From: Daniel Sabba

From: Daniel Sabba To: "'Jeffrey E.' <jeevacation®gmail.com> CC: Paul Morris , Todd Stevens , Vahe Stepanian < "'Richard Kahn" Subject: hi jeffrey - a trade to play on global central bank liquidity... [C] Date: Thu, 10 Sep 2015 19:04:33 +0000 Attachments: DB_FIWklyUS_2015-09-04_0900b8c08a22181c.pdf Inline-Images: image005.png; image008.png; image009.png; image010.jpg , Stewart Oldfield Arian Dwyer 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 Sy 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. Fed + FX reserves YoY change and SySy rates 30 25 20 10 15 0 -5 -10 2000 2002 2004 2006 2008 Fed plus fx reserves IAN —5y5y - rhs 2010 2012 2014 World Equities YoY and central bank reserves —World equities YoY SO Fed plus fx resenesplus other cbs (ex fx) rig rhs 40 30 20 10 - 0 -10 - -2o - -30- -40 - -50 - 7.0 6.0 5.0 4.0 3.0 • 2.0 1.0 0.0 40 35 30 25 20 15 10 5 0 2004 2006 2008 2010 2012 2014 2016 EFTA01190918 Investors who wish to articulate a view on a decreasing global central bank liquidity can do so by buying 6 month 5sl0s curve floors. The 5sl0s is a proxy for the 5y5y, which, as seen above, can be regarded as a proxy to liquidity. SySy USD rates and spread between 10 and Sy swaps (Ssl0s) Last Price lusrgoss,ei Curncy (R1) 2.9506 ■ USSW510 amcy (R2) 63.4375 010 2011 2012 2013 2014 2015 isszscss Osncy (USD FORWARD SWAP SY.X.Sv) Daf.y 11SEP2010-10SEP2DIS Co,:yrighte 2015 Ecombeg Finance 10-Sep-2015 14:54:45 5.5000 5.0000 4.5000 2.9506 63.4375 The 5sl0s 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 10.000- 8.000 6.000 4.000- 2.000 ILI25) /6,-1689' '1990-1994 1945-1699 I 2060-2604 I 2065-2009' 1 '201:0-2614. I 2015 2/4/94 Hike 6/3/99 Hike 6i30/04 Hike Indicative Transaction Terms: Investor buys: 5s10s USD CMS curve floors Expiry: 6 months Strike: ATMF (56bps) Notional $100mm Offer: 10bps (mid 8bps) Terminal Payout: Notional x max (Strike — terminal 5sl0s spread,0) Ref. Ssl0s Forward: 55 bps ■ toivw iusono • vssio (RI) FDTPOCC, trigs (LI) Source for graphs: DB Markets Research US Fixed Income Weekly, September 4 2015 and Bloomberg. Daniel Daniel Sabba 1.20 1.00 0.40 0.20 0.00 -0.20 EFTA01190919 Key Client Partners Deutsche Bank Securities Inc. 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. This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01190920