Assume Toyota is rated Aa3/AA- by Moody's and Standard & Poor's, respectively. The Company issues a U.S. dollar 10-year bond at 98% of par with a coupon of 3.50%, which is paid semi-annually. You observe 10-year U.S. Government notes currently have an effective annual yield of 3.20%. If 5-year credit default swaps on Toyota's bonds are priced at .45% p.a. (i.e., 45 basis points), you can conclude:

1. The bonds are overvalued
2. The credit default swap is undervalued
3. Toyota's credit spread curve is negatively sloped beyond five years
4. None of the above