EFTA Document EFTA01375552

From: Stewart Oldfield Sent: 4/29/2015 1. • PM To: Paul Morris Subject: Re: Higher rates in Europe - timely [C] Classification: Confidential Twtr down another 6.5pct. Stewart Oldfield, CFA, CAIA Director Deutsche Bank Trust Company Americas Deutsche Asset & Wealth Management 345 Park Avenue, New York, NY 10154 Tel: Mo Em Securities offered through Deutsche Bank Securities Inc. From: Paul Morris Sent: Wednesday, April 29, 2015 10:48 AM To: Stewart Oldfield Subject: Fw: Higher rates in Europe - timely [C] Classification: Confidential From: Daniel Sabba Sent: Wednesday, April 29, 2015 08:56 AM To: Jeffrey E. <jeevacation©gmail.com> Cc: Paul Morris; Vahe Stepanian; Ariane Dwyer; Richard Kahn •ca Subject: Higher rates in Europe - timely [C] Classification: Confidential This is timely given this morning's moves... EUR swap rates are up dramatically and markets are fluid - the pricing below is as of last night's close. Trade Rationale: • Yields in the Eurozone have fallen since the start of 2014, and the commencement of the ECB's 1.1 trillion EUR quantitative easing program in March has fueled the decline to a greater degree than anticipated • This drop is highlighted in Chart 1, which shows the historical performance of the 10yr and 30 yr EUR Swap rate and 10y and 30y German bund yields. The chart also shows the 5 and 15 year average yield for the 30y EUR Swap rate • Investors are now questioning if these unprecedented lows are sustainable and how they can position themselves for a rise in European rates • To articulate this view, investors can purchase CMS caps on the 30yr EUR swap rate that provides a linear payout on the 30yr EUR Swap rate if it rises above the strike. In this trade, even a small retracement to the historical norm provides a meaningful payout • A retracement to 5y historical averages would yield a payout of —6x on 1 y 1% strike caps, while a retracement to 15y historical average would yield a payout of -12x. • In the below table we have included indicative pricing (as of 4/28 close) for 1 and 2yr expiries, and 1.00%, 1.25% and 1.50% strikes. In addition, for the 1 y CMS cap struck at 1.00%. we have included a terminal payout diagram and a chart showing the strike and breakeven level on the 30yr EUR Swap 1 year chart (Chart 2) CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0071064 CONFIDENTIAL SDNY_GM_00217248 EFTA01375552