EFTA01405181

Subject: RE: hi jeffrey - a trade to play on global central bank liquidity... [C] From: Paul Morris ‹ > Date: Thu, 10 Sep 2015 15:56:04 -0400 To: Daniel Sabba Cc: Stewart Oldfield Classification: Confidential Daniel, not sure I follow this Paul Morris Managing Director Deutsche Bank Private Bank Office: Cell: From: Daniel Sabba Sent: Thursday, September 10, 2015 3:05 PM To: 'jeffrey E.' Cc: Paul Morris; Todd Stevens; Stewart Oldfield; Vahe Stepanian; Ariane Dwyer; 'Richard Kahn' Subject: hi jeffrey - a trade to play on global central bank liquidity... [C] Classification: Confidential Regardless of FOMC hiking next week, we have already observed a decrease in global central bank liquidity. We have noticed this is very correlated to USD 5y swap rates 5y forward and, consequently, to the shape of the yield curve. Given central banks play a major role in overall market liquidity, investors should consider the effects that Fed tightening and China's FX unwind will have on liquidity levels. For the last decade liquidity has been has been positive for real rates and the curve; however, as liquidity decreases this is likely to have negative implications for risk assets. See below and attached. EFTA01405181 Fed + FX reserves YoY change and 5y5y rates {cid:image001.png@OlDOEBE1.31985460} World Equities YoY and central bank reserves fcid:image002.png@OlDOEBE1.319854601 Investors who wish to articulate a view on a decreasing global central bank liquidity can do so by buying 6 month 5slOs curve floors. The 5slOs is a proxy for the 5y5y, which, as seen above, can be regarded as a proxy to liquidity. 5y5y USD rates and spread between 10 and 5y swaps (5s10s) {cid:image003.png@OlDOEBE1.31985460} The 5slOs also comes down (curve flattens) during hikes. Therefore this trade could benefit in the event of either a Fed hike, or the event of no hike and a decrease in central bank liquidity fcid:image004.jpg@OlDOEBE1.319854601 Indicative Transaction Terms: Investor buys: 5slOs USD CMS curve floors Expiry: 6 months Strike: ATMF (56bps) Notional $100mm Offer: 10bps (mid 8bps) Terminal Payout: Notional x max (Strike — terminal 5slOs spread,- 0) Ref. 5slOs Forward: 55 bps EFTA01405182 Source for graphs: DB Markets Research US Fixed Income Weekly, September 4 2015 and Bloomberg. Daniel Daniel Sabba Key Client Partners Deutsche Bank Securities Inc. Tel. Mobile Email All trade execution information contained herein is being provided as an accommodation at your request in advance of your receipt of the official trade confirmation(s). Additional trade detail information available upon request. The terms of the trade(s) may be subject to change prior to settlement, and therefore the official trade confirmation(s) and account statements issued by Deutsche Bank shall govern. Deutsche Bank is not responsible for any discrepancy between the informal execution report and the official trade confirmation(s) or account statements. EFTA01405183