Barclays Capital - Proceed With Caution

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					CROSS-ASSET RESEARCH                                                                                                                              11 March 2012




GLOBAL PORTFOLIO MANAGER’S DIGEST
Proceed With Caution – Issues to Keep on Your Radar                                                                 Best of Barclays

    Signs that global growth is recovering from recent dip. However, the threat of a                                The Data Miner
                                                                                                                    Dissecting dividends – Removing unintended
    jump in oil prices will keep financial markets and policymakers watchful. More so,                              exposures                                  4
    the risk of a disruptive euro break-up has receded, but the currency bloc is likely to
                                                                                                                    Asset Allocation Snapshot
    be an ongoing source of turbulence (see Economics Outlook).                                                     The oil factor                                   6
    What to watch with oil. It is not the level of prices but the rate of increase that                             Euro Themes: Portugal
    impacts economic activity (see Asset Allocation Snapshot). As oil prices affect                                 PSI unlikely in 2012, despite concerns
    inflation, it is interesting to note that the choke point for consumer spending is                              about solvency                                  7
    reached when quarterly inflation exceeds 9% (see Chart of the Week).                                            European Banks
                                                                                                                    Over promising: Encumbrance at European
    All eyes on Portugal. Portugal is under close market scrutiny, given fears of                                   banks                                            8
    contagion. However, a PSI is seen as unlikely in 2012 (see Euro Themes).
                                                                                                                    US Index and Options
    Bank funding still an issue. As 3-year LTROs take funding risk for banks off the                                Cross-asset volatility relative value            9
    table near term, longer term funding issues remain a concern due to rising balance
    sheet ‘encumbrance’ (see Over Promising).                                                                       Global Strategy & Economic Outlook
                                                                                                                    Equity Strategy
    Sector changes in Europe. We upgrade Utilities, which are expected to benefit from
                                                                                                                    US: April Showers                               10
    the contraction in credit yields. Industrials are downgraded due to unattractive
                                                                                                                    EMEA: Plugging into lower credit yields         12
    valuations and emerging tactical macro risks (see EMEA Equity Strategy).
                                                                                                                    Credit Strategy
    Positioning in dividends. Dividend strategies outperform in weak markets and
                                                                                                                    Americas: Shifting Concerns                     13
    economic states (see U.S. Equity Strategy). The Data Miner highlights a list of high
                                                                                                                    Europe: Technicals are overwhelming a
    dividend yield stocks removed of unintended exposures. This helps control risk.                                 challenging fundamental picture for the
    Credit derivative spreads are still wider than their 2011 lows, while equities are                              moment                                          15
                                                                                                                    Asia ex-Japan: Soft China data no match for
    near multi-year highs. We believe long credit, short equity trades are likely to
                                                                                                                    strong technicals                           17
    outperform and recommend using options, which also monetizes the dislocation in
    the volatility premium in credit and equity options (see Cross Asset Volatility).                               Economic Outlook
                                                                                                                    Nervous energy                                  19
Chart of the Week – Inflation “Choke Point” and Consumer Spending
                                                                                                                    Key Inflection Points
         80                                          Hurricane Katrina      2008 oil rally           15
                       Gulf War
         60                                                                                                         Credit
                                                                                                     10             Select Rating Changes: Merck                    23
         40
                                                                                                     5
         20                                                                                                         Macro
          0                                                                                          0              Select Forecast Changes:
                                                                                                                    Japan 2012 GDP growth to 2.4% from 2%
        -20
                                                                                                     -5             ECB rates on hold until at least end of 2012 24
        -40
                                                                                                     -10
        -60                                                                                                         Regulars
        -80                                                                                          -15
                                                                                                                    Barclays Macro, Commodities & FX Forecasts 2
              89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
                                                                                                                    Barclays Events                                  3
                Recession dates                                 Real PCE durable goods (3 m% chg saar)
                CPI 3 m % chg (saar)                            "Choke point"                                       Summary of equity rating changes                21
Source: Barclays Capital Research, (see Asset Allocation Snapshot – The Oil Factor, 6-March-2012)                   Summary of credit rating changes                22

Barclays Capital does and seeks to do business with companies covered in its research reports. As a                 All research referenced herein has been
result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity   previously published. You can view the full
of this report.                                                                                                     reports, including analyst certifications and
Investors should consider this report as only a single factor in making their investment decision.                  other required disclosures, by clicking the
This research report has been prepared in whole or in part by equity research analysts based outside the US         hyperlinks in this publication or by going to
who are not registered/qualified as research analysts with FINRA.                                                   our Research portal on Barclays Capital Live.
FOR ANALYST CERTIFICATION(S), PLEASE SEE PAGE 26.
FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 26.
FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 28.
Barclays Capital | Global Portfolio Manager’s Digest


BARCLAYS MACRO, COMMODITIES AND FX FORECASTS

More detailed global macro, commodities and FX forecasts can be viewed on the Global Forecasts page on Barclays Capital Live.


Real GDP                                                                   Central Bank Rates
                                        2010          2011          2012                                 Current   1Q 12    2Q 12    3Q 12

US                                        3.0           1.7         2.5    Fed funds rate                0-0.25    0-0.25   0-0.25   0-0.25
Brazil                                    7.5           2.7         3.3    BoJ overnight rate              0.1     0-0.10   0-0.10   0-0.10
Japan                                     4.4          -0.7         2.4    ECB main refinancing rate       1.0       1.0     1.0      1.0
China                                    10.5           9.2         8.1    BOE bank rate                   0.5       0.5     0.5      0.5
India                                     8.4           7.1         6.9    China: Working capital rate     6.6       6.6     6.6      6.6
Euro area                                 1.8           1.5         -0.4   India: Repo rate                8.5       8.5     8.0      7.5
United Kingdom                            2.1           0.8         0.9    Brazil: SELIC rate              9.8       9.8     9.0      9.0
Russia                                    4.3           4.3         4.3    Russia: Refi rate               8.0       8.0     7.5      7.5


Consumer Prices                                                            Global Bond Yields
                                        2010          2011          2012                                 Q1 12     Q2 12    Q3 12    Q4 12

US                                        1.6           3.2         2.8    US 10y                          2.3       2.0     2.0      2.0
Brazil                                    5.0           6.6         5.6    US 10y RY                       0.0      -0.4     -0.3     -0.1
Japan                                    -1.0          -0.2         -0.3   Euro Govt. 10y                  2.0       2.1     2.2      2.3
China                                     3.3           5.4         3.2    Euro Govt. 10y RY               0.1       0.2     0.2      0.2
India                                     9.6           9.4         7.1    UK 10y                          2.4       2.5     2.8      3.0
Euro area                                 1.6           2.7         2.4    UK 10y RY                      -0.4      -0.6     -0.4     -0.1
United Kingdom                            3.3           4.5         2.9    Japan 10y                       1.2       1.2     1.1      1.1
Russia                                    6.9           8.6         4.8    Japan 10y RY                    1.0       1.0     0.9      0.9


Commodity Prices                                                           Foreign Exchange
                                        2010          2011          2012                                  Spot     1 Month 6 Month   1 Year

Brent (US$/bbl)                           80           111          115    EUR/USD                        1.32      1.32    1.25     1.20
WTI (US$/bbl)                             80            95          110    USD/JPY                         82        78      82       84
US Natural Gas (US$/mmbtu)                4.4           4.0         3.1    GBP/USD                        1.58      1.57    1.52     1.50
Coal API2 (US$/t)                         93           123          102    USD/CHF                        0.91      0.93    1.04     1.08
Carbon (EUA) (€/t)                        15            13           8     USD/CAD                        0.99      1.00    0.96     0.95
Gold (US$/oz)                           1226          1571          1875   AUD/USD                        1.06      1.07    1.09     1.10
Copper (US$/t)                          7533          8813          9000   USD/CNY                        6.31      6.28    6.17     6.08
Corn (Usc/bushel)                        427           680          618    USD/BRL                        1.76      1.74    1.71     1.70
Source: Barclays Capital
Numbers in bold indicate forecasts; non-bold numbers are actuals.




11 March 2012                                                                                                                                 2
Barclays Capital | Global Portfolio Manager’s Digest


BARCLAYS EVENTS
Conference Calls & Webcasts
Date                     Time                                                 Call/Webcast

Please click on the links to view details of forthcoming conference calls and webcasts
12 March                 4.30pm EST                                           Barclays Capital Bi-Weekly Equity Trading Call
13 March                 7:45am EST / 12:45 GMT                               Barclays Capital Tuesday Credit Call
13 March                 9:00 and 12:00 GMT                                   BarcapLive WebEx – Enhanced Portfolio Web Bench


Conferences & Special Events
Date                     Event                                                                                       Location

Please contact your Barclays Capital Sales representative for availability.
13 March                 Barclays Capital Third Annual Bank Loan Conference                                          New York
13 March                 Barclays Capital Internet Connect Conference                                                New York
13 – 14 March            2012 Global Healthcare Conference                                                           Miami
13 – 15 March            2012 Spring Oilfield Tour hosted by James West                                              Houston
14 March                 US Utilities: Exploring the Power Grid                                                      Zurich
15 March                 Municipal Credit Conference                                                                 New York
16 March                 Geneva Energy Day                                                                           Geneva
19 – 23 March            European & Russian Banks                                                                    Eastern Europe and Russia
22 – 23 March            China Machinery Tour – Shanghai & Changzhou                                                 Shanghai and Changzhou
25 – 27 March            High Yield Bond and Syndicated Loan Conference                                              Phoenix, Arizona
27 – 28 March            2012 Power and Utilities ‘Going to California’ Field Trip                                   San Francisco and Pasadena
28 – 29 March            Barclays Emerging Payments Forum                                                            New York
29 March, 2 – 3 April    Barclays High Grade Credit Conference                                                       Boston, New York and Chicago
                                                                                 th
9 – 11 April             Barclays Capital Healthcare Facilities/Services 12 Annual Nashville Bus Tour                Nashville, Tennessee
12 April                 2012 North American Small and Mid-Cap Energy Forum                                          New York
24 – 25 April            2012 Retail and Restaurants Conference                                                      New York
3 May                    Chemical ROC Stars Conference                                                               New York
10 May                   Global Therapeutics Symposium                                                               Boston
15 – 16 May              Americas Select Franchise Conference 2012                                                   London, England
21 May                   Barclays Capital European Credit Conference                                                 London
21 – 22 May              Barclays Select: Asia Property Conference 2012                                              Hong Kong
22 – 23 May              Barclays Global Technology, Media and Telecommunications Conference                         New York
29 – 30 May              Clean Solutions Conference                                                                  New York
31 May                   UK Savings: New World, New Model                                                            London


Replays from the Past Week
Date                     Conference Call/Webcast/Conference

Please click on the links for select conference call replays and webcasts/podcasts from the past week.
8 March                  Global Energy Outlook
6 March                  Barclays Capital Tuesday Credit Call: No Leap into QE3
6 March                  Global Emerging Markets Banks: Safety Shows up in the most unlikely places
5 March                  Coal to Gas Switching
5 March                  Barclays Capital European Credit Call: Still waiting for a near-term resolution as Greece endgame approaches



11 March 2012                                                                                                                                       3
Barclays Capital | Global Portfolio Manager’s Digest


THE DATA MINER: DISSECTING DIVIDENDS – REMOVING UNINTENDED EXPOSURES

Gavin Smith, +1 212 528 6139, gavin.smith@barcap.com, BCI, New York

The recent months have been a volatile period for dividend-based strategies. As documented in this week’s note from the U.S.
Portfolio Strategy team, a typical dividend yield strategy underperformed from the start of the year up to early February, before
recovering through to late February. For those investors with a longer-term (possibly bearish outlook) - or for those simply
wanting exposure to dividends - such short-term volatility can be painful.

One issue that exacerbates the volatility of a typical dividend strategy is unintended exposures to other factors such as beta, size,
value and sector effects. A consequence of this, for example, is that a dividend yield strategy can leave you concentrated in high
yielding, low beta, large-cap stocks from defensive industries. To mitigate risk of investing in dividends, we present a list of
names that have been cleaned of beta, size, value and sector effects using a regression methodology. This approach allows
investors to better understand and control their exposures.

In the regression Beta is estimated using two years of weekly return data; Size is the log of market capitalization; and Value is the
log of price-to-book. We define sectors using the 2-digit GICS codes. Please note, for consistency with the analysis from our U.S.
Portfolio Strategy colleagues, our universe for this regression is the S&P500.

From this regression the residual is the component of dividend yield that is not explained by beta, size, value and sector effects.
We subsequently rank our universe by the residual and take the 40 names with the highest residual.

Figure 1 details the individual names that are the product of this screen.

Figure 1: Highest “Pure” Dividend Yielding Stocks
                                                                                                             Market
                                                                                   Dividend                                Price-to-
Ticker      Company Name                               Sector                                    Beta     Capitalization
                                                                                     Yield                                   Book
                                                                                                             ($MM)

CVC         Cablevision Systems Corp                   Consumer Discretionary       4.2%          1.1          3963           4.5
HRB         H&R Block Inc                              Consumer Discretionary       4.4%          0.8          4615           7.8
LEG         Leggett & Platt Inc                        Consumer Discretionary       5.0%          1.2          3120           2.4
LTD         Ltd Brands Inc                             Consumer Discretionary       8.3%          1.2         13748          26.5
WYNN        Wynn Resorts Ltd                           Consumer Discretionary       5.7%          1.4         12397           7.4
AVP         Avon Products Inc                          Consumer Staples             5.0%          1.0          7848           5.0
MO          Altria Group Inc                           Consumer Staples             5.2%          0.6         62106          16.9
RAI         Reynolds American Inc                      Consumer Staples             5.2%          0.6         24336           3.9
SVU         SUPERVALU Inc                              Consumer Staples             5.4%          1.2          1363           1.8
COP         ConocoPhillips                             Energy                       3.4%          1.0         99035           1.5
DO          Diamond Offshore Drilling Inc              Energy                       5.0%          1.0          9657           2.2
SE          Spectra Energy Corp                        Energy                       3.4%          0.9         20446           2.5
WMB         Williams Cos Inc/The                       Energy                       3.5%          1.3         17517           9.8
CINF        Cincinnati Financial Corp                  Financials                   4.6%          0.9          5636           1.1
FII         Federated Investors Inc                    Financials                   4.9%          1.0          2023           3.7
HCBK        Hudson City Bancorp Inc                    Financials                   4.8%          1.1          3463           0.8
HCN         Health Care REIT Inc                       Financials                   5.4%          0.9         11484           1.7




11 March 2012                                                                                                                          4
Barclays Capital | Global Portfolio Manager’s Digest


Figure 1: Highest “Pure” Dividend Yielding Stocks (continued)
                                                                                                                                       Market
                                                                                                      Dividend                                         Price-to-
Ticker        Company Name                                   Sector                                                      Beta       Capitalization
                                                                                                        Yield                                            Book
                                                                                                                                       ($MM)

HCP           HCP Inc                                        Financials                                  5.0%             0.9           15990              1.8
NYX           NYSE Euronext                                  Financials                                  4.2%             1.3            7457              1.1
PBCT          People's United Financial Inc                  Financials                                  5.1%             0.9            4478              0.8
VTR           Ventas Inc                                     Financials                                  5.3%             0.9           16130              1.7
BMY           Bristol-Myers Squibb Co                        Health Care                                 4.1%             0.6           55471              3.5
LLY           Eli Lilly & Co                                 Health Care                                 5.0%             0.6           45488              3.4
MRK           Merck & Co Inc                                 Health Care                                 4.2%             0.8           114850             2.1
PFE           Pfizer Inc                                     Health Care                                 3.8%             0.8           162154             2.0
PBI           Pitney Bowes Inc                               Industrials                                 8.5%             0.9            3512              4.0
RRD           RR Donnelley & Sons Co                         Industrials                                 8.0%             1.2            2296              2.2
WM            Waste Management Inc                           Industrials                                 4.9%             0.8           16088              2.6
ADP           Automatic Data Processing Inc                  Information Technology                      3.4%             0.9           26648              4.3
LLTC          Linear Technology Corp                         Information Technology                      2.9%             1.1            7534             12.4
MCHP          Microchip Technology Inc                       Information Technology                      3.9%             1.0            6881              3.5
MOLX          Molex Inc                                      Information Technology                      2.9%             1.3            4386              2.0
PAYX          Paychex Inc                                    Information Technology                      4.0%             0.8           11286              7.2
VRSN          VeriSign Inc                                   Information Technology                      7.6%             0.8            5763              3.8
FCX           Freeport-McMoRan Copper & Gold Inc             Materials                                   3.8%             1.6           37460              2.4
MWV           MeadWestvaco Corp                              Materials                                   3.2%             0.8            5278              1.7
NUE           Nucor Corp                                     Materials                                   3.5%             1.2           13157              2.1
FTR           Frontier Communications Corp                   Telecommunication Services                 15.1%             1.0            4353              1.0
EXC           Exelon Corp                                    Utilities                                   5.5%             0.7           25563              1.8
POM           Pepco Holdings Inc                             Utilities                                   5.6%             0.7            4420              1.0
Source: Barclays Capital, Bloomberg. This screen only takes into account the factors expressly stated above and does not necessarily represent the fundamental views
of the analysts. For more details on our analyst views on individual names please find the latest research on Barclays Capital Live or contact the relevant analyst.
Please contact the U.S. Equity Product Management Group if you are interested in any customized revisions to the criteria used.




11 March 2012                                                                                                                                                      5
  Barclays Capital | Global Portfolio Manager’s Digest


  BEST OF BARCLAYS: ASSET ALLOCATION SNAPSHOT

                                          The oil factor
    ASSET ALLOCATION RESEARCH             Excerpted from Asset Allocation Snapshot, published on March 6, 2012
            Sreekala Kochugovindan
               +44 (0)20 7773 2234        The risk asset rally has wobbled this week as the combination of the Greek debt deadline,
sreekala.kochugovindan@barcap.com         weaker euro area data and high oil prices fuelled investor fears. As Brent and retail gasoline
                                          prices hover near the highs reached during the Middle East volatility last year, a growing
                                          number of investors voiced concerns that energy prices could derail the risk asset rally. We
                                          think not, but remain humble to the fact that it is not a risk that can simply be ignored, as
                                          the probability of deterioration in the political situation, albeit low, is still positive. Thus, we
                                          outline the asset allocation implications of an unexpected spike in oil prices.

                                          As we have discussed previously, it is not necessarily the oil price itself that can pose a
                                          threat to economic growth but the pace of its growth that is more important. It is the
                                          sudden surge in oil prices that leads to an abrupt shock to consumer spending and
                                          economic growth. There are three occasions in which oil price spikes fed into sizable spikes
                                          in headline inflation, which in turn hit the economy via consumer spending. Consumer
                                          durable spending, the most sensitive component of spending, fell sharply when the 3-month
                                          annualised change in headline inflation exceeded 9%. In each case, the price of oil rallied in
                                          excess of 40% over a 3-month period. In contrast, the latest geopolitical fears have, so far,
                                          led to a 20% rally in oil.

                                          As outlined above, we do not expect the current oil situation to derail global growth as yet.
                                          Given that our more constructive global growth view (Global outlook, 8 December 2011)
                                          was based partly upon US growth prospects, it is worth examining the response of the US
                                          consumer to energy prices. Our economists view the effect of the retail gasoline price rise to
                                          be much smaller this year than in 2011. The rate of change so far does not imply strong
                                          headline inflation, while the improving labour market backdrop suggests a less significant
                                          effect on real consumption. However, perception, as they say, is reality. Investors do not
                                          necessarily wait for evidence of a growth effect to materialise in the data before speculative
                                          flows shift to price concerns. The very fear of rising oil prices slowing consumption and
                                          growth may be enough to trigger short-term jitters across financial markets. Figure 1
                                          illustrates the market reaction to the 1990 Gulf War. Equity markets sold off immediately on
                                          news of Iraq’s invasion on Kuwait, and implied volatility spiked higher with oil.

                                          We do not believe the risk of higher oil prices justifies strategic shifts in asset allocation;
                                          however, implementing cheap tactical hedges may help protect any temporary escalation in
                                          fears surrounding oil.

                                           Figure 1: Equity volatility potentially a strong hedge
                                            45
                                            40
                                            35
                                            30
                                            25
                                            20
                                            15
                                            10
                                            5
                                            0
                                            Dec-89   Feb-90   Apr-90   Jun-90   Aug-90     Oct-90   Dec-90      Feb-91   Apr-91

                                                                       Brent $/brl (LHS)      VIX index (RHS)
                                           Source: Bloomberg


  11 March 2012                                                                                                                              6
Barclays Capital | Global Portfolio Manager’s Digest


BEST OF BARCLAYS: EURO THEMES - PORTUGAL

                                        PSI unlikely in 2012, despite concerns about
                                        solvency
        ECONOMICS RESEARCH              Excerpted from Euro Themes: Portugal: PSI unlikely in 2012, despite concerns about
           Antonio Garcia Pascual       solvency, published on Month 7, 2012
             +44 (0)20 3134 6225
antonio.garciapascual@barcap.com            The hard default imposed on Greek sovereign debt, with a NPV haircut of about 75% (by
                                            our estimates), has left European government bond investors wondering whether PSIs
                      Piero Ghezzi          will be imposed in other euro area countries in the future; but eurozone policymakers
             +44 (0)20 3134 2190            have insisted that Greece is unique.
         piero.ghezzi@barcap.com
                                            Portugal is under close market scrutiny, given fears of contagion. The large stock of
                        Fabio Fois          public debt, lack of growth and unresolved macroeconomic imbalances cast doubts over
             +44 (0)20 3134 1136            the sovereign’s solvency and the viability of its adjustment programme. Also, regaining
           fabio.fois@barcap.com            competitiveness through a process of internal devaluation looks to be a daunting task,
                                            especially as the public and private sectors are deleveraging.

                                             The government, thus far, has a good implementation track record under the EU-IMF
                                             programme, but low productivity and deep-rooted structural problems are unlikely to be
                                             resolved by 2013-14. Public debt looks unlikely to stabilize by the time Portugal is due to
                                             return to the markets in H2 2013, and probably not in the medium-to-long term either.
                                             The country may not necessarily be insolvent, but in our view optimistic assumptions
                                             would likely be required to avoid such a scenario.

                                             The majority of Portuguese debt would be “senior, non defaultable” by the end of the
                                             EU-IMF programme. Official funds, rather than a catalyst to attract private investors,
                                             subordinate existing bondholders and tend to dissuade future PGBs investors.
                                             Consequently, it is hard to envisage Portugal’s return to the markets in H2 2013.

                                             Since IMF involvement requires 12-month ahead funding assurances, euro area
                                             countries may need to decide by mid-2012 whether to commit additional financial
                                             resources (so that Portugal would not have to access the markets) until structural
                                             problems are addressed, or to let the country restructure.

                                             We strongly believe the euro area’s “strong rhetoric” in support of Portugal (eg, “Greece
                                             is unique and PSI won’t be replicated in Portugal or any other euro area countries”), and
                                             concern about potential contagion to other peripherals, considerably reduce the
                                             likelihood of a Portugal PSI in 2012.




11 March 2012                                                                                                                          7
Barclays Capital | Global Portfolio Manager’s Digest


BEST OF BARCLAYS: EUROPEAN BANKS

                                        Over promising: Encumbrance at European banks
             EQUITY RESEARCH            Excerpted from Over Promising: Encumbrance at European Banks, published on March 8,
                European Banks          2012
                     2-NEUTRAL
                                        Who cares about funding anymore? While €1trn of 3-year LTROs takes funding risk off the
                  Simon Samuels
                                        table near term and helps buy time in managing the European sovereign debt crisis, we
            +44 (0)20 3134 3364
                                        think there remain several reasons to stay concerned about bank funding longer term.
    simon.samuels@barcap.com
        Barclays Capital, London        A rising trend of encumbrance: Even before the LTROs, a growing feature in Europe was
                                        rising balance sheet ‘encumbrance’ – the pledging of collateral to one group of creditors at
                   Mike Harrison        the expense of another. The most obvious example of this is the rise in covered bonds,
            +44 (0)20 3134 3056         accounting for 40% of debt issuance in 2011. The LTRO exacerbates this trend. Post LTRO,
     mike.harrison@barcap.com           several banking systems now have encumbered over 15% of their balance sheets.
        Barclays Capital, London
                                        Declining bondholder recovery rates keep funding costs high: Bondholders face increasing
                  Nimish Rajkotia       subordination from this balance sheet encumbrance, reinforced by depositor preference
            +44 (0)20 3134 3719         laws (in some countries) and imminent legislation on bail-in bonds. Combining these
    nimish.rajkotia@barcap.com          factors suggests that unsecured funding cost for banks will remain high – potentially too
        Barclays Capital, London        high for some business models to make economic sense.

                                        What can the banks do?: If funding costs can’t come down to economic levels, banks will
                                        either have to look for other sources of funding, or shrink. Alternative funding sources could
                                        include further covered bond issuance (encumbering balance sheets further) or aggressive
                                        growth of deposit franchises (thereby shrinking lending margins).

                                        What can policymakers do?: One offset to lower recovery rates is to reduce the probability of
                                        default. It is unclear whether Basel 3 compliance does enough to re-assure funding markets.
                                        If not, we may need further ECB measures to support banks now that the precedent of the
                                        3-year LTRO has been set. This increases the perception of the ‘nationalisation’ of funding
                                        structures.

                                        Figure 1: Proportion of banking system balance sheets encumbered, current

                                            40%
                                            35%
                                            30%
                                            25%
                                            20%
                                            15%
                                            10%
                                             5%
                                             0%
                                                       Greece




                                                                                                               France




                                                                                                                                       Benelux
                                                                                             Italy


                                                                                                     Germany




                                                                                                                                  UK
                                                                Spain


                                                                        Ireland




                                                                                                                                                 Finland
                                                                                                                        Austria
                                                                                  Portugal




                                        Source: ECB, ECBC, Barclays Capital.




11 March 2012                                                                                                                                              8
Barclays Capital | Global Portfolio Manager’s Digest


BEST OF BARCLAYS: US INDEX AND OPTIONS

                                        Cross-asset volatility relative value
                   Shobhit Gupta        Excerpted from U.S. Credit Alpha, published on March 9, 2012
                +1 212 412 2056
                                        Despite generic deterioration in credit market liquidity (see Liquidity Preference and
     shobhit.gupta@barcap.com
                                        Liquidity in CDS Markets), index and index option volumes have proven resilient. Indeed,
                                        volumes in CDX indices remain strong, with the on-the-run CDX.IG and CDX.HY indices
                        Eric Gross
                                        trading at weekly averages of approximately $96bn and $21bn, respectively, year-to-date.
                +1 212 412 7997
                                        While these volumes represent a slight year-over-year increase, the index options market
         eric.gross@barcap.com
                                        has had substantial growth, making it one of the only areas of genuine growth in credit
                                        derivatives. Moreover, a varied base of credit option participants, including real-money
                                        accounts looking for hedges and investors implementing pure volatility strategies, has led
                                        to growth in index swaption notionals and volumes. That market depth has, in turn,
                                        enabled a legitimate credit volatility market to develop, attracting attention from investors
                                        in more established volatility markets.

                                        Long and Short Equity, in Index and in Volatility
                                        Despite having tightened significantly over the past few months, credit derivative spreads
                                        are still trading wider than their 2011 lows in spread. Indeed, while the IG index is ~50bp
                                        tighter over the past three months, it is about 20bp wide of the 2011 tights. The same is
                                        true for the CDX HY index; while it is up about $8, to $97, since November, it remains
                                        significantly lower than the 2011 highs of $105. The difference can be explained in part by
                                        constituent differences: the $105 highs were reached in February 2011 for series 15. That
                                        said, even adjusting for constituent differences, the HY17 index is about 2pts lower than
                                        we estimate it would have reached in February 2011.

                                        In contrast, the S&P 500 index, having rallied more than 16% since late-November 2011,
                                        reached its highest level in over three years earlier this month. While it is slightly lower now,
                                        it is still trading at its 2011 highs. In addition to the obvious constituent mismatch between
                                        the credit and equity indices, the one big difference in sector composition is banks (Figure
                                        8). Banks (including diversified financials) are nearly 8.5% of the S&P index but are not
                                        included in the CDX indices. However, bank equities have underperformed the rest of the
                                        S&P 500 index, and ex-fins the S&P 500 is nearly 2% higher than the 2011 highs.

                                        Thus, given the underperformance of credit (CDX IG and HY indices) relative to equity, we
                                        believe that long credit, short equity trades are likely to outperform. We recommend
                                        expressing this view using options, which also monetizes the dislocation in the volatility
                                        premium in credit and equity options mentioned above. Specifically, we believe that selling
                                        S&P500 calls vs. either buying an IG receiver or a HY call option appears attractive at
                                        current levels. The strikes and relative notionals of the two legs can be adjusted based on
                                        investors’ view, but we highlight two constructs in IG and HY below. The two trades are set
                                        up to be costless but are net short the market at inception. Market-neutral versions of
                                        these trades can be implemented by selling a lower notional of the SPY call although they
                                        will have an upfront cost.

                                        Buy Jun 20 2012, 105 Strike IG Receiver, Sell Jun 16 2012, 136 Strike SPY Calls (no delta)
                                        Buy Jun 20 2012, $96 Strike HY Call, Sell Jun 16 2012, 136 Strike SPY Calls (no delta)




11 March 2012                                                                                                                           9
Barclays Capital | Global Portfolio Manager’s Digest


U.S. EQUITY STRATEGY

                                           April showers
                         Barry Knapp      Excerpted from U.S. Portfolio Strategy Weekly, published on March 9, 2012
                   +1 212 526 5313
                                          The period of major central bank easing into an improving economic outlook is winding
        barry.knapp@barcap.com
                                          down. It might take some time for the momentum to completely dissipate, but we would
                       BCI, New York
                                          be cutting risk.
                     Eric Slover, CFA
                   +1 212 526 6426
                                          We’re not gonna’ party like it’s 1995
          eric.slover@barcap.com          We’ve argued throughout the post-crisis period that the U.S. growth outlook is the most
                                          important driver of equity markets, not domestic monetary strategy, public policy or external
                Michael Keller, CFA       factors. Even last fall, when the European experiment seemed to be crumbling, improving data
                   +1 212 526 2404        in the U.S., following a spike in market implied recession risk, pushed stocks erratically higher.
       michael.keller@barcap.com          While we see numerous constraints to continued improvement in domestic growth -- the U.S.
                       BCI, New York      data surprise has been falling and 1Q12 GDP forecasts are at risk -- the relatively robust labor,
                                          auto and chain store sales reports have kept a positive bias to the market implied outlook. An
                          Adam Sussi      early Easter probably ensures at least another month of decent retail sales and, consistent with
                   +1 212 526 9778        the last couple of years, the labor data have started strong, but in 2010 and 2011 it began to
         adam.sussi@barcap.com            soften in the 2nd quarter, implying the outlook isn’t likely to soften much until April.
                       BCI, New York
                                          Longer term, we believe household balance sheet deleveraging and bottoming in the housing
                                          market, as evidenced by negative regional house price correlation, provide strong underlying
       There are several near-term        support for U.S. growth. However, while the housing market is stabilizing, household
      restraints on both macro and        deleveraging still has progress to make, and there are several remaining near-term restraints
      equity market fundamentals.         on both macro and equity market fundamentals: Energy prices, public policy, earnings season,
                                          monetary policy and Europe.

                                           A common denominator in several of these broad areas of risk is the month of April. With the
                                           markets sending numerous signals that 2012 is not 1995—weakening relative performance of
                                           small caps and cyclical sectors, gold falling, energy prices increasing and real 10 year treasury
                                           rates rising—we believe the period of major central bank easing into an improving economic
                                           outlook is winding down. It might take some time for the momentum to completely dissipate,
                                           but we would be cutting risk.

Figure 2: While the housing market is stabilizing, household              Figure 3: Higher energy prices are offsetting the decline in
deleveraging still has progress to go                                     the household financial obligations ratio ,,,,,
  %                                                                           %
                                                                                                Gasoline & Motor Oil / Income Before Tax
 80                                                       75               16            14.6         Household Income Quintiles
                                                                           14
 70
                                                                64         12     10.2
 60
                                                 57                        10                           8.5
 50                                                                          8                                        6.8
                                                                                                  6.0
                                                                             6                                 4.8                  5.2
 40                             44                                                                                            3.6
                                                                             4                                                                   2.9
                                                                                                                                          2.1
 30
                                                                             2
 20                                                                          0
      80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12                              Lo                2             3             4           Hi
                            Mortgage Debt / Nominal GDP                                         2010: $2.60 avg price       2012e: $4.00 avg price

Source: FRB, Haver, Barclays Capital                                      Source: BLS, EIA, Haver, Barclays Capital

11 March 2012                                                                                                                                          10
Barclays Capital | Global Portfolio Manager’s Digest


DIVIDENDS

                                        Dissecting dividends: Signpost for a market drop?
          U.S. Portfolio Strategy            The outperformance of dividend yield strategies is consistent with a falling stock
                  Eric Slover, CFA           market, rising volatility, and a deteriorating macro outlook. Dividend yield strategies
                +1 212 526 6426              are trending toward positive correlation with returns, a signpost for caution. We
         eric.slover@barcap.com              recommend paring risk and legging into dividend yield exposure.
                   BCI, New York
                                        Historically, periods of profitable dividend yield strategies (e.g., buying the top 20% of high
              U.S. Equity Product       yielding stocks and selling the bottom 20%) are consistent with a falling stock market, rising
                    Management          volatility, and a deteriorating macro outlook. Despite the underperformance of dividend
                     Gavin Smith        indices and the highest yielding stocks, dividend yield strategies are trending toward
                +1 212 528 6139         positive correlation with returns, consistent with underperformance of other market
       gavin.smith@barcap.com           measures, such as small caps and cyclical sector. Along with the rising price of oil and
                   BCI, New York        gasoline, these signals in early 1Q11 and 2Q11 served as signposts for the deteriorating
                                        market conditions, which ultimately led to strong outperformance from dividend yield
                                        strategies.

These signals served as signposts
                                         Figure 1: Legging into dividend yield exposure seems attractive. Dividend yielding
  in early 1Q11 and 2Q11, for the
                                         strategies that limit unintended exposures to other factors such as beta, size, value and
 deteriorating market conditions,
                                         sector effects would reduce short-term volatility effects
    which ultimately led to strong
   outperformance from dividend            Normalized slope coefficients, 20dma                                                              Index, 20dma
                   yield strategies        0.20                                                                                                      1.0
                                           0.15                                                                                                      0.8
                                                                                                                                                     0.6
                                           0.10
                                                                                                                                                     0.4
                                           0.05                                                                                                      0.2
                                           0.00                                                                                                      0.0
                                          -0.05                                                                                                      -0.2
                                                                                                                                                     -0.4
                                          -0.10
                                                                                                                                                     -0.6
                                          -0.15                                                                                                      -0.8
                                          -0.20                                                                                                      -1.0
                                               Jan-10    Apr-10      Jul-10    Oct-10      Jan-11    Apr-11      Jul-11      Oct-11     Jan-12   Apr-12
                                                        Div Yld, Earnings Yld, Book/Mkt, Size, Sector (L)                 Div Yld (L)       S&P 500 (R)

                                         Source: FactSet, Barclays Capital. Note: twenty day moving average of daily returns


                                        We would be wary of a pattern similar to early 2011 when dividend strategies quietly
                                        outperformed as the S&P 500 traded in a range for nearly two quarters, failing to break the
                                        top-end of the range and ultimately falling to 1100.

                                        With performance of dividend yield strategies added to the list of cautious signals from the
 We recommend paring back risk
                                        market, mixed macro data and a pause in monetary policy accommodation expectations,
   and legging into dividend yield
                                        we recommend paring risk, legging into dividend yield exposure seems attractive. Dividend
                         exposure
                                        yielding strategies that limit unintended exposures to other factors such as beta, size, value
                                        and sector effects would reduce short-term volatility effects.




11 March 2012                                                                                                                                               11
Barclays Capital | Global Portfolio Manager’s Digest


EMEA EQUITY STRATEGY

                                        Plugging into lower credit yields
             Edmund Shing, Ph.D         Excerpted from European Strategy Elements: Plugging into lower credit yields, published
            +44 (0)20 7773 4307         on March 9, 2012
    edmund.shing@barcap.com
                                            Value rebound in the offing: Value stocks tend to outperform growth stocks as economic
        Barclays Capital, London
                                            indicators, such as the German IFO, stabilise. We believe this is because value stocks tend
                                            to be cyclical in nature, and an improvement in the economic outlook leads to a reduction
                      Dennis Jose
                                            in the earnings risk premium that may currently be priced in. Therefore, we think that, at
            +44 (0)20 3134 3777
                                            least tactically, value can outperform growth. We see the key value sectors within Europe
        dennis.jose@barcap.com
                                            as Utilities, Telecoms and Insurance.
        Barclays Capital, London
                                            Upgrade Utilities to Marketweight: This is a highly leveraged (2012 Net Debt to EBITDA of
           Yu-chieh Chiang, CFA             2.4x) value sector, which stands well poised to benefit from the contraction in credit yields
            +44 (0)20 3134 4217             witnessed over the past couple of months. In addition, both German and UK power prices
   yu-chieh.chiang@barcap.com               are starting to pick up, which could support earnings.
        Barclays Capital, London
                                            Downgrade Industrials to Marketweight: While this is one of our preferred sectors on a
                                            structural basis, tactically we downgrade the sector, since current valuations are no
                                            longer particularly attractive and tactical macro risks are fast emerging.

                                             Close out Sweden (OMX) vs Europe (SX5E) recommendation: In conjunction with our
                                             downgrade of European Industrials, we close our Long OMX, Short SX5E
                                             recommendation. Riksbank estimates for real GDP growth in Sweden have become
                                             increasingly pessimistic, with a contraction expected in Q4 2012. In addition, Swedish
                                             new orders, after picking up since last November 2011, have started to moderate.


                                        Figure 1: Utilities equities led by credit historically, could it happen again?

                                          130                                  European Utilities Equity (SX6P)                              2
                                          120                                  European Utilities Credit (redemption yield, inverted, rhs)

                                          110                                                                                                3

                                          100
                                                                                                                                             4
                                           90
                                           80
                                                                                                                                             5
                                           70
                                           60                                                                                                6
                                           50
                                           40                                                                                                7
                                            2007                2008           2009              2010              2011              2012

                                        Source: Barclays Capital, DataStream




11 March 2012                                                                                                                                12
Barclays Capital | Global Portfolio Manager’s Digest


AMERICAS CREDIT STRATEGY

                                              Shifting concerns
                           Jeffrey Meli      Excerpted from U.S. Credit Alpha, published on March 9, 2011
                   +1 212 412 2127
                                             Credit suffered through one of its tougher days of 2012 on Tuesday, and despite better
             jeff.meli@barcap.com
                                             sentiment later in the week, it is wider w/w ahead of Friday’s payroll number. Europe was
                                             once again at the forefront of investor concerns, but the exact source of those worries
                Bradley Rogoff, CFA
                                             shifted somewhat. Greece looks set to execute its PSI debt swap successfully, as it has
                   +1 212 412 7921
                                             ~85% of participants on board. Assuming that it uses the collective action clauses to bind
      bradley.rogoff@barcap.com
                                             the remaining holders, a CDS trigger is likely. The Greece debt swap may serve only to
                                             escalate questions about Portugal, which is now trading at extremely stressed levels. Our
                                             economics team does not expect PSI for Portugal in 2012 (see “Portugal: PSI unlikely in
                                             2012, despite concerns about solvency”), but the question is becoming increasingly relevant.
                                             Perhaps more concerning over the long term is the performance of Spain. Deficit numbers
                                             were poor for 2011, at 8.5%, and forecasts for 2012 were dialed back to a 5.8% deficit. 10y
                                             government bond yields at ~5% are not yet alarming, but CDS is now wide to Italy and
                                             breached 400bp (Figure 2).

                                              The better tone as the week progressed was tied to continued strong data domestically and
                                              a story in the Wall Street Journal that the Fed may be considering sterilized bond purchases
                                              as a means of adding additional liquidity to the markets (“‘Sterilized’ Bond Buying an Option
                                              in Arsenal,” Wall Street Journal, March 7, 2012). This seemingly addressed the concerns we
                                              raised last week that markets are increasingly reliant on central bank liquidity.

                                              This week’s modest sell-off does not change our view that as long as the system is flush
                                              with liquidity, the catalyst for a down trade is not obvious. However, it did reinforce our view
                                              that positioning that is, at first glance, neutral but long convexity can perform well. For
                                              example, on Tuesday, we witnessed material underperformance from more liquid securities,
                                              including some of the higher dollar-priced call-constrained high yield bonds that we have
                                              highlighted recently as popular ETF bonds. This week, we look at dispersion in both the
                                              Investment Grade and High Yield sections and find that the number of credits that are near
                                              the market spread is much lower than during similar spread regimes in the past. This forces

Figure 1: Weekly Index Changes                                              Figure 2: Spain and Italy 5y CDS (bp)

                                                      Last                    575
                                     Wednesday        Week      4-week
                                       Close          Close     Average
                                                                              525
Credit Index (bp)                          171         166        173
CDX.IG.17 (bp)                             97.0        94.0       96.6        475
High-Yield Index ($ Price)                101.49      102.31     101.61
CDX.HY.17 ($ Price)                       96.63       97.91      97.47        425
Leveraged Loan Index ($ Price)            93.74       93.80      93.67
                                                                              375
LCDX.17 ($ Price)                         98.00       98.50      94.61

                                                                              325
                                                                                1-Jan         16-Jan        31-Jan   15-Feb      1-Mar

                                                                                                            Spain    Italy
Source: Barclays Capital                                                    Source: Bloomberg, Barclays Capital


11 March 2012                                                                                                                              13
Barclays Capital | Global Portfolio Manager’s Digest


                                        many investors into a barbell approach if they want to earn a market yield. Based on our
                                        somewhat cautious view for lower quality credits, we are more comfortable with this
                                        approach in investment grade than high yield.

                                        Continuing with the theme of owning downside protection while staying invested in a
                                        market with very strong technicals, this week’s focus article looks at the relative value of
                                        credit and equity options. We highlight CDX and options as one of the only areas of the
                                        market where liquidity has remained strong or improved in the past year. The better
                                        liquidity in options has enticed investors to examine cross-asset volatility. We convert
                                        credit volatility from spread into price terms to make it more equivalent to equity volatility
                                        and find that equity volatility has recently become rich to credit volatility. We suggest
                                        trades in the IG and HY CDX options market versus S&P options.




11 March 2012                                                                                                                       14
Barclays Capital | Global Portfolio Manager’s Digest


EUROPEAN CREDIT STRATEGY

                                            Technicals are overwhelming a challenging
                                            fundamental picture for the moment
                           Sherif Hamid     Excerpted from European Credit Alpha, published on March 9, 2012
              +44 (0)20 7773 5259
                                            Volatility remained high this week as the Greece endgame quickly approaches. Concerns
        sherif.hamid@barcap.com
                                            that all could go horribly awry gave way on Thursday to belief that events will likely be able
                                            to progress with limited disruption to the broader markets. For the week ended Wednesday,
                                            iTraxx Main, Crossover, and Senior Fin were 7bp, 24bp, and 11bp wider, respectively,
                                            though markets rallied somewhat on Thursday on the back of positive headlines regarding
                                            participation in the proposed Greece PSI.

                                            With respect to the Greece PSI, headlines emerged over the course of the week regarding
                                            bondholder participation. At last count, per press statements on Thursday, over 60% of
                                            private creditors had express interest in participating in the PSI (Bloomberg). Importantly,
                                            on Tuesday, the Greek Ministry of Finance released a statement confirming that if Greece
                                            receives sufficient consent to the proposed amendments of the Greek law governed bonds
                                            to make the amendments effective, it will do so and bind all holders of the domestic law
                                            bonds into the proposed restructuring. We would highlight once again that per the Greek
                                            Bondholder Act, at least 50% of holders must respond and 66% of respondents must agree
                                            to the proposed amendments in order for Greece to make the amendments effective. Given
                                            recent headlines, it appears increasingly likely that Greece will reach the necessary hurdle
                                            and be able to implement the CACs. We continue to believe using the CACs to bind all
                                            holders of domestic law bonds into the restructuring will likely trigger a CDS credit event.
                                            We expect further headlines on this front on Friday.

                                            There has been significant continued focus on the potential implications of a CDS credit
                                            event for the broader market. We continue to be of the view that as long as CDS works as
                                            expected (ie, triggering if it “should” trigger and vice versa), sovereign CDS will continue to
                                            be viewed as a useful hedging tool. At the same time, in the case where CDS does trigger,
                                            we do not expect a rash of counterparty risk issues, given that the net notional of CDS

Figure 1: Key indices weekly performance                                  Figure 2: PEHY ex Fin Index pro forma for EDNIM inclusion,
                                                                          ranked by par outstanding (€bn equivalent)
                            Wednesday     Wednesday last   Four-week        10
                              close        week close       average
                                                                              9
PE IG Corp                      237            240            248             8
iTraxx Main                     136            129            134             7
iTraxx SenFin                   217            206            217             6
                                                                              5
iTraxx SubFin                   358            355            366
                                                                              4
PE HY Corp                      677            666            690
                                                                              3
iTraxx XO                       591            567            584             2
                                                                              1
                                                                              0
                                                                                      FIAT


                                                                                  PEUGOT




                                                                                     UNITY
                                                                                   HTOGA




                                                                                     UPCB
                                                                                     LGFP




                                                                                    MWDP




                                                                                   INEGRP
                                                                                    ZIGGO
                                                                                  WINDIM




                                                                                      FIIM




                                                                                    EDNIM
                                                                                    ARGID
                                                                                  PORTEL


                                                                                  RENAUL




                                                                                         F
                                                                                    HEIGR
                                                                                  ELEPOR




                                                                                   CONGR




                                                                                   LHAGR




Source: Barclays Capital                                                  Source: Barclays Capital


11 March 2012                                                                                                                            15
Barclays Capital | Global Portfolio Manager’s Digest


                                        outstanding is relatively small (USD3bn) and the vast majority of CDS in the market is
                                        subject to daily marking to market and margin requirements, both of which limit the
                                        amount of counterparty risk exposure. Indeed, we expect the vast majority of cash that
                                        would need to change hands related to a Greece CDS event has already done so given that
                                        Greek CDS is currently trading at ~75pts upfront (ie, trading to a 25% recovery). That said,
                                        we expect markets to remain concerned about this issue until it is proved that no major
                                        counterparties experience significant problems due to CDS triggering. We would point
                                        investors to Euro Themes: Implications of Greece restructuring for banks and CDS, 3 June
                                        2011, and Greece CDS update: Voluntary or binding on all? The key question for Greece CDS
                                        holders, 27 October 2011, for further detail.

                                        Away from Greece, the ECB and BOE both held rates constant this week. President Draghi
                                        cited the benefits of the recent LTRO to market liquidity but, notably, continued to express
                                        concern about the growth outlook, as the ECB continues to expect weakness in 2012. He
                                        also stated that the ECB expects inflation to remain above 2% for most of the year, though
                                        he was more sanguine about inflation expectations, which are still viewed as well contained.
                                        Incremental macro data this week have, on balance, been negative, reinforcing the ECB’s
                                        concerns, as evidenced by weak German factory orders and weak EC PMI data.

                                        From a more fundamental perspective, earnings were, on balance, disappointing relative to
                                        expectations as well. Notably, investment grade issuers Carrefour, Air France, and Enel
                                        reported relatively weak operating results. Enel also joined the fray of downgrade activity, as
                                        the company was cut to BBB+ at S&P following results and guidance. Also downgraded was
                                        Italian electricity name Edison SpA. Edison was downgraded to BB+ by S&P, which joined
                                        Fitch in rating the company below investment grade. After this downgrade, Edison joins the
                                        growing list of fallen angels entering our high yield indices and becomes the 20th largest
                                        issuer by par in our high yield index ex-financials (EUR1.8bn, Figure 2). We expect this trend
                                        of downgrade activity to continue, with varying consequences across the credit markets.

                                        Overall, at current valuations, we continue to believe investors should tread lightly. The
                                        volatility exhibited already around the Greece PSI process highlights how skittish sentiment
                                        can be. At the same time, despite the seemingly overwhelming technicals, the fundamental
                                        picture continues to deteriorate across European credit. While this tension between
                                        technicals and fundamentals could continue for quite some time, risk/reward has become
                                        skewed to the downside, in our view. We believe investors should remain disciplined about
                                        relative value and look for relatively cheap/convex ways to position for a correction across
                                        our market. We highlight a variety of ideas along these lines in our trade blotter section.

                                        Along the same lines, in our high yield section, we highlight that 63% of our PE HY index ex
                                        fins is now trading above par, and 85% is trading above 90 on a price basis. With prices as
                                        high as they are, large parts of the market have become quite negatively convex. Ultimately,
                                        we believe the right risk/reward trade for high yield investors from a portfolio perspective is
                                        to move underweight beta in general; at the same time, we believe investors should move
                                        more of their exposure into the less negatively convex parts of the market, much of which is
                                        in the single B space. Please see our high yield section for further discussion.




11 March 2012                                                                                                                       16
Barclays Capital | Global Portfolio Manager’s Digest


ASIA CREDIT STRATEGY

                                        Soft China data no match for strong technicals
                   Krishna Hegde        Excerpted from Asia Credit Alpha, published on March 9, 2012
                  +65 6308 2979
                                        Asia credit is flat to stronger w/w after trading softer midweek on worries about the
     krishna.hegde@barcap.com
                                        response to the Greece PSI. Asia outperformed versus US/Europe, with iTraxx Asia IG hitting
                                        new tights for the series. This week, USD2.15bn was priced, and the pipeline of new issues
                      Avanti Save
                                        has continued to grow in line with expectations.
                  +65 6308 3116
        avanti.save@barcap.com          Not surprisingly, Greece remained on the radar as the PSI deadline approached. Bloomberg
                                        has reported today that participation had reached over 85.8% (total of EUR172bn bonds
                                        tendered) and participation will be 95.7% (EUR197bn) after the CACs are triggered. The
                                        ISDA determination committee is expected to meet today to decide whether this triggers
                                        CDS contracts. The hard default imposed on Greece has left investors wondering whether
                                        PSIs will be utilised for other euro area countries in the future. Consequently, Portugal is
                                        now under close market scrutiny and is trading at stressed levels (10y bonds at 13.9%).
                                        Despite Portugal's economic challenges and deteriorating debt dynamics, our economists
                                        believe that the euro area's rhetorical support and anxiety about contagion considerably
                                        reduce the likelihood that European policymakers will impose PSI in 2012 (see Portugal: PSI
                                        unlikely in 2012, despite concerns about solvency, 7 March 2012).
   Stay invested in better-quality      Strong technicals continue to support the markets. Despite USD26.7bn of YTD gross
  credits and keep macro hedges         issuance, we believe dealer inventories are not yet heavy and investors’ cash levels continue
                          in place      to be replenished by inflows. Given this backdrop, we recommend a tactically cautious
                                        stance – stay invested in better-quality credits and keep macro hedges in place. In our focus
                                        piece we suggest a variety of trades across the high grade and high yield segments, with a
                                        fair proportion being relative value in nature.
      Korea CCS move is likely to       In Korea, 5y CCS has moved almost 30bp over the past 2 weeks. Since the Korean onshore
           support Korean bonds         investor base uses spread in KRW terms (after CCS) as a metric for buying USD bonds, a sharp
                                        upward move in CCS provides additional support for Korean USD bonds. Korea CCS is currently
 We recommend an overweight in          at levels last seen in September 2011, and further normalisation of the markets/upward
    Korea investment grade credit       movement in USTs could push it higher. We continue to recommend an overweight in Korea
                                        investment grade credit and believe there is potential for 8-10bp of further outperformance.

                                         Figure 1: Korea 5y CDS (bp) vs 5y KRW USD cross-currency basis swaps (bp)

                                                             5 yr CDS       5yr CCS Swaps
                                             250                                                                             -300

                                             225
                                                                                                                             -250
                                             200

                                             175                                                                             -200
                                             150

                                             125                                                                             -150

                                             100
                                                                                                                             -100
                                              75

                                              50                                                                             -50
                                               Jan-11       Mar-11      May-11    Jul-11    Sep-11   Nov-11   Jan-12   Mar-12

                                         Source: Barclays Capital

11 March 2012                                                                                                                       17
Barclays Capital | Global Portfolio Manager’s Digest


Rotate out of longer-tenor Indian       India credit lagged last week, following election results that were perceived to be negative
        bonds into ’14s and ’15s.       for the prospects for reforms and fiscal consolidation. Investors will have a chance to gauge
         Continue to recommend          the government’s commitment to fiscal consolidation when the budget is released on 16
         overweight while cutting       March. Ahead of the budget, we continue to advocate rotating out of longer-tenor Indian
                duration exposure       bonds into the ’14s and ’15s, given the relative flatness of the curve. In our view, the spread
                                        of the sector makes an above-benchmark weight appropriate, despite the strong
                                        performance that has already occurred YTD.

                                        Recent Chinese macro- and micro-level data have been mixed. The Chinese Minister of
                                        Commerce was quoted saying that January-February exports only grew 7% y/y, which
                                        implies 20% y/y growth in February – below the consensus forecast of 30%. Also, our
                                        equity analysts highlight that Chinese steel mills have been suffering from a weak recovery
                                        in demand from domestic and export markets, sluggish steel prices, high raw material costs
                                        and overcapacity.

                                        China’s data releases on 9-10 March will be an important indicator of the extent of the
                                        slowdown in growth. China activity data released on Friday surprised to the downside in
                                        aggregate. Retail sales and IP were lower than expected while fixed asset investment came
                                        in ahead of forecasts. CPI at 3.2% printed slight lower than consensus of 3.4%.

Global markets have not yet fully       We believe developments in China warrant a cautious stance, especially because global
    factored in the possibility of a    markets have not yet fully factored in the possibility of a sharper-than-expected slowdown
          sharper-than-expected         in China. This is evident in the way risk assets, especially commodities, weakened when
 slowdown in China. Overweight          China cut this year’s GDP growth target to 7.5% from 8%, which was well telegraphed in
            Hong Kong IG against        advance, according to regional economists. That said, there is a risk markets look through
            underweight China IG        poor data in the expectation of policy easing. We suggest overweighting Hong Kong
                                        investment grade versus underweighting China investment grade to maintain exposure to
                                        greater China.

   Indonesia – neutral sovereign        In Indonesia, our economists see an increased likelihood of a fuel price increase leading to
            against EM sovereign        higher inflation. We have changed our view on Indonesia credit (in the context of an EM
   benchmark, and underweight           sovereign portfolio) to neutral (see Indonesia credit: Finding safety in the off-the run bonds,
       credit against Asian credit      8 March 2012). We reiterate our underweight on Indonesia sovereign bonds versus an Asian
                       benchmark        credit benchmark.




11 March 2012                                                                                                                        18
Barclays Capital | Global Portfolio Manager’s Digest


ECONOMIC OUTLOOK

                                              Nervous energy
                        Simon Hayes           Excerpted from Global Economics Weekly, published on March 9, 2012
               +44 (0)20 7773 4637
                                              Recent activity data have brought further signs that global growth is recovering from its
           simon.hayes@barcap.com
                                              recent dip. At the same time, however, the threat of a jump in oil prices is likely to keep
                                              financial markets and policymakers watchful, even as euro risks recede.

        Global business confidence            The Barclays Capital global business confidence index registered another significant
      registered another significant          improvement in February (Figure 1), recording its largest one-month increase since October
            improvement in February           2009 and its fourth consecutive monthly rise. The service sector has been the main source of
                                              improvement, implying solidifying domestic demand across a range of economies, while mixed
                                              movements in manufacturing confidence indicate some residual fragility in international trade.

The US turnaround has been the                Although the improvement in confidence was widespread, there have been some striking
most convincing, while European               regional divergences. The turnaround in the US has been the most convincing, and the solid
                 confidence remains           payrolls gain in February suggests the recovery there retains momentum. Euro area
                   decidedly sub par          confidence, by contrast, remains notably sub par (Figure 2). This pattern accords with our
                                              view that the euro area is in the midst of a mild recession whereas other economies have
                                              steered clear of a double dip. We expect global GDP growth to rise to 3.5% q/q (saar) in Q1,
                                              from 2.8% in Q4 11.

 We have revised up our forecast              The economic ramifications of last year’s earthquake continue to keep Japanese data
            for Japanese GDP growth           volatile, but this week brought some positive news. The sharp upward revision to Q4 GDP
                               in 2012        growth, to -0.7% q/q (saar) from the initial estimate of -2.3%, has led us to raise our 2012
                                              growth forecast to 2.4% from 2.0% previously. Underpinning this is a marked upward
                                              revision to our Q1 forecast, to 2.6% from 1.5% previously, reflecting upgrades to our views
                                              of household consumption and export demand. In tune with this improving outlook,
                                              February saw a jump in the expectations index in the Economy Watchers’ Survey, rising
                                              above the 50 no-change mark for the first time in nearly five years.

                                              Even so, investors continue to question the sustainability of global demand. Certainly,
                                              complications in adjusting for the Chinese New Year make us slightly cautious about the
                                              recent readings of our business confidence index. However, we were not so perturbed by

Figure 1: Global business confidence and GDP growth                         Figure 2: Business confidence in the US, euro area and ROW

 % q/q saar                           normalized diffusion index, 3mma       normalized diffusion index, 3mma
 8                                            BarCap est. for Q4 11- 2.0     2.5
                                                Q1 12 global GDP     1.5      2.0
  6
                                                                     1.0      1.5
  4                                                                  0.5      1.0
  2                                                                  0.0      0.5
                                                                     -0.5     0.0
  0                                                                          -0.5
                                                                     -1.0
 -2                                                                  -1.5    -1.0
                                                                     -2.0    -1.5
 -4            Global real GDP growth                  Improvement
               (BarCap series, LHS)                      continues   -2.5    -2.0
 -6                                                                                         US business confidence
               Global business confidence                            -3.0    -2.5           Euro area business confidence
 -8            (BarCap series, RHS)                                  -3.5    -3.0           ROW business confidence (BarCap aggregate)
      98      00    02      04      06    08          10      12                    99      01      03       05      07    09      11

Source: Haver Analytics, Barclays Capital                                   Source: Haver Analytics, Barclays Capital


11 March 2012                                                                                                                            19
Barclays Capital | Global Portfolio Manager’s Digest


                                                 other developments that appeared to discompose markets. In particular, the lowering of the
                                                 official Chinese growth target for 2012 to 7.5% has not led us to revise our forecast of 8.1%
                                                 growth. It is not unusual for growth outturns to be higher than the official targets, and we
                                                 view the change more as a signal of a shift in policy priority away from absolute growth
                                                 towards structural adjustment – a shift we had already factored in.

  We do not see the recent rise in               There is also increasing anxiety that the recovery could founder on higher oil prices. The
 the oil price as a material threat              popular headline is that the price of Brent crude is at a record high in euro terms. However,
                    to global activity           it is not so much the level of prices that matters for economic activity as the rate of increase:
                                                 sudden surges in oil prices can have very disruptive effects. For example, over the past 25
                                                 years periods of major oil-related disruption were associated with oil price surges of 50% or
                                                 more over a six-month period (Figure 3). Against this benchmark the recent moves have
                                                 been unremarkable and are unlikely to pose a material threat to global economic activity.

         However, given the firmer               A sharp jump in oil prices would be another matter altogether, however. If the US recovery
 inflation outlook we now expect                 were threatened, the likelihood of QE3 would increase dramatically. However, the greater
   the ECB to hold the policy rate               concern would surround the effects in Europe. As well as being a larger net importer of oil
     until at least the end of 2013              than the US, Europe has fewer alternative sources of energy, so the potential long-run effect
                                                 on real activity is likely to be greater. In addition, the ECB has shown itself reluctant to “look
                                                 through” the first-round effects of higher oil prices on inflation: indeed, in light of this
                                                 week’s upward revision to the ECB’s inflation forecast for 2012 we no longer expect a rate
                                                 cut in Q2 and now think the policy rate is likely to be held at 1% until at least the end of
                                                 2013. If policy were to be unsupportive, the resultant squeeze on growth could be a serious
                                                 hindrance to the necessary fiscal and economic adjustment in the region. Lastly, another
                                                 year of “sticky” inflation in the UK could unhinge inflation expectations, constraining the
                                                 MPC’s ability to provide support.

       The risk of a disruptive euro             As the oil risk moves up investors’ list of concerns, the threat of a disruptive euro break-up
    break-up has receded but the                 continues to recede. Italian bonds have been particular beneficiaries of the recent calming of
    currency bloc is likely to be an             market concerns, with the 10y yield dropping to about 5% and back close to that of Spain
    ongoing source of turbulence                 (Figure 4). However, although contagion from the somewhat untidy Greek PSI deal has
                                                 been contained, the euro area continues to face immense challenges, and the currency bloc
                                                 is likely to be an ongoing source of financial market turbulence (see our article Portugal –
                                                 PSI unlikely in 2012, despite concerns about solvency, 7 March 2012).




Figure 3: Brent oil price                                                       Figure 4: 10y government bond yields

 6m change,                                                                         %
     %                                                                            7.5                 Spain
 120
                                                                                  7.0                 Italy
 100
  80                                                                              6.5
  60                                                                              6.0
  40
                                                                                  5.5
  20
   0                                                                              5.0
 -20                                                                              4.5
 -40
 -60                                                                              4.0
 -80                                                                              3.5
       90    92    94    96    98     00    02     04   06   08   10   12           Jan-10         Jul-10     Jan-11     Jul-11      Jan-12

Source: Haver Analytics, Barclays Capital                                       Source: Barclays Capital


11 March 2012                                                                                                                                   20
Barclays Capital | Global Portfolio Manager’s Digest


EQUITIES: SUMMARY OF RATING CHANGES

Rating Changes
                                                                                                                        Sector                     Old       New
Security                                Ticker      Analyst                     Sector                                   View         Date        Rating    Rating
Basic Industries
Minmetals Resources Ltd.               1208.HK      Ephrem Ravi                 Asia ex-Japan Metals & Mining            1-Pos       4-Mar-12      NA       2-EW
Energy
CGGVeritas                             GEPH.PA      Mick Pickup                 European Oil Services & Drilling         1-Pos       2-Mar-12     1-OW      2-EW
Trilogy Energy Corp.                    TET.TO      Grant Hofer, CFA            Canadian Oil & Gas: E&P (Mid-Cap)        1-Pos       6-Mar-12      2-EW     1-OW
Financial Services

New China Life Insurance Co. Ltd.      1336.HK      Mark Kellock                Hong Kong/China Insurance                1-Pos       8-Mar-12      NA       2-EW
SulAmérica                            SULA11.SA Henrique Caldeira, CFA          Latin America Diversified Financials     2-Neu       9-Mar-12     1-OW      3-UW
Healthcare
Halozyme Therapeutics Inc.              HALO        Ying Huang, Ph.D.           U.S. Biotechnology                       2-Neu      8-Mar-12       NA       1-OW
Industrials
Air China                              0753.HK      Patrick Xu, CFA             Asia ex-Japan Airlines                   2-Neu      7-Mar-12       NA       2-EW
Cathay Pacific Airways                 0293.HK      Patrick Xu, CFA             Asia ex-Japan Airlines                   2-Neu      7-Mar-12       NA       3-UW
China Eastern Airlines                 0670.HK      Patrick Xu, CFA             Asia ex-Japan Airlines                   2-Neu      7-Mar-12       NA       2-EW
China Southern Airlines                1055.HK      Patrick Xu, CFA             Asia ex-Japan Airlines                   2-Neu      7-Mar-12       NA       3-UW
Power & Utilities
Covanta Holding Corp.                    CVA        Gregg Orrill                U.S. Power                               2-Neu      5-Mar-12      2-EW      1-OW
Real Estate
Campus Crest Communities, Inc.           CCG        Ross L. Smotrich            U.S. REITs                               2-Neu      9-Mar-12       NA       2-EW
Retail
Express Inc.                             EXPR       Stacy Pak                   U.S. Retail Softlines                    2-Neu      6-Mar-12      1-OW      2-EW
Herbalife Ltd.                           HLF        Brian Wang, CFA             U.S. Food & Drug Retailing               2-Neu      9-Mar-12       NA       1-OW
Weight Watchers International Inc.      WTW         Brian Wang, CFA             U.S. Food & Drug Retailing               2-Neu      9-Mar-12       NA       1-OW
Technology
NEXON                                   3659.T      Haruka Mori                 Japan Interactive Software               2-Neu      6-Mar-12       NA       1-OW
Telecommunications
Belgacom                              BCOM.BR       Michael Bishop              European Telecom Services                3-Neg      5-Mar-12      2-EW      3-UW


Sector View Changes
SubSector                                        Analyst                                         Date                  Old                      New

Japan Display & Lighting                         Yuji Fujimoro                                   6-Mar-12              1-Positive               2-Neutral
Asia ex-Japan Airlines                           Patrick Xu, CFA                                 7-Mar-12              0-Not Rated              2-Neutral

Stock Rating: 1-OW: 1-Overweight 2-EW: 2-Equal Weight 3-UW: 3-Underweight RS: RS-Rating Suspended
Sector View: 1-Pos: 1-Positive 2-Neu: 2-Neutral 3-Neg: 3-Negative
For a definition of our rating system, please see the equity disclosure section at the end of this report.




11 March 2012                                                                                                                                                      21
Barclays Capital | Global Portfolio Manager’s Digest


CREDIT: SUMMARY OF RATING CHANGES

US High Grade
Sector                                    Issuer                               From                           To                 Date Changed

Media                                Interpublic Group                      Overweight               Market Weight                 6-Mar-12
Retail                                    Macy’s                            Overweight               Market Weight                 5-Mar-12
Technology                                  IBM                             Overweight               Market Weight                 6-Mar-12


US High Yield
Sector                          Issuer                          Security                          From                 To           Date Changed

Metals & Mining              Patriot Coal            7.375% and 7.625% senior notes           Market Weight        Underweight        7-Mar-12


Europe High Grade
Sector                                    Issuer                               From                           To                 Date Changed

Pharmaceuticals                           Merck                            Underweight               Market Weight                 7-Mar-12
Utilities                               Edison SpA                         Market Weight              Underweight                  7-Mar-12
Utilities                                RWE AG                             Overweight                Underweight                  7-Mar-12


Europe High Yield
Sector                      Issuer                           Security                             From                  To          Date Changed

Paper & Packaging     Ardagh Packaging       9.25% notes 2016 & 7.375% notes 2017               Overweight         Market Weight      8-Mar-12
Paper & Packaging     Ardagh Packaging                New 7.375% notes 2017                Initiating Coverage     Market Weight      8-Mar-12
Paper & Packaging     Ardagh Packaging                   9.125% notes 2020                 Initiating Coverage      Overweight        8-Mar-12


Asia Ex-Japan
Sector                                      Issuer                             From                           To                 Date Changed

Industrials & Resources          Berau Coal – 2017 bonds                Initiating Coverage          Market Weight                 9-Mar-12
Industrials & Resources       China Oriental – CHOGRP ‘15s                 Market Weight              Underweight                  7-Mar-12


For a definition of our ratings system, please see fixed income disclosure section at the end of this report.




11 March 2012                                                                                                                                    22
Barclays Capital | Global Portfolio Manager’s Digest


CREDIT: SELECT RATING CHANGES

                   Relative Value       Merck – Robust results, reassuring outlook – upgrade to Market Weight
                                        From a valuation perspective, we would note that Merck cash has underperformed our
                                        wider industrial universe in the recent rally over the last rolling quarter (see European High
                                        Grade Industrial Excess Returns - February 2012). Accordingly given management's focus
                   7 March 2012         on deleveraging in 2012, the relatively re-assuring outlook and the guidance from
   Darren Hook, Nick Macdonald          management that deals will be small and bolt-on in nature, we move to a Market Weight
                                        position in cash. Similarly, we now view CDS as fairly valued.




11 March 2012                                                                                                                       23
Barclays Capital | Global Portfolio Manager’s Digest


MACRO: SELECT FORECAST CHANGES

                                        Japan 2012 GDP growth to 2.4% from 2%
                                        Japan Could Outpace G7 Peers from Q2
                   9 March 2012         The sharp upward revision to Q4 GDP growth, to -0.7% q/q (saar) from the initial estimate
                    Kyohei Morita       of -2.3%, has led us to raise our 2012 growth forecast to 2.4% from 2.0% previously.
                   Yuichiro Nagai       Underpinning this is a marked upward revision to our Q1 forecast, to 2.6% from 1.5%
                James Barber, CFA       previously, reflecting upgrades to our views of household consumption and export demand.



                                        ECB rates on hold until at least end of 2012
                                        Greece Drama close to an end (at least for now)
                   9 March 2012         The ECB has shown itself reluctant to “look through” the first-round effects of higher oil
                        Fabio Fois      prices on inflation: indeed, in light of this week’s upward revision to the ECB’s inflation
          Antonio Garcia Pascual        forecast for 2012 we no longer expect a rate cut in Q2 and now think the policy rate is likely
                                        to be held at 1% until at least the end of 2013. If policy were to be unsupportive, the
                                        resultant squeeze on growth could be a serious hindrance to the necessary fiscal and
                                        economic adjustment in the region.




11 March 2012                                                                                                                       24
Barclays Capital | Global Portfolio Manager’s Digest


PRODUCT MANAGEMENT GROUP


 Equities
 Penn Egbert                         Gavin Smith                 Rex Feng                   Terence Malone
 Head of U.S. Equity Product         U.S. Equity Product         U.S. Equity Product        U.S. Equity Product
 Management                          Management                  Management                 Management
 +1 212 526 0685                     +1 212 528 6139             +1 212 526 6114            +1 212 526 7578
 penn.egbert@barcap.com              gavin.smith@barcap.com      rex.feng@barcap.com        terence.malone@barcap.com

 Rob Bate                            Joshika Bhasin              Chris Stevens
 Head of European Equity             European Equity Product     European Equity Product
 Product Management                  Management                  Management
 +44 (0)20 777 33576                 +44 (0)20 355 52530         +44 (0)20 313 45749
 rob.bate@barcap.com                 Joshika.bhasin@barcap.com   chris.stevens@barcap.com

 Marcus Gunn                         Sue Ho
 Head of Asia Equity Product         Asia Equity Product
 Management                          Management
 +852 290 34620                      +852 290 34518
 marcus.gunn@barcap.com              sue.ho@barcap.com


 Credit
 Joanie Genirs
 Head of Global Credit Product
 Management
 +1 212 412 7678
 joan.genirs@barcap.com

 Katie Tomlinson
 European Credit Product
 Management
 +44 (0)20 777 37865
 katie.tomlinson@barcap.com


 Macro
 Namita Dhariwal
 Macro Research Product
 Management
 +44 (0)20 313 44212
 namita.dhariwal@barcap.com




11 March 2012                                                                                                           25
Barclays Capital | Global Portfolio Manager’s Digest


ANALYST(S) CERTIFICATION(S)
I, Gavin Smith, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject
securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific
recommendations or views expressed in this research report.
Each research publication excerpted herein was certified under Reg AC by the analyst primarily responsible for such report as follows: I hereby certify that:
1) the views expressed in this research report accurately reflect my personal views about any or all of the subject securities referred to in this publication
and; 2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

IMPORTANT DISCLOSURES: FIXED INCOME RESEARCH
For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Capital
Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to https://ecommerce.barcap.com/research/cgi-
bin/all/disclosuresSearch.pl or call 212-526-1072.
Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Barclays Capital
may have a conflict of interest that could affect the objectivity of this report. Any reference to Barclays Capital includes its affiliates. Barclays Capital and/or
an affiliate thereof (the “firm”) regularly trades, generally deals as principal and generally provides liquidity (as market maker or otherwise) in the debt
securities that are the subject of this research report (and related derivatives thereof). The firm’s proprietary trading accounts may have either a long and /
or short position in such securities and / or derivative instruments, which may pose a conflict with the interests of investing customers. Where permitted
and subject to appropriate information barrier restrictions, the firm’s fixed income research analysts regularly interact with its trading desk personnel to
determine current prices of fixed income securities. The firm’s fixed income research analyst(s) receive compensation based on various factors including,
but not limited to, the quality of their work, the overall performance of the firm (including the profitability of the investment banking department), the
profitability and revenues of the Fixed Income Division and the outstanding principal amount and trading value of, the profitability of, and the potential
interest of the firms investing clients in research with respect to, the asset class covered by the analyst. To the extent that any historical pricing information
was obtained from Barclays Capital trading desks, the firm makes no representation that it is accurate or complete. All levels, prices and spreads are
historical and do not represent current market levels, prices or spreads, some or all of which may have changed since the publication of this document.
Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis,
and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research
products, whether as a result of differing time horizons, methodologies, or otherwise. In order to access Barclays Capital’s Statement regarding Research
Dissemination Policies and Procedures, please refer to https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-
dissemination.html.

Explanation of the High Grade Sector Weighting System
Overweight: Expected six-month excess return of the sector exceeds the six-month expected excess return of the Barclays Capital U.S. Credit Index, the
Pan-European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.
Market Weight: Expected six-month excess return of the sector is in line with the six-month expected excess return of the Barclays Capital U.S. Credit
Index, the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.
Underweight: Expected six-month excess return of the sector is below the six-month expected excess return of the Barclays Capital U.S. Credit Index, the
Pan-European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.

Explanation of the High Grade Research Rating System
The High Grade Research rating system is based on the analyst’s view of the expected excess returns over a six-month period of the issuer’s index-eligible
corporate debt securities relative to the Barclays Capital U.S. Credit Index, the Pan-European Credit Index or the EM Asia USD High Grade Credit Index, as
applicable.
Overweight: The analyst expects the issuer’s index-eligible corporate bonds to provide positive excess returns relative to the Barclays Capital U.S. Credit
Index, the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Market Weight: The analyst expects the issuer’s index-eligible corporate bonds to provide excess returns in line with the Barclays Capital U.S. Credit Index,
the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Underweight: The analyst expects the issuer’s index-eligible corporate bonds to provide negative excess returns relative to the Barclays Capital U.S. Credit
Index, the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Rating Suspended (RS): The rating has been suspended temporarily due to market events that make coverage impracticable or to comply with applicable
regulations and/or firm policies in certain circumstances including where Barclays Capital is acting in an advisory capacity in a merger or strategic
transaction involving the company.
Coverage Suspended (CS): Coverage of this issuer has been temporarily suspended.
Not Rated (NR): An issuer which has not been assigned a formal rating.
For Australia issuers, the ratings are relative to the Barclays Capital U.S. Credit Index or Pan-European Credit Index, as applicable.

Explanation of the High Yield Sector Weighting System
Overweight: Expected six-month total return of the sector exceeds the six-month expected total return of the Barclays Capital U.S. High Yield 2% Issuer
Capped Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield Corporate Credit
Index, as applicable.
Market Weight: Expected six-month total return of the sector is in line with the six-month expected total return of the Barclays Capital U.S. High Yield 2%
Issuer Capped Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield Corporate
Credit Index, as applicable.
Underweight: Expected six-month total return of the sector is below the six-month expected total return of the Barclays Capital U.S. High Yield 2% Issuer
Capped Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield Corporate Credit
Index, as applicable.


11 March 2012                                                                                                                                                    26
Barclays Capital | Global Portfolio Manager’s Digest



IMPORTANT DISCLOSURES CONTINUED: FIXED INCOME RESEARCH
Explanation of the High Yield Research Rating System
The High Yield Research team employs a relative return based rating system that, depending on the company under analysis, may be applied to either
some or all of the company’s debt securities, bank loans, or other instruments. Please review the latest report on a company to ascertain the application of
the rating system to that company.
Overweight: The analyst expects the six-month total return of the rated debt security or instrument to exceed the six-month expected total return of the
Barclays Capital U.S. 2% Issuer Capped High Yield Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the
EM Asia USD High Yield Corporate Credit Index, as applicable.
Market Weight: The analyst expects the six-month total return of the rated debt security or instrument to be in line with the six-month expected total
return of the Barclays Capital U.S. 2% Issuer Capped High Yield Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding
Financials, or the EM Asia USD High Yield Corporate Credit Index, as applicable.
Underweight: The analyst expects the six-month total return of the rated debt security or instrument to be below the six-month expected total return of
the Barclays Capital U.S. 2% Issuer Capped High Yield Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or
the EM Asia USD High Yield Corporate Credit Index, as applicable.
Rating Suspended (RS): The rating has been suspended temporarily due to market events that make coverage impracticable or to comply with applicable
regulations and/or firm policies in certain circumstances including where Barclays Capital is acting in an advisory capacity in a merger or strategic
transaction involving the company.
Coverage Suspended (CS): Coverage of this issuer has been temporarily suspended.
Not Rated (NR): An issuer which has not been assigned a formal rating.




11 March 2012                                                                                                                                            27
Barclays Capital | Global Portfolio Manager’s Digest


IMPORTANT DISCLOSURES: EQUITY RESEARCH
For current important disclosures, including, where relevant, price target charts, regarding companies that are the subject of this research report,
please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to
http://publicresearch.barcap.com or call 1-212-526-1072.
The analysts responsible for preparing this research report have received compensation based upon various factors including the firm’s total
revenues, a portion of which is generated by investment banking activities.
Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA.
These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE
Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst’s
account.
Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays Capital policy prohibits them from
accepting payment or reimbursement by any covered company of the their travel expenses for such visits.
In order to access Barclays Capital’s Statement regarding Research Dissemination Policies and Procedures, please refer to
https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.
Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative
analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other
types of research products, whether as a result of differing time horizons, methodologies, or otherwise.
Other Material Conflict(s)
Barclays Capital is providing investment banking services to Ventas, Inc. (VTR) in connection with its acquisition of Cogdell Spencer Inc. (CSA).
Barclays Capital is providing investment banking services to ACCO Brands Corporation (ABD) in its proposed merger with MeadWestvaco
Corporation's (MWV) Consumer & Office Products business. All ratings, price targets and estimates (as applicable) on ACCO Brands (ABD) and
MeadWestvaco (MWV) issued by the Firm's Research Department have been temporarily suspended due to Barclays Capital's role in this
potential transaction.
Barclays Capital is acting as financial advisor to Exelon Corporation in the potential acquisition of Constellation Energy. The rating, price target
and estimates on Exelon Corporation have been temporarily suspended due to Barclays Capital's role. The rating, price target and estimates on
Constellation Energy have also been suspended.
Guide to the Barclays Capital Fundamental Equity Research Rating System:
Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitions
below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the “sector
coverage universe”).
In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or
3-Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should
carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.
Stock Rating
1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment
horizon.
2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a
12-month investment horizon.
3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month
investment horizon.
RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to
comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is acting in an advisory capacity in a
merger or strategic transaction involving the company.
Sector View
1-Positive - sector coverage universe fundamentals/valuations are improving.
2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.
3-Negative - sector coverage universe fundamentals/valuations are deteriorating.
Distribution of Ratings:
Barclays Capital Inc. Equity Research has 2232 companies under coverage.
42% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 53% of companies
with this rating are investment banking clients of the Firm.
42% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% of
companies with this rating are investment banking clients of the Firm.
13% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 39% of companies
with this rating are investment banking clients of the Firm.


11 March 2012                                                                                                                                       28
Barclays Capital | Global Portfolio Manager’s Digest


Guide to the Barclays Capital Price Target:
Each analyst has a single price target on the stocks that they cover. The price target represents that analyst’s expectation of where the stock will trade in
the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst’s price target over the
same 12-month period.
Barclays Capital offices involved in the production of equity research:
London
Barclays Capital, the investment banking division of Barclays Bank PLC (Barclays Capital, London)
New York
Barclays Capital Inc. (BCI, New York)
Tokyo
Barclays Capital Japan Limited (BCJL, Tokyo)
São Paulo
Banco Barclays S.A. (BBSA, São Paulo)
Hong Kong
Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)
Toronto
Barclays Capital Canada Inc. (BCC, Toronto)
Johannesburg
Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)
Mexico City
Barclays Bank Mexico, S.A. (BBMX, Mexico City)
Taiwan
Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)
Seoul
Barclays Capital Securities Limited (BCSL, Seoul)
Mumbai
Barclays Capital Securities (India) Private Limited (BSIPL, Mumbai)
Singapore
Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)




11 March 2012                                                                                                                                             29
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