum has not fallen off drastically, which should restore investor interest. JPM believes there is increasingpside potential to both its estimate (currently, its PC unit growth estimate for 2010 is 13.5%, and its HDD unit growth estimate 16.9%). JPMs top picks are Apple (AAPL) and Hewlett-Packard(HPQ) in the large cap space, and Seagate(STX) and

Western Digital(WDC) in the small and mid-cap space.

FIXED INCOME, CURRENCIES AND COMMODITIES

Market Commentary

atesGovernment bond yields drifted higher yesterday with Canada underperforming the U.S. despite a lack of local data. It seems iook investors a day to digest the latest Bank of Canada statement, which has been viewed as slightly more hawkish thanrevious due to the Banks removal of the phrase indicating risks are tilted slightly to the downside. The front end of the


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anada curve sold off heavily with 2-year yields up 9bps to 1.46%, 1bp shy of the 2010 high. 10-year yields rose 3bps to 3.41%s the yield curve flattened. Moves in U.S. rates were much more benign, with yields up 1-2bps across the curve and the 10-ear settled at 3.62%. The only data of note were the ADP employment change, which was right on expectations at -20K andhe ISM non-manufacturing index beat expectations at 53, a level last seen in 2007.

Currencyhe Canadian dollar gained for the fourth day in a row, closing at C$1.0319/USD as crude oil prices gained. The EUR, GBP anPY all gained against the USD on optimism on the Greek austerity package, with the EUR closing at $1.3697, the GBP at

1.51 and the JPY at 88.59/USD.

CommoditiesOil rose toward $81 a barrel as a weaker dollar and rising equity markets outweighed a U.S. government report showing a largse in crude inventories. Crude oil gained $1.13 to settle at $80.83 a barrel. Natural gas closed at $4.756 per million Britishhermal units. Gold went up $5.09 and finished at $1,139.80 per ounce. Silver closed at $17.1750 an ounce. Copper finished

Wednesdays session up 3 cents at $3.4140 a pound.


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CALENDAR OF EVENTS

Economic Releases

Key Market Data for the Week (March 1 to March 5)Date Time Period Actual Survey Prior

01-Mar CA Industrial Product Price MoM 8:30 JAN 0.30% 0.50% -0.10%CA Gross Domestic Product MoM 8:30 DEC 3.30% 0.40% 0.40%CA Raw Materials Price Index MoM 8:30 JAN 5.00% 1.90% -1.70%CA Quarterly GDP Annualized 8:30 4Q 0.60% 4.00% 0.40%US Personal Income 8:30 JAN 0.10% 0.40% 0.40%US Personal Spending 8:30 JAN 0.50% 0.40% 0.20%US PCE Deflator (YoY) 8:30 JAN 2.10% 2.10% 2.10%US PCE Core (MoM) 8:30 JAN 0.00% 0.10% 0.10%US PCE Core (YoY) 8:30 JAN 1.40% 1.50% 1.50%US ISM Manufacturing 10:00 FEB 56.5 58.0 58.4US ISM Prices Paid 10:00 FEB 67.0 68.0 70.0US Construction Spending MoM 10:00 JAN -0.60% -0.50% -1.20%

02-Mar CA Bank of Canada Rate 9:00 02-Mar 0.25% 0.25% 0.25%

US ABC Consumer Confidence 17:00 28-Feb -49 - - -50.0US Domestic Vehicle Sales 17:00 FEB 7.91M 8.00M 8.19MUS Total Vehicle Sales 17:00 FEB 10.36M 10.50M 10.82M

03-Mar US MBA Mortgage Applications 07:00 26-Feb 14.60% - - -8.50%US Challenger Job Cuts YoY 7:30 FEB -77.40% - - -70.40%US ADP Employment Change 8:15 FEB -20K -10K -22KUS ISM Non-Manf. Composite 10:00 FEB 53.0 51.0 50.5US Fed's Beige Book 14:00 02-Mar

04-Mar CA Building Permits MoM 8:30 JAN 1.00% 2.40%CA Ivey Purchasing Managers Index 10:00 FEB 55.0 50.8US Nonfarm Productivity 8:30 4Q F 6.20% 6.20%US Unit Labor Costs 8:30 4Q F -4.40% -4.40%

US Initial Jobless Claims 8:30 27-Feb - - 496KUS Continuing Claims 8:30 20-Feb - - 4617KUS Factory Orders 10:00 JAN 1.20% 1.00%US Pending Home Sales MoM 10:00 JAN 1.50% 1.00%US Pending Home Sales YoY 10:00 JAN - - 10.50%US ICSC Chain Store Sales YoY 10:30 FEB - - 3.00%

05-Mar US Change in Nonfarm Payrolls 8:30 FEB -40K -20KUS Unemployment Rate 8:30 FEB 9.80% 9.70%US Change in Manufact. Payrolls 8:30 FEB -25K 11KUS Avg Hourly Earning MOM All Emp 8:30 FEB 0.20% 0.20%US Avg Hourly Earning YOY All Emp 8:30 FEB 2.20% 2.00%US Avg Weekly Hours All Employees 8:30 FEB 33.7 33.9US Consumer Credit 15:00 JAN -$3.6B -$1.7B

Notable dates

ext Bank of Canada rate announcement 20 April 2010ext FOMC interest rate announcement 16 March 2010



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NUMBER CRUNCHING


Equity Indices Index Level Change Change (%) MTD (%) YTD* 2009 2008 2007 2006

S

S

&P/TSX Composite Index 11,852.85 24.54 0.2% 1.9% 0.9% 30.7% -35.0% 7.2% 14.5%

&P/TSX Composite Index TR 31,349.12 265.69 0.9% 1.7% 1.1% 35.1% -33.0% 9.8% 17.3%

&P/TSX Equity Index 12,307.84 31.15 0.3% 2.0% 0.6% 34.5% -33.9% 10.2% 20.2%

&P/TSX Capped Income Trust Index 129.11 -0.44 -0.3% 1.1% 4.5% 42.2% -26.1% 6.6% -2.9%

ow Jones Industrial Average 10,396.76 -9.22 -0.1% 0.7% -0.3% 22.7% -31.9% 8.9% 19.0%

&P 500 Index 1,118.79 0.48 0.0% 1.3% 0.3% 26.5% -37.0% 5.5% 15.8%

ASDAQ Composite Index 2,280.68 -0.11 0.0% 1.9% 0.5% 43.9% -40.5% 9.8% 9.5%SCI World 1,149.39 8.81 0.8% 1.4% -1.6% 27.0% -42.1% 9.7% 20.7%

SCI EAFE 516.31 .55 .2% .3% 4.1% 7.7% 45.1% 1.8% 27.0%

ow Jones Euro Stoxx 50 532.66 .88 .7% .5% 2.0% 7.3% 45.8% 4.5% 14.3%

FTSE 100 5,533.21 49.15 0.9% 3.3% 2.2% 35.0% -49.5% 7.8% 14.8%

CAC 40 Index 3,842.52 30.60 0.8% 3.6% -2.4% 25.5% -45.1% 4.2% 20.9%

DAX Index 5,817.88 41.32 0.7% 3.9% -2.3% 27.0% -42.9% 22.3% 22.0%

Nikkei 225 0,253.14 .30 .3% .3% 2.8% 6.0% 28.7% -10.2% 7.9%

MSCI World TR 768.74 .75 .8% .5% 1.31% - - 27.1%

MSCI Emerging Market Index 959.66 11.76 1.2% 2.5% -3.01% 74.5% - - -

Shanghai Stock Exchange Composite 3,097.01 23.90 0.8% 1.5% -5.50% 79.8% -63.0% 97.9% 136.1%

S&P/TSX Sector Performance Index Level Change Change (%) MTD (%) YTD* 2009 2008 2007 2006

S&P/TSX Financials 1,601.18 -2.26 -0.1% 1.6% 2.1% 45.6% -36.4% -1.6% 19.2%

S&P/TSX Energy 2,758.74 0.84 0.0% 1.4% -3.4% 39.5% -33.9% 8.2% 6.1%

S&P/TSX Materials 3,125.72 34.59 1.1% 3.7% 3.5% 34.2% -26.5% 30.3% 39.8%

S&P/TSX Industrials 1,151.40 8.95 0.8% 3.0% 1.5% 27.0% -25.1% 10.5% 14.7%

S&P/TSX Consumer Discretionary 929.81 2.52 0.3% 1.1% 3.4% 15.1% -35.4% 4.2% 15.7%S&P/TSX Telecom Services 747.73 -3.05 -0.4% 1.5% 3.0% 6.6% -24.8% 19.9% 20.1%

S&P/TSX Information Technology 271.45 -1.58 -0.6% -1.1% 4.2% 44.3% -54.2% 48.2% 27.3%

S&P/TSX Consumer Staples 1,545.75 3.84 0.2% 0.5% 0.0% 8.1% -6.1% -5.3% 5.5%

S&P/TSX Utilities 1,706.67 -4.63 -0.3% 2.6% 0.3% 19.0% -20.5% 11.9% 7.0%

S&P/TSX Healthcare 327.81 1.82 0.6% 0.3% 1.0% 34.4% -30.2% -24.2% 0.7%

Currencies (in Canadian Dollars) Index Level Change Change (%) MTD (%) YTD* 2009 2008 2007 2006

US Dollar 1.0319 0.00 -0.4% -1.9% -2.1% -13.6% 22.1% -14.7% 0.3%

Euro 1.4133 0.00 0.2% -1.4% -6.7% -11.5% 16.9% -4.4% 11.8%

British Pound 1.5581 0.01 0.5% -2.8% -9.3% -4.4% -10.2% -13.6% 14.1%

Japanese Yen 1.1665 0.00 0.1% -1.4% 3.0% -15.8% 50.5% -7.7% -0.7%

Energy Commodities (US$) Index Level Change Change (%) MTD (%) YTD* 2009 2008 2007 2006

Crude Oil (WTI per barrel) $80.94 1.26 1.6% 1.6% 2.0% 77.9% -55.7% 57.2% 0.0%

Natura l Gas (per million btu) $4.76 0.05 1.1% -1.1% -14.6% -0.9% -25.0% 18.8% -43.9%

3-2-1 Crack Spread $11.24 0.63 5.9% 11.3% 45.2% 45.3% -47.0% 49.1% -39.8%

Metal Prices (US$) Index Level Change Change (%) MTD (%) YTD* 2009 2008 2007 2006Gold (per ounce) $1,140.05 5.35 0.5% 2.0% 3.9% 24.4% 5.6% 31.0% 23.2%

Silver (per ounce) $17.20 0.28 1.7% 4.4% 1.9% 48.2% -23.1% 14.7% 46.4%

Copper (per pound) $3.38 0.04 1.2% 4.1% 1.6% 141.4% -56.6% 5.3% 38.9%

Nickel (per pound) $10.05 0.36 3.7% 5.0% 20.1% 59.0% -59.2% -23.6% 154.5%

Aluminum (per pound) $0.97 0.01 1.2% 1.6% -2.8% 45.7% -38.1% -16.7% 24.2%

Zinc (per pound) $1.02 0.02 1.6% 2.7% -11.9% 111.9% -51.5% -45.1% 121.6%

Index Index Level Change Change (%) MTD (%) YTD* 2009 2008 2007 2006

DJIA in Cdn$ 10728.42 -48.02 -0.4% -1.2% -2.3% 5.7% -16.7% -6.8% 16.6%

S&P 500 in Cdn$ 1154.48 -3.64 -0.3% -0.6% -1.7% 9.0% -22.9% -9.7% 13.9%

NASDAQ in Cdn$ 2353.43 -8.55 -0.4% 0.0% -1.5% 24.0% -27.2% -6.0% 9.8%

MSCI World in Cdn$ 1186.06 4.87 0.4% -0.5% -3.6% 9.4% -29.1% -8.3% 18.2%

MSCI EAFE in Cdn$ 1564.68 12.56 0.8% -0.6% -6.0% 10.1% -32.8% -7.0% 23.8%

S&P 500 Performance Index Level Change Change (%) MTD (%) YTD* 2009 2008 2007 2006

Financials 198.83 0.10 0.05% 0.71% 2.61% 17.2% -57.0% -20.8% 16.2%Health Care 367.04 -1.67 -0.45% 0.89% 1.33% 19.7% -24.5% 5.4% 5.8%

Technology 357.66 0.21 0.06% 1.31% -3.52% 61.7% -43.7% 15.5% 7.7%

Industrials 254.51 0.37 0.15% 1.38% 4.74% 20.9% -41.5% 9.8% 11.0%

Consumer Discretionary 243.43 0.06 0.02% 1.34% 3.56% 41.3% -34.7% -14.3% 17.2%

Energy 426.39 0.81 0.19% 1.94% -0.83% 13.8% -35.9% 32.4% 22.2%

Consumer Stap les 281.48 0.35 0.12% 1.18% 2.62% 14.9% -17.7% 11.6% 11.8%

Telecom 103.00 -0.15 -0.15% 0.38% -10.15% 8.9% -33.6% 8.5% 32.1%

Materials 197.09 1.99 1.02% 3.62% -1.36% 48.6% -47.0% 20.0% 15.7%

Utilities 149.64 -0.14 -0.10% 1.70% -5.29% 11.9% -31.5% 15.8% 16.9%

*Index total return data for 2005, 2006, 2007, 2008 & 2009 as per RBC CM Quantitative Research, with the exception of S&P/TSX Composite which is s

price return. YTD return data is simple price return. All North American indices in local currency unless otherwise noted, international indices in USD

S

S

D

S

NM

M 1, 17 1 1 - 2 - 1

D 2, 17 0 2 - 2 - -

1 31 0 1 - 1 -

3, 29 0 1 - -


11/16



Bond Market

Key Rates

Overnight Rate CAN 0.25%

Bank Rate CAN 0.50%

Prime Rate CAN 2.25%

Fed Funds US 0.25%

Discount US 0.75%

Prime Rate US 3.25%

DEX Univ Bond Indices (Dec 31, 09) Month Quarter 6 Month YTD Year International Yields O/N 3mo 10-Yr

DEX Universe Bond TR 1.84% 1.74% 3.75% 1.84% 8.39% United Kingdom 0.50% 0.58% 4.01%

DEX ST Universe Bond TR 1.11% 1.32% 2.72% 1.11% 6.01% Eurozone 1.00% 0.30% 3.14%

DEX IT Universe Bond TR 2.54% 2.41% 4.97% 2.54% 11.01% Australia 4.00% 3.86% 5.46%

DEX LT Universe Bond TR 2.77% 1.97% 4.79% 2.77% 11.11% Japan 0.10% 0.13% 1.34%

DoD Change Government of Canada Yields DoD Ch

TSY 0.875 02/29/2012 2-yr 0.82% 0.008 CAN 1.5 03/01/2012 2-yr 1.47% -0.00

TSY 2.375 02/28/2015 5-yr 2.26% -0.003 CAN 2 12/01/2014 5-yr 2.60% 0.00

TSY 3.625 02/15/2020 10-yr 3.62% -0.004 CAN 3.75 06/01/2019 10-yr 3.42% -0.00

TSY 4.625 02/15/2040 30-yr 4.58% -0.004 CAN 5 06/01/2037 30-yr 4.00% -0.00

Money Market*

GIC's 1-yr 2-yr 3-yr 4-yr 5-yr 1 mth 2mth 3mth 6mth

High 1.30% 1.90% 2.45% 2.90% 3.25% CDOR 0.40% 0.42% 0.45% 0.66%

Average 0.81% 1.63% 2.20% 2.56% 2.94% LIBOR US 0.23% 0.24% 0.25% 0.38%

CAD $1,000,000 1 mth 2mth 3mth 6mth 1 yr CAD $100,000 1 mth 2mth 3mth 6mth

T-Bills T-Bills 0.20% 0.19% 0.16% 0.51% 0.67% T-Bills T-Bills 0.02% 0.01% - 0.33%

BA's BAs 0.25% 0.26% 0.29% 0.38% 0.74% BA's BAs 0.01% 0.02% 0.05%

CP CP 0.30% 0.31% 0.34% 0.43% 0.79% CP CP 0.06% 0.07% 0.10%

US $1,000,000 1 mth 2mth 3mth 6mth US $100,000 1 mth 2mth 3mth 6mth

T-Bills 0.08% 0.00% 0.13% 0.18% T-Bills T-Bills - - - 0.00%

CTBUS 0.08% 0.00% 0.13% 0.18% BAs CTB US - - - -

GECC 0.14% 0.15% 0.18% 0.27% CP GECC - - - 0.03%

Economic Indicators**

Actual Forecast Forecast Actual Forec

Q309 Q409 Q110 Q210 Q310 Q410 2008 2009

T-Bills Overnight Rate 0.25 0.25 0.25 0.50 0.75 1.50 1.50 0.25

10-Yr Yield 3.43 3.40 3.61 3.82 3.94 3.99 3.42 3.40

BA's Real GDP (est) 1.40 3.40 3.55 3.50 3.15 3.20 1.20 (2.50)

Headline CPI (est) (0.80) 0.90 1.45 1.50 2.05 1.90 3.90 (0.30)

CP Core CPI (est) 1.70 1.50 1.10 1.30 1.40 1.40 2.10 1.40

Q309 Q409 Q110 Q210 Q310 Q410 2008 2009

T-Bills Fed Funds 0.25 0.25 0.25 0.25 0.50 0.75 0.25 0.25

10-Yr Yield 3.43 3.45 3.64 3.81 3.98 4.12 2.36 3.45

CTB US Real GDP (est) 3.20 4.00 2.95 2.75 2.80 2.85 (5.00) (2.50)

Headline CPI (est) (1.50) 2.80 2.60 2.40 2.00 1.70 3.90 (0.30)

GECC Core CPI (est) 1.40 1.30 1.10 1.00 0.90 0.90 2.30 1.50

US Treasury Yields

*The prices and yields shown are taken from sources we believe to be reliable. They are provided on an indicative basis for information purposes only. Prices and yields are subject to change with availability and mark

conditions. RBC Dominion Securities does not warrant its completeness or accuracy. This is not an offer or solicitation for the purchase or sale of any securities or financial instruments. Securities or financial instrume

mentioned herein may not be suitable for all investors. ** Source: RBC Economics

US Treasury

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

3m 6m 1y 2y 5y 10y 30y

04-Mar-10

04-Feb-10

31-Dec-08

Government of Canada

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

3m 6m 1y 2y 5y 10y

04-Mar-10

04-Feb-10

31-Dec-08

DEX Univ Overall Bond TR

0.00%2.00%4.00%6.00%8.00%

10.00%

Month Quarter 6 Month YTD Year



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Equity Indices Intraday - 5-Days

Equity Indices Intraday - 5-Days Equity Indices - 3-Months

10Yr Benchmark Intraday Yields - 5-Days Benchmark Yields - 3-Months

Currencies and Commodities

Trade weighted US dollar - 3 Months CAD Currency - 3-Months

Oil and Natural Gas Spot - 3 Months Silver and Gold Spot - 3-Months

1,000

1,030

1,060

1,090

1,120

1,150

1,180

25-Feb 26-Feb 01-Mar 02-Mar 03-Mar

S&P500In

dex

11,000

11,200

11,400

11,600

11,800

12,000

12,200

12,400

S&PTSX

Index

S&P TSX Index S&P 500 Index

1,000

1,050

1,100

1,150

1,200

12/04/2009 01/01/2010 01/29/2010 02/26/2010

S&P500Index

10,00

11,00

12,00

13,00S&P TSX Index S&P 500 Index

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

04-Dec 22-Dec 07-Jan 25-Jan 10-Feb 26-

Yield

2Yr CAN 10 Yr CAN 10 Yr TS

3.2%

3.4%

3.6%

3.8%

4.0%

25-Feb 26-Feb 01-Mar 02-Mar 03-Mar

10YrCANRate

10 Yr CAN 10 YRTSY

73.0

75.0

77.0

79.0

81.0

83.0

85.0

02-Dec 23-Dec 15-Jan 05-Feb 26-Feb

USD

DXY Price

1.000

1.025

1.050

1.075

1.100

2-Dec 21-Dec 7-Jan 26-Jan 12-Feb

CAD/USD

Canadian Dollar

65

67

2-Dec 23-Dec 15-Jan 8-Feb 2-Mar

4

69

71

73

75

77

79

81

83

85

OilPrice

4.5

5

5.5

6

6.5

7

NaturalGasPrice

Oil Spot Price Natural Gas Price

15

2-Dec 30-Dec 27-Jan 24-Feb

10

16

17

18

19

20

SilverPrice

10

11

11

12

12Silver Spot price Gold Spot Price


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BAA Corporate Bond Spread CDX High Yield 5-Year Spread

CDX Investment Grade 5-Year Spread CBOE SPX Volatility Index - "VIX"

Crude Oil Futures Curve Baltic Dry Index

CAD/USD Forward Prices CAD/EUR Forward Prices

Currency Forward Prices

Corporate Credit Spreads

Contract

1 Month

2 Month

3 Month

Spot 1.0317

ContractForward Price

1.0317

1.0318

1.0318

1.4131

3 Month 1.4130

Forward Price

1 Month 1.4131

Spot 1.4131

2 Month

6 Month 1.0324 6 Month 1.4133

12 Month 1.41631.0353 12 Month

60bps

110bps

160bps

210bps

260bps

310bps

360bps

410bps

460bps

510bps

560bps

610bps

Sep-04 Mar-05 Sep-05 Mar-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10

0

50

100

150

200

250

300

Feb- 06 Jun-06 Oc t- 06 Feb- 07 J un-07 Oc t- 07 Feb-08 Jun- 08 Oct-08 Fe b-09 Jun- 09 Oc t- 09 F

CDXHighYield(B

ps)

0

25

50

75

100

125

150

175

200

225

250

275

300

Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10

CDXInvestmentGradeSpread(Bps)

(Source: Bloomberg)

(Source: Bloomberg) (Source: Re

Description: The Moody's Baa bond spread is the average credit spread of a universe of 20+ year Baa corporates.

Description: The CDX Investment Grade index is an index of 125 5-year credit default swaps (CDS) of investment grade

issuers.

Description: The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility con

S&P 500 stock index option prices.

Description: The CDX High Yield index is an index of 100 5-year credit default swaps (CDS) of high yield issuer

0

10

20

30

40

50

60

Mar-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 F

VIXIndex

(Source: Bloo

83.76 83.8183.5783.47

80.97

81.36

81.75

82.13

82.35

82.58

82.8183

79.500

80.000

80.500

81.000

81.500

82.000

82.500

83.000

83.500

84.000

84.500

1mo. 2mo. 3mo. 4mo. 5mo. 6mo. 7mo. 8mo. 9mo. 10mo. 11mo. 12mo.

Futures

Price

(Source: Bloomberg)

0.000

500.000

1000.000

1500.000

2000.000

2500.000

3000.000

3500.000

4000.000

4500.000

5000.000

Mar-09 Apr-09 Jun-09 Jul-09 Aug-09 Oct-09 Nov-09 Jan-10 F

Futures

Price

(Source: Blo


14/16



Deposit Notes and Fixed Floaters (BPS) Hybrids & Perpetuals (BPS)

5 Year Hybrids and Rate Reset Prefs (BPS) Asset Backed Commercial Paper (BPS)

GECC SPREAD (BPS) Federal Goverment Agency Spreads (BPS)

Provincial Spreads (BPS)

Inflation Protected Government Bonds (Percentage)

Bank Bond Spreads

0

100

200

300

400

500

600

700

800

900

Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 De

10-YR Hybrids Perpe tual s

0

50

100

150

200

250

300

350

400

450

500

Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09

Deposit Notes Fixed Floaters

0

100

200

300

400

500

600

700

800

Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09

5-YR Hybrids Rate Reset Prefs

0

20

40

60

80

100

120

140

160

180

Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10

Ontar io 5yr Ontar io 10yr

0

50

100

150

200

250

Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb

Quebec 5yr Quebec 10yr

0

10

20

30

40

50

60

70

80

Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09

CMBT 5yr CMBT 10yr

0

100

200

300

400

500

600

700

800


GECC 5yr GECC 10yr

-0.5

0

0.5

1

1.5

2

2.5

3

Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb

RRB 21s BEIP 10YR TIPS BEIP

0

0.5

1

1.5

2

2.5

3

3.5


RRB 21s Real Yield 10YR TIPS Real Yield

The Break Even Inflation Point (BEIP) is the average rate of inflation over the remaining life of the RRthat will result in the investor being indifferent between holding the RRB and the nominal bond equivila

same term on a before tax basis. If the average inflation is higher than the BEIP (when the investor boinvestor will realize a higher before tax return on the RRB than the nominal bond and vica versa.

Real Return Bonds give the investor compensation for inflation. Since investors are compensated for inflation (an

unknown value) nominal yields can not be quantified, therefore yields are given on a real basis.

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09

ABCP 1-3mo Avg Spread



15/16



Required Disclosures

Explanation of RBC Capital Markets Rating Systemn analyst's "sector" is the universe of companies for which the analyst provides research coverage. Accordingly, the ratingssigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relativo the analyst's sector.

atings:

op Pick (TP): Represents best in Outperform category; analyst's best ideas; expected to significantly outperform the sectorver 12 months; provides best risk-reward ratio; approximately 10% of analyst's recommendations.

Outperform (O): Expected to materially outperform sector average over 12 months.

ector Perform (SP): Returns expected to be in line with sector average over 12 months.

nderperform (U): Returns expected to be materially below sector average over 12 months.

isk Qualifiers (any of the following criteria may be present):

Average Risk (Avg): Volatility and risk expected to be comparable to sector; average revenue and earnings predictability; nognificant cash flow/financing concerns over coming 12-24 months; fairly liquid.

Above Average Risk (AA): Volatility and risk expected to be above sector; below average revenue and earnings predictabilitymay not be suitable for a significant class of individual equity investors; may have negative cash flow; low market cap or float.

peculative (Spec): Risk consistent with venture capital; low public float; potential balance sheet concerns; risk of beingelisted.

Distribution of Ratings, Firmwideor purposes of disclosing ratings distributions, regulatory rules require member firms to assign all rated stocks to one of threeating categoriesBuy, Hold/Neutral, or Sellregardless of a firm's own rating categories. Although RBC Capital Markets' stock

atings of Top Pick/Outperform, Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell,espectively, the meanings are not the same because our ratings are determined on a relative basis (as described above).

n the event that this is a compendium report (covers six or more subject companies), RBC Dominion Securities may choose to

rovide specific disclosures for the subject companies by reference. To access current disclosures, clients should send aequest to RBC Dominion Securities, Attention: Manager, Portfolio Advisory Group, P.O. Box 7500, 77 King Street West,oronto, Ontario M5W 1P9.

Dissemination of ResearchBC Capital Markets endeavours to make all reasonable efforts to provide research simultaneously to all eligible clients. RBCapital Markets' equity research is posted to our proprietary websites to ensure eligible clients receive coverage initiations andhanges in rating, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via emaax or regular mail. Clients may also receive our research via third party vendors. Please contact your investment advisor ornstitutional salesperson for more information regarding RBC Capital Markets research.



16/16



mportant Disclosureshe author(s) of this report are employed by RBC Dominion Securities Inc., a securities broker-dealer with principal offices

ocated in Toronto, Canada.

s this is a compendium report (covers six or more subject companies), to access current disclosures, clients should send aequest to RBC Dominion Securities, Attention: Manager, Portfolio Advisory Group, 155 Wellington Street West, 17

thFloor,

oronto, Ontario M5V 3K7

BC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. Member CIPF.Registered trademark of Royal Bank of Canada. Used under licence. Copyright 2006. All rights reserved.

he information contained in this report has been compiled by RBC Dominion Securities Inc. (RBCDS-Canada) from sourceselieved by it to be reliable, but no representations or warranty, express or implied, is made by RBCDS-Canada or any othererson as to it accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBCDS-anadas judgment as of the date of this report, are subject to change without notice and are provided in good faith but withou

egal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. RBCDS-Canada and itsffiliates may have an investment banking or other relationship with some of all of the issuers mentioned herein and may trade

n any of the securities mentioned herein either for their own account or the accounts of their customers. RBCDS-Canada ands affiliates also may issue options on securities mentioned herein and may trade in options issued by others. Accordingly,BC-DS Canada or its affiliates may at any time have a long or short position in any such security or option thereon. Theecurities discussed in this report may not be eligible for sale in some states or in some countries. Neither RBCDS-Canada or

ny of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from anyse of this report or the information contained herein. Any U.S. recipient of this report that is not a registered broker-dealer or aank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any ofhe securities discussed in this report, should contact and place orders with RBC Capital Markets Corporation, a U. S. registereroker-dealer affiliate of RBC-DS Canada, at (212) 361-2619, which without in any way limiting the foregoing, acceptsesponsibility (within the meaning, and for the purposes, of Rule 15a-6, under the U. S. Securities Exchange Act of 1934), forhis report and its dissemination in the United States. This report may not be reproduced, distributed or published by anyecipient hereof for any purpose.

RBC Dominion Securities - Morning Comment - March 4, 2010

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