EFTA01362023

4 September 2016 US Fixed Income Weekly [Long forward breakevens, either outright or hedged with energy futures 2.2 2.0 1.8 1.6 1.4 1.2 —ly fwd implied BE from 7/15/16 to 7/15/17 —ly ford implied BE from 1/15/17 to 1/15/18 1.0 2/1/15 3/1/15 4/1/15 5/1/15 6/1/15 7/1/15 8/1/15 9/1/15 Sown Marren haw. &Pam' Dnescno Sam A simpler version of the implied front end forward breakevens is to be long front end breakevens outright. They have lagged oil prices. A regression of five-year TIPS breakevens against oil prices on past six months' data suggests breakevens are too low by 15bp to 20bp, given the current oil prices. Similarly, 5s/l0s breakeven curve appears too steep and have room to flatten relative to oil prices. So the weakness in front end breakevens appears to be more than a function of energy prices. Dealer positions in TIPS maturing in less than or equal to 2 years are at a record high. Front end T1PS breakevens have lagged oil prices 15sll Os breakeven curve appears to have room to flatten y • 0.023x+0.3417 =0.7756 • # • • • last limos data •9/4/2015 1.0 •-• 38 40 42 44 46 48 SO S2 54 S6 S8 60 62 00Priees Son moontommoo•Locor &m 0.43 •E aeo 1' a 0.35 0.30 $ 0.25 • 0.20 • • •• • ... 4) e• .• • • • • • # • • • • • • V= -0.0073= • 04339 •• • ••#a♦ R. • 0.3603 4 • last limos data •9/4/2015 • • e. 36 38 40 42 44 46 48 50 S2 S4 56 S8 60 62 Olt Prices Seurat itIOCISIM Daresels&v* 5-year inflation basis has recovered, while 30-year inflation basis has done less well, and remains in the low end of the long term trading range. The 5-year inflation basis traded as low as +13bp in April and has bounced to about +25bp lately. The 30-year inflation basis currently trades about +25bp as well, having widened from about +18bp in late May. Over the past one year, the spread between the two basis spread has averaged around +6bp. Investors should consider inflation basis steepeners by being long 30-year inflation basis against 5-year inflation basis. Deutsche Bank Securities Inc. Page 19 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0051320 CONFIDENTIAL SDNY_GM_00197504 EFTA01362023