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Credit Suisse - Moderately bearish


									                                                                                                                    16 March 2012
                                                                                                           Fixed Income Research

                                                  European Strategy and Trades
                                                  Interest Rate Strategy

                       Research Analysts          Moderately bearish
                             Michelle Bradley     • While we view the recent retracement in yields as overdue, we believe it is too
                           +44 20 7888 5468
        early to go very short duration. We remain moderately bearish and expect
                                                    Bunds to trade towards the upper end of the recent range.
                       Panos Giannopoulos
                          +44 20 7883 6947        • The Greek debt exchange has been notable for the fact it has been a non-
      event. We believe the precedents set warrant attention, however, and the ECB
                             Helen Haworth          looks set to be repaid par on €4.67 billion of the 20 March bond next week.
                         +44 20 7888 0757
         • The EFSF issuance pipeline is growing – we discuss pricing of the new 30y.
                                                    Given uncertainty surrounding the future structure of the EFSF, we expect the
                          Thushka Maharaj           30y EFSF to trade around 150bp above Germany.
                         +44 20 7883 0211
                                                  European Governments: We recommend two flies in the SPGB curve. Buying
                              Marion Pelata       Jan17 vs. Oct14 and Apr20 for those who are bullish Spain and selling Oct14
                          +44 20 7883 1333
                                                  vs. Oct13 and Jan17 for those who are bearish Spain.

                           David Sneddon          UK Strategy: We maintain our bearish bias in the UK. We recommend paying
                         +44 20 7888 7173         GBP 2y2y versus EUR as a positive carry way of being short GBP. We provide
                                                  a provisional gilt issuance schedule for the first quarter of the 2012-13 fiscal
                              Florian Weber       year. In our view, it is unlikely that the old 5y, the UKT 1T 17s is tapped this
                           +44 20 7888 3779       quarter and recommend buying this issue versus UKT 2s 16s. We recommend
                                                  taking profits in our pay GBP 2y1y versus NOK position recommendation
                              Sabine Winkler      following the rate cut by the Norges Bank this week.
                          +44 20 7883 9398
      Derivatives Strategy: We recommend risk reversals in EUR 30y tails (buying
                                                  OTM payers vs. receivers).

                                                  Money Market Strategy: We recommend buying 3y FRA-Eonia versus 5y as
                                                  ”cheap” risk-off hedge (or 2y1y versus 4y1y). We recommend buying L5-L7
                                                  versus ED5-ED7, as our assessment of risks suggests that the MPC could hike
                                                  first. We finally recommend selling [ERH3-ERM3] versus [ERU3-ERZ3], as
                                                  more hikes ought to be priced by the ECB in the second half of 2013 than the
                                                  first half.

                                                  Covered Bonds: The rally in the secondary market rolls on for now, grinding
                                                  covered bond asset swap spreads (ASW) tighter. However, ASW of covered
                                                  bonds from most countries remain above the levels seen at the start of 2010.
                                                  Secondary market liquidity is low and thus investors often have no choice but to
                                                  focus on new covered bond issues. Year to date, benchmark covered bond
                                                  gross supply reached EUR 45bn and USD 15bn.

                                                  Technicals: German Curve to extend steepening.

                                                                                                                               16 March 2012

                               Table of Contents
                               Summary of views                                                                                             3

                               Trade Performance                                                                                            4

                               Events Calendar                                                                                              5

                               Trading the range (from the bearish side)                                                                    6
                                       Duration view: no change; remain moderately bearish ...................... 6
                                       Greek nonchalance ............................................................................ 7
                                       EFSF: regular issuance ahead........................................................... 8

                               European Governments                                                                                       10
                                       SPGB curve analysis........................................................................ 10
                                       Netherlands – 30s into 5s cash for cash spread .............................. 12
                                       Belgium Syndication......................................................................... 13

                               UK Strategy                                                                                                14
                                       100y gilts and downgrade risk – we maintain our bearish bias ........ 14

                               Derivatives Strategy                                                                                       18
                                       EUR vol – analyzing risk reversals; Buy 30y OTM payers versus
                                       receivers........................................................................................... 18
                                       EUR curvature update – take profit in receiving 1y 2s5s10s30s
                                       condor conditionally via receivers .................................................... 19

                               Money Market Strategy                                                                                      21
                                       Buy 2y1y Euribor-Eonia versus 4y1y ............................................... 21
                                       Buy L-ED 5-7 box (buy short-sterling; sell Eurodollars) ................... 23
                                       Sell [ERH3-ERM3] versus [ERU3-ERZ3] @ -2bp ............................ 24

                               Covered Bonds                                                                                              26
                                       Primary market: Steaming ahead..................................................... 26
                                       Secondary market: Mainly out of stock ............................................ 27

                               Technicals                                                                                                 29
                                       2s10s and 2s5s German should extend their steepening ................ 29

                               EUR and UK Supply Analysis                                                                                 30

                               Forecasts                                                                                                  35

European Strategy and Trades                                                                                                                2
                                                                                                              16 March 2012

                               Summary of views
                               Exhibit 1: Summary of Views
                               Market                                        View
                                                        Moderately bearish Bunds. We think they may move towards
                                                        the higher end of the recent range.

                                                        Position for EUR long-end normalisation aided by lower front
                               Curve                    end. Pay EUR 2s10s 10y forward as current best expression of
                                                        the view.

                               Curvature                Receive a 5s10s30s proxy fly (such as 2s7s20s 2y fwd).

                               Core ASW                 Buy 30y DBR versus swap. Buy DBR Jan 21 versus RXM2.

                                                        Short Austria versus France in the 30y sector and versus
                               Core Spreads
                                                        Germany in the 10y sector. 5s10s Box France Netherlands.

                                                        The Italian curve appears too steep ─ we like 2s10s flatteners.
                               Peripheral Spreads
                                                        Tactical 3s5s flattener in Spain. Buy 2y protection in Ireland.

                                                        Pay GBP 2s5s10s. Turning bearish the gilt market as we
                                                        approach end of QE.

                                                        Buy EUR 3m10y straddles as protection against event risk and
                                                        as a cheap way to position for a turn in rates. Receive EUR
                                                        2s7s20s 2Y Fwd via OTM payer. Buy EUR OTM payers versus
                                                        receivers on 30y tails.

                                                        Receive 5y5y EUR versus CHF. Pay CHF 2s4s7s as a long
                               CHF, SEK
                                                        straddle position.
                               Source: Credit Suisse

                               New trades we recommend this week
                               • Buy EUR OTM payers on 30y tails vs. OTM receivers
                               • Buy UKT 1T17s versus 2s16s
                               • Pay GBP 2y2y versus EUR
                               • Buy SPGB Jan17 versus Oct14 and Apr20 (bullish SPGB trade)
                               • Sell SPGB Oct14 versus Oct13 and Jan17 (bearish SPGB trade)
                               • Netherlands – 30s into 5s cash for cash spread
                               • Buy 3y FRA-Eonia widener versus 5y FRA-Eonia tightener
                               • Buy L-ED 5-7 box (buy SS; sell ED)
                               • Sell [ERH3-ERM3] versus [ERU3-ERZ3]

                               Positions we recommend closing this week
                               • Pay GBP 2y1y vs NOK
                               • EUR Receive 1y 2s5s10s30s condor via receivers
                               • Sell UKT 4H 19s vs UKT 3T 20s

European Strategy and Trades                                                                                              3
                                                                                                                                                     16 March 2012

 Trade Performance
 Exhibit 2: Current trade recommendations
 Category                               Idea Name                                                      Start Date   End Date       CCY      P&L (EUR)       As Of
                                        France-Netherlands 5s10s box (OAT flattener) and alternative
 European Governments Macro                                                                            09-Mar-12                   EUR        467,902    14-Mar-12
                                        expressions of the view

                                        5s10s Flattener in Belgium                                     08-Mar-12                   EUR        157,851    14-Mar-12
                                        Sell 30Y Austria versus 30Y France                             05-Jan-12                   EUR         64,810    14-Mar-12
                                        Sell 10Y Austria vs 10Y Germany                                23-Feb-12                   EUR        -521,842   14-Mar-12
                                        3s5s Flattener in Spain                                        12-Jan-12                   EUR      -1,234,507   14-Mar-12
                                        2s10s Flattener in Italy                                       05-Jan-12                   EUR      -1,310,096   14-Mar-12
 European Governments - RV              Shorten DBR 42s into 34s                                       02-Mar-12                   EUR       1,046,908   14-Mar-12
 UK Macro                               Receive EUR 1y 2s5s10s fly vs GBP                              14-Dec-11                   EUR        845,990    14-Mar-12
                                        Pay GBP 2y1y vs NOK                                            09-Mar-12    14-Mar-12      GBP        496,306    14-Mar-12
                                        Pay GBP 2s5s10s fly                                            01-Mar-12                   GBP        108,821    14-Mar-12
 Derivatives                            Pay EUR 10s30s 2y forward                                      01-Dec-11                   EUR       2,592,149   14-Mar-12
                                        USD 3y10y-10y10y payer spread                                  01-Jun-11                   USD       2,271,822   14-Mar-12
                                        EUR Receive 1y 2s5s10s30s condor via receivers                 14-Dec-11    13-Mar-12      EUR       1,429,922   13-Mar-12
                                        3y into EUR 5s20s bull steepener                               14-Dec-11                   EUR        983,754    14-Mar-12
                                        Receive EUR 2s7s20s 2y fwd                                     10-Feb-12                   EUR        575,703    14-Mar-12
                                        Buy 30y DBR vs swap                                            19-Jan-12                   EUR        462,331    14-Mar-12
                                        Pay EUR 2s10s 10y fwd                                          27-Jan-12                   EUR        426,682    14-Mar-12
                                        GBP 2y2y straddles versus selling EUR 2y2y straddles           16-Feb-12                   EUR        354,680    14-Mar-12
                                        EUR 10y into 2s5s bull steepener                               27-Jan-12                   EUR        279,421    14-Mar-12
                                        Receive EUR 2s7s20s 2y fwd conditionally via OTM payers        02-Mar-12                   EUR        122,070    14-Mar-12

                                        Buy EUR 2y2y vega vs 2y5y                                      27-Jan-12                   EUR        105,316    14-Mar-12
                                        Pay CHF 2s4s7s                                                 29-Feb-12                   CHF         52,157    14-Mar-12
                                        Buy EUR 6m30y 2.8%/3.1%/3.4% payer fly                         02-Feb-12                   EUR         44,635    14-Mar-12
                                        Pay CHF 10s15s30s                                              29-Feb-12                   CHF         -21,205   14-Mar-12
                                        Receive 5y5y EUR vs CHF                                        10-Feb-12                   EUR        -212,055   14-Mar-12
 Volatility                             GBP 3m10y straddles vs 3m30y                                   20-Feb-12                   GBP         49,068    14-Mar-12
                                        Buy EUR 3m10y straddles                                        19-Jan-12                   EUR      -1,330,215   14-Mar-12
 Money Markets                          Sell UKT 4H 19s vs UKT 3T 20s                                  09-Feb-12    14-Mar-12      GBP        237,579    14-Mar-12
                                        Sell UKT 4s 22/5s 25/4T 30s fly                                09-Feb-12                   GBP        198,413    14-Mar-12
                                        Receive Oct-12 ECB dated 1m Eonia                              23-Feb-12                   EUR          4,108    14-Mar-12
 Please see the Structured Securities, Derivatives, and Options Disclaimer.
 Source: Credit Suisse

                                                 Exhibit 3: Current year-to-date PnL of portfolio (EUR)
                                                 YTD PnL                                                                       20,522,749
                                                 WTD PnL                                                                       2,882,869
                                                 Last year Pnl                                                                 75,461,181
                                                 Source: Credit Suisse

European Strategy and Trades                                                                                                                                     4
                                                                                                                                                         16 March 2012

Events Calendar
Exhibit 4: Meetings, economic events, auctions and redemptions
 Date        Day Meetings / Events                                     Economic Data                                          Auctions               Redemptions
                                                               Ctry                                                   Ctry     Type      € bn Ctry      Type     € bn
19/03/2012 Mon                                                 US       NAHB Housing Market Index (Mar)               SK     SLOVGB 16 0.3*
                                                                EA      Current Account &Construction Output (Jan)
                                                                IT      Industrial Orders/Sales (Jan)
20/03/2012 Tue                                                 US       Housing Starts/Permits (Feb)
                                                               DE       PPI (Feb)
                                                                BE      Consumer Confidence (Mar)
                                                               UK       CPI (Feb), RPI (Feb) & CBI Trends
21/03/2012 Wed      Bank of England Minutes                    US       Existing Home Sales (Feb)                     DE     Schatz 14   5.0
                                                               UK       PSNCR/PSNB (Feb)
22/03/2012 Thu                                                 US       Initial Jobless Claims (Mar 17)                                         FR      BTF      8.52
                                                               US       Leading Indicators (Feb)
                                                                EA      Industrial New Orders (Jan)
                                                                EA      Plash PMIs & Consumer Confidence (Mar)
                                                                BE      Business Confidence (Mar)
                                                               UK       Retail Sales (Feb)
23/03/2012   Fri                                               US       New Home Sales (Feb)                                                    GR      GTB      1.6
                                                                ES      PPI (Feb)                                                               PT      PTB      2.78
                                                                FR      Business Confidence Indicator (Mar)                                     ES     SGLT      9.5
                                                                IT      Retail Sales (Jan)
26/03/2012 Mon                                                 US       Chicago Fed Nat Activity (Feb)
                                                               US       Pending Home Sales (Feb)
                                                                ES      Mortgages (Jan)
                                                               DE       IFO Business Climate (Mar)
                                                                IT      Consumer Confidence (Mar)
 27/03/2012 Tue                                                US       Consumer Confidence (Mar)                      IT    BTPei 5Y*   1.4*
                                                               DE       Gfk Consumer Confidence (Apr)                  IT     CTZ 2Y*    2.9*
                                                                FR      Consumer Confidence (Mar)
                                                               UK       GDP (Q4 F) & CBI Reported Sales (Mar)
 28/03/2012 Wed                                                US       Durable Goods Orders (Feb)                                              BE      BGB      3.84
                                                                FR      GDP (Q4 F)                                                              DE      Bubill   5.0
                                                                EA      M3 (Feb)
                                                                IT      Business Confidence (Mar)
                                                               DE       CPI (Mar P)
 29/03/2012 Thu                                                US       Initial Jobless Claims (Mar 24) & GDP (Q4)     IT    BTP 10Y*    2.5*   FR      BTF      4.44
                                                                ES      CPI (Mar P)                                     IT    BTP 5Y*    3.5*
                                                               DE       Unemployment Change/Rate (Mar)                 IT     CCT 5Y*    5.0*
                                                                EA      Consumer/Industrial/Services Conf (Mar)
                                                               UK       Net Consumer Credit (Feb)
                                                               UK       Mortgage Approv & M4 Money Supply (Feb)
                                                               UK       Gfk Consumer Confidence (Mar)
 30/03/2012 Fri     Informal Ecofin meeting (up to Sat)        US       Personal Income/Spending (Feb)
                                                               US       Chicago PMI & NAPM Milwaukee (Mar)                                      NE      DTC      9.96
                                                               US       University of Michigan Confidence (Mar Fin)                             IT      BOT      8.80
                                                                FR      PPI & Consumer Spending (Feb)
                                                                ES      Real Retails Sales (Feb)
                                                                IT      PPI (Feb) & CPI (Mar)
                                                               DE       Retails Sales (Feb)
                                                                EA      CPI Estimate (Mar)
Source: Credit Suisse, National Treasuries, ECB, Bank of England, the BLOOMBERG PROFESSIONAL™ service

European Strategy and Trades                                                                                                                                            5
                                                                                                                                        16 March 2012

                                               Trading the range (from the bearish side)
                          Helen Haworth
                      +44 20 7888 0757
                                               Duration view: no change; remain moderately bearish
      While we view the recent retracement in yields as overdue, we believe it is too early to
                    Panos Giannopoulos         increase the risk on bearish trades – however, we do remain moderately bearish and
                       +44 20 7883 6947        expect Bunds to trade towards the upper end of the recent range.

                       Thushka Maharaj
                                               If our expectation of the sell-off continuing is correct, since the front-end remains
                      +44 20 7883 0211         anchored, we would expect the curve to steepen, with the steepening likely be led by 2s5s
    and 10s30s, in our view. We would also expect curvature (2s5s10s) to increase. Our
                           Florian Weber       expectation is for Bobl spreads to contract in a rising yield environment as the safe haven
                        +44 20 7888 3779       premium of Germany dissipates. We continue to like being long 30y DBR ASW, and
      therefore think that a 5s30s ASW box is another trade that should work well in a rising
                                               yield environment.
                                               Following the large rally in the second and third quarters of 2011, we changed the bullish
                                               duration stance we held through much of 2011 to recommend going neutral at the
                                               beginning of October. More specifically, later that month, for those able to trade the range,
                                               we recommended positioning for Bunds to trade in a 1.7% - 2.3% range.
                                               As we published in our year ahead outlook,     Exhibit 5: Range trading
                                               our view was, and remains, that on a 12-       10 year German yield, %
                                               month view, German yields should be
                                               higher, and we were looking for the catalyst
                                               for yields to break out of the range to the
                                               upside.                                         3.0

                                               In the meantime, we remained neutral to
                                               moderately bearish (within the range),
                                               watching events. Trading the range has          2.5
                                               been the right position, and overall our
                                               range     has   held   well   since   we
                                               recommended it. However, this year Bund
                                               yields have remained low and compressed
                                               to trade in the bottom half of the range:
                                               between 1.7% and 2.0%, as shown in                01-Apr-11   01-Jul-11    30-Sep-11    31-Dec-11
                                               Exhibit 5.                                            10Y Germany         1.7     2.3       2.0
                                               We are not quite as optimistic as the Source: Credit Suisse Locus
                                               German and French finance ministers –
                                               the road ahead is unlikely to be smooth, and suggesting that the worst is behind us, at this
                                               stage, is a little premature, in our opinion. However, against the LTRO-improved backdrop,
                                               as the uncertainty overhang generated by the Greek debt restructuring dissipated, our
                                               view, as we reiterated two weeks ago (EST: LTRO indigestion, 2 March 2012), was to be
                                               moderately bearish Bunds, expecting them to trade towards the upper end of our range.
                                               There are few obvious catalysts in the near term for a return to the risk averse sentiment
                                               that took us to the yield lows of last autumn.
                                               And so, of course, despite the (surprisingly) smooth passage of the Greek debt exchange,
                                               yields ground lower. The fast reversal of the last couple of days, to our mind therefore
                                               overdue, speaks mainly to positioning, in our opinion. Absent a return of systemic
                                               concerns, we continue to think German yields should be higher, but with few convinced
                                               that the structural issues in the euro area are close to being sustainably resolved, the sell-
                                               off for now will be contained, in our opinion. We therefore remain moderately bearish,
                                               seeing nothing yet to suggest to us that our range is likely to be broken.

European Strategy and Trades                                                                                                                        6
                                                                                                                  16 March 2012

                               “Know your credit”
                               Beyond Germany, we believe the “know your credit” requirement that has been extending
                               from the periphery continues to increase in importance. Credit risk remains just one of the
                               drivers of European governments, and its importance varies by issuer and with time. As
                               fewer and fewer countries can be considered as safe-haven assets, understanding the risk
                               factors by country is essential and now extends to include the Netherlands.
                               We recommended steepeners in Netherlands 5s10s last week – as a box vs. France, or
                               swap, given the increased risk we saw that the Netherlands would cease to be viewed
                               purely as a safe-haven asset. This position has worked well – see our trade summary
                               table for details – and we continue to like it. This week we further suggest taking an
                               outright short position in Netherlands via selling 30s into 5s (cash weighted).
                               We also assess the implications of Belgium’s recent syndication on our recommended
                               5s10s flattener in Belgium – Belgium has now completed 50% of expected supply for
                               2012, more than any other country, which we view as supportive for the trade.
                               With the recent underperformance of Spain vs. Italy, we consider “cheap” flies to position
                               for a bullish or bearish view in Spain. We find the 2.5y-3y sector rich (as a result of the
                               LTRO), while the 5y-6y sector is cheap and the 9y sector is rich. Receiving a 3s6s9s fly in
                               Spain has a bullish bias in terms of Spanish yields, while paying a 1.5y-3y-6y fly is a
                               “cheap” way to express a negative view on Spain.
                               We also reiterate our bearish view on the UK. Two weeks ago we turned bearish on the
                               UK market for three main reasons: MPC members openly discussing the end of QE, rising
                               commodity prices (in sterling terms), and stabilization in the European periphery. We
                               continue to like paying GBP 2s5s10s as recommended two weeks ago. This week we
                               explore this theme further and recommend paying GBP 2y2y versus EUR as a positive
                               carry way to position for higher GBP rates. We outline a prospective schedule for gilt
                               issuance for the first quarter of the fiscal year.

                               Greek nonchalance
                               Greece’s debt exchange has proceeded much as we expected in terms of the timing, the
                               mandatory nature (through the CACs), the valuation, and the triggering of the CDS. What
                               has surprised us, however, is that such a huge, and historical, debt restructuring is a total
                               non-event. True, it has been a long time coming, viewed as inevitable by many for nigh on
                               two years, and the market has been ready to move on for some time, but the successful
                               completion of the exchange offer and the forthcoming CDS auction warrant barely a
                               consideration outside those directly involved.
                               We too are very happy to put the Greek situation behind us (for the time being). As we
                               wrote in Greece’s debt exchange, 27 February 2012, the debt restructuring has bought
                               Greece, and Europe, more time, and so in the near term, we expect developments in
                               Greece to have limited direct impact on the remainder of the euro area sovereigns – we
                               watch rhetoric from the IMF and on the domestic political front for any indication that this is
                               likely to change.
                               That said, the events of the last few weeks, and those of next week, have and will set
                               many precedents that, for better or worse, now form part of the euro area landscape and
                               have implications far beyond Greece.
                               Now that the Greek-law debt exchange has been completed, there remains just the
                               question of the foreign-law bonds (the deadline to exchange has been extended to 23
                               March) and the CDS auction on 19 March 2012. Price action between now and then in the
                               strip of 20 new Greek bonds is likely to be driven by the dynamics of the CDS auction and
                               rotation of the investor base – we provide a run in Exhibit 6. Yields range from 17.6% for
                               the 10-year to 14% on the 30-year bond, compared to 13.3% and 10.5%, respectively, for
                               10- and 30-year Portuguese bonds.

European Strategy and Trades                                                                                                  7
                                                                                                                                                            16 March 2012

                                                               Exhibit 7: Outstanding “official” Greek bond
Exhibit 6: New Greek bond bid/offers                           holdings – ECB, NCBs, EIB
15 March 2012; prices

                                                                16                                                                                                          30%


                                                                 8                                                                                                          15%


                                                                 0                                                                                                          0%
                                                                     0 - 1 year   1 - 2 years    2 -3 years   3 - 4 years   4 - 5 years        5 - 10 years 10 - 30 years

                                                                                                    Amount (€ bn)       % of total (rh axis)

Source: Credit Suisse                                          Source: Credit Suisse

                               Next week also sees the long-awaited 20 March bond maturity – of relevance now, only in
                               as much as it reiterates the different treatment of private creditors (who received the
                               exchange package worth ~25% of face value) and the ECB (and NCBs, EIB) who are set
                               to receive par on their holdings.
                               The details of the debt exchange offer provide us with a full breakdown of the €56.6 billion
                               of Greek bonds held by the “official sector” – we provide a breakdown in Exhibit 7. Of note,
                               Greece will be repaying €4.67 billion of the 20 March bond in full, and, unless there is a
                               further restructuring in coming months, a total of €11.6 billion this year.

                               EFSF: regular issuance ahead
                               With the successful completion of Greece’s debt exchange and approval of the second
                               bailout package, the EFSF is expected to be in the market more frequently – the head of
                               the EFSF, Regling, has said that the EFSF is likely to be on the hook for about €100 billion
                               in aid for Greece, and may be in the market three times next week. Press reports suggest
                               that the three issues next week include a short-term bill, a five-year bond, and a 25- to 30-
                               year bond to finance Greece and Ireland.
                               We outline in Exhibit 8 outstanding EFSF                  Exhibit 8: EFSF issues outstanding
                               issuance – both that issued directly into the
                                                                                                                                                    Outstanding amount
                               market and that created as part of the
                                                                                         EFSF Bills                                                                    12.4 bn
                               Greek debt exchange offer.
                                                                                                Issued in market                                                        6.9 bn
                               If press reports are true, next week’s            Created for accrued               5.5 bn
                               issuance could be an interesting test of EFSF Bonds                                49.0 bn
                               investor interest – it will be the first time the Issued in market                 19.0 bn
                               EFSF will look to issue multiple bonds in         Created for PSI sweetener        30.0 bn
                               one week, and the first issuance with a Total                                      61.4 bn
                               maturity greater than ten years. Since the Source: Credit Suisse
                               EFSF has only been able to issue short-
                               maturity debt recently, our assumption is that if long-maturity issuance is planned, it is
                               based on known investor demand.
                               Exhibit 9 shows the term structure for outstanding EFSF bonds versus the on-the-runs
                               for France and Germany. With the large size of the 1- and 2-year notes issued as
                               sweeteners for the Greek debt exchange, outstanding issuance is currently skewed
                               towards the front end.

European Strategy and Trades                                                                                                                                                      8
                                                                                                                                                                         16 March 2012

                                               On average, across the term structure, EFSF bonds are trading 50bp above France and
                                               closer to 100bp over Germany. The 2.75% of Dec 16 bonds look a little rich relative to
                                               other issues, particularly if there is likely to be further supply at this point next week.

Exhibit 9: EFSF yield vs. Germany / France and                                         Exhibit 10: EFSF 10y vs. theoretical levels based on
outstanding issues                                                                     AAA or all 14 guarantors
15 March 2012

                                                                      Expected issue    5.0

  3.5          France                               5.0 bn   3.0 bn
               EFSF                    Expected issue
               Germany                                                                  4.0
                                          3.0 bn
                                 5.0 bn
   2                                                                                    3.5

                        3.0 bn
  1.5        15.0 bn                                                                    3.0
         15.0 bn

   0                                                                                    2.0
        1y     2y          3y     4y         5y         9y    10y      15y       30y     24-May   23-Jun   23-Jul     22-Aug   21-Sep   21-Oct   20-Nov   20-Dec   19-Jan   18-Feb

                                                                                                                    14 Guarantors       AAA Guarantors       EFSF 2021

Source: Credit Suisse, EFSF, the BLOOMBERG PROFESSIONAL™ service                       Source: Credit Suisse, EFSF

                                               In Exhibit 10 we further calculate synthetic 10-year EFSF yields based on the guarantors.
                                               The red line takes into account all (non stepping-out) guarantors – including the most risky
                                               ones; the grey line includes all countries with at least one AAA rating (i.e., including
                                               France and Austria). Since EFSF bonds have a 160% over-guarantee structure, and the
                                               AAA bonds account for roughly 100% of the guarantee between them; from a valuation
                                               standpoint, the EFSF should trade closer to the synthetic AAA yield than the yield implied
                                               by all guarantors. Offsetting this, however, is the considerable expected issuance ahead
                                               and uncertainty around the future and size of the EFSF vs. the ESM.
                                               In order to model the long end premium we first use the 30y France versus Germany
                                               spread. Thirty-year France trades around 100bp above Germany. To this we add a further
                                               liquidity and credit premium for the EFSF of approximately 40bp (this is the average
                                               spread of EFSF above France). So we would expect the 30y EFSF to be priced around
                                               140-150bp over Germany.
                                               Comparing it directly to Germany – currently, in the 10y, EFSF trades at a 130bp spread.
                                               So we expect the 30y to be at least 150bp over Germany. We would therefore see value in
                                               a new 30y issue if it is priced at around 150-160bp above Germany.

European Strategy and Trades                                                                                                                                                         9
                                                                                                                               16 March 2012

                                              European Governments
                    Panos Giannopoulos
                       +44 20 7883 6947
                                              SPGB curve analysis   The debate is heating up regarding Spain. In this report we analyze the curve and provide
                                              trade ideas for both the bullish and bearish camps. We update our vol-adjusted excess
                                              returns for the riskier 10y European govies, see Exhibit 12. Interestingly, we see that 10y
                                              Spain is currently offering the highest vol-adjusted return. This is because even
                                              though volatility of spreads has fallen, 10y SPGB has barely tightened. We interpret
                                              this as the market remaining cautious on Spain.
                                              We take a look at the SPGB curve, see Exhibit 11. We observe that the 2.5y-3y sector is
                                              rich and we think this is driven by the LTRO. We also think that the 5y-6y sector is cheap
                                              while the 9y sector appears rich, in our view. We recommend the following trades:
                                              • Buy SPGB Jan17 versus Oct14 and Apr20, Exhibit 13, trade details in Exhibit 15. This
                                                ought to work in a bullish Spain environment. The 0-3y sector has already rallied a lot.
                                                Further outperformance of Spain ought to be led by the 5y sector. Note that this fly is
                                                slightly short cash, but we nonetheless expect it to outperform if SPGB spreads tighten
                                                because the fly is long the higher beta 5y sector.
                                              • Sell SPGB Oct14 versus Oct13 and Jan17, Exhibit 14, trade details in Exhibit 16. This
                                                ought to work if concerns about the periphery re-emerge as the 2.5y-3y is most at risk.
                                                Again, note that the fly is slightly positive cash; however, it ought to outperform, in our
                                                view, in a bearish SPGB environment due to the different betas of the various sectors.
                                              The risks to both trades are sector and bond specific. For example, as with any bond
                                              trade, there are repo risks when multiple legs are involved. In terms of sector risk, the
                                              main risk to the first trade is the market pricing an even stronger hump in the 5y sector of
                                              the credit curve. The main risk of the second trade is the market flattening even further in
                                              the 0-3y part of the curve and steepening further out. We find the risk/reward profile
                                              attractive for both trades.

                                              Exhibit 11: SPGB curve – the LTRO has caused the 2.5y sector to richen. The
                                              5y-6y sector is cheap while the 9y sector is rich






                                                          30-Dec-14         31-Dec-19   30-Dec-24   30-Dec-29     30-Dec-34      31-Dec-39

                                                     Live Yield
                                              Source: Credit Suisse Locus

European Strategy and Trades                                                                                                             10
                                                                                                                                               16 March 2012

                                  Exhibit 12: Spain is currently offering the best risk-adjusted return. Spreads
                                  have not tightened much despite the reduction in volatility
                                  10y spread to Germany divided by 3m realized vol (bp/ann)






                                     01-Jul-10            30-Sep-10         30-Dec-10          01-Apr-11       01-Jul-11       30-Sep-11   31-Dec-11
                                        Germany vs. Austria, 10Y ASW vol adjusted
                                        Germany vs. Belgium, 10Y ASW vol adjusted                            Germany vs. Italy, 10Y ASW vol adjusted
                                        Germany vs. Spain, 10Y ASW vol adjusted
                                  Source: Credit Suisse Locus

Exhibit 13: Receive 2.5y-5y-9y SPGB fly                                          Exhibit 14: Pay 1.5y-2.5y-5y SPGB fly





  0                                                                              -75

              30-Dec-10        01-Jul-11                   31-Dec-11                             30-Dec-10                 01-Jul-11         31-Dec-11
      SPGB Oct14-Jan17-Apr20                                                            SPGB Oct13-Oct14-Jan17
Source: Credit Suisse Locus                                                      Source: Credit Suisse

                                  Exhibit 15: Trade details: Buy SPGB Jan17 versus Oct14 and Apr20
                                  Security                      Direction         Amount (mm)                 Price               Yield      Cash Amount
                                  SPGB Jan-17                     Buy                    100                 99.615              3.886%        99,615,000
                                  SPGB Oct-14                     Sell                  -85.75               101.86              2.552%       -87,344,950
                                  SPGB Apr-20                     Sell                  -33.85                 95.26             4.715%       -32,245,510
                                                                                                                                 50.6bp       -19,975,460
                                  Source: Credit Suisse

                                  Exhibit 16: Trade details: Sell SPGB Oct14 versus Oct13 and Jan17
                                  Security                      Direction         Amount (mm)                 Price               Yield      Cash Amount
                                  SPGB Oct-14                     Sell                  -100                  101.86             2.552%      -101,860,000
                                  SPGB Oct-13                     Buy                   79.97                100.725             2.552%        80,549,783
                                  SPGB Jan-17                     Buy                   29.15                 99.615             4.715%        29,037,773
                                                                                                                                 -81.8bp        7,727,555
                                  Source: Credit Suisse

European Strategy and Trades                                                                                                                                11
                                                                                                                                               16 March 2012

                                               Netherlands – 30s into 5s cash for cash spread
                           Florian Weber       The view:
                        +44 20 7888 3779
      In our last EST we turned moderately bearish Netherlands and showed a cheap way of
                                               expressing this view. We maintain this view and explore another way of expressing it. We
                    Panos Giannopoulos
                       +44 20 7883 6947        recommend 30s into 5s cash for cash (Exhibit 17).
                                               The rationale:
                                               • As discussed in last week’s EST, the Netherlands is facing economic challenges. Our
                                                 economists expect a negative real GDP growth of -0.5% for 2012.
                                               • The Netherlands has an expected deficit of 4.5% of GDP in 2012. This is above the
                                                 Maastricht Treaty criteria. Thus the Netherlands now has to enter into an austerity
                                                 program, which further exacerbates the weakening growth outlook.
                                               • We are bearish yields outright.

                                               Trade expression:
                                               Exhibit 17: 5s into 30s cash for cash






                                                        31-Jul-11      31-Aug-11   30-Sep-11   31-Oct-11   30-Nov-11   31-Dec-11   30-Jan-12   29-Feb-12
                                                      5s30s fwd yield
                                               Source: Credit Suisse Locus

                                               We like to be short Netherlands 30 years versus 5 years cash for cash. We think the 30-
                                               year bond is rich versus 30-year Germany compared to the 5-year spread (Exhibit 18).
                                               The spread to 5-year Germany is 50bps while the spread to 30-year Germany is only
                                               Looking at the 5s10s curve in the Netherlands and Germany, the 30-year bond seems to
                                               be rich. The Netherland curve is still very flat compared to the German curve (Exhibit 19).

European Strategy and Trades                                                                                                                               12
                                                                                                                                                                                                    16 March 2012

Exhibit 18: 5s and 30s Germany versus Netherlands                                                             Exhibit 19: 5s30s Germany versus Netherlands

-50                                                                                                           130

-60                                                                                                                                                                                                                  170


-70                                                                                                   -12.5

                                                                                                      -15.0    90

      31-Jul-11   31-Aug-11   30-Sep-11   31-Oct-11   30-Nov-11   31-Dec-11   30-Jan-12   29-Feb-12                  31-Jul-11   31-Aug-11   30-Sep-11   31-Oct-11   30-Nov-11   31-Dec-11   30-Jan-12   29-Feb-12
      5s Germany vs Netherlands           30s Germany vs Netherlands (RHS)                                          5s30s Netherlands        5s30s Germany (RHS)

Source: Credit Suisse Locus                                                                                   Source: Credit Suisse Locus

                                                        The risks:
                                                        • The main risk for the trade is that yields move in the opposite direction.
                                                        • There is always flow risk when trading the long end in Holland.

                                                        Belgium Syndication
                                                        • In our last week’s EST we highlighted the possibility that Belgium would cancel its March
                                                          auction and issue a new benchmark via syndication, which might be a longer-dated
                                                        • On Wednesday, Belgium issued a new €4.0 billion 20-year bond via syndication. The
                                                          yield of the bond at issue was 4.064%, or 133bps over mid swaps.
                                                        • The supply dynamics are positive for Belgium. Including this syndication, Belgium has
                                                          issued €12 billion in 2012 and is now 50% through its 2012 funding program. Spain and
                                                          the Netherlands are the only countries that are almost as far in their issuance program.
                                                        • We still like the 5s10s flattener in Belgium.

European Strategy and Trades                                                                                                                                                                                         13
                                                                                                                                                                                                             16 March 2012

                                             UK Strategy
                      Thushka Maharaj        Exhibit 20: Summary of views
                     +44 20 7883 0211
                                             Metric                     View
                                             Outright level of yields   Expect some resistance to these low yields
                                             Curve                      Change in BoE basket consistent with 5s30s curve steepening
                                             Curvature                  2s5s10s set to remain driven by European sovereign performance and rising commodities
                                             Long end curve/ASW         Change in BoE basket favour long 5-10y ASW
                                             GBP-EUR spreads            GBP long end set to underperform EUR
                                             Source: Credit Suisse

                                             100y gilts and downgrade risk – we maintain our bearish bias
                                             Recent news reports (FT etc.) indicate that the government may issue a perpetual or 100y
                                             bond to lock in low long-end rates. From an economic perspective, we see the rationale
                                             for such a move, but from a market perspective, this is another reason to start turning
                                             bearish UK gilts, in our view. If the government wishes to fix financing costs at these levels,
                                             to us this implies that they do not expect yields to remain at such low levels for much
                                             longer. So we see this as more of a negative signaling mechanism for the market.
                                             We turned bearish on the UK market two weeks ago and recommended paying GBP
                                             2s5s10s as an expression of this view (see EST (02-Mar-12).          We maintain this
                                             recommendation – the recent US-led improvement in sentiment further supports this view.
                                             Our understanding is that the government and DMO will consult with the market for the
                                             first quarter of 2012-13. The obvious source of demand is the pension sector – we are not
                                             sure such low levels of yields would garner strong interest.
                                             We also expect recent rating action to temper demand for a perpetual bond. Fitch joins
                                             Moody’s in revising the UK rating outlook to Negative. This once again brings into focus
                                             the risks to the UK market and calls into question the “risk-free” status implied in a
                                             perpetual bond or ultra long bond issuance.
                                             Fitch cites “very limited space         Exhibit 21: Gross Debt to GDP expected to peak
                                             to absorb further adverse               at 94% in 2014-15
                                                                                       General Government Gross Debt (% Of GDP

                                             economic shocks in light of                                                    100
                                             such elevated debt levels” as
                                             one reason for the revision of                                                      95
                                             the rating Outlook from Stable
                                             to Negative. Exhibit 21 shows                                                       90
                                             the current forecasts for Gross
                                             Debt to GDP from the OBR.
                                             Debt is expected to peak at                                                         80                                           Nov-11 forecast
                                             93.9% in 2014-15.
                                                                                                                                 75                                           Mar-11 forecast
                                             The OBR will release new
                                             forecasts following the Budget
                                             next      Wednesday.         Any








                                             significant revisions to the debt
                                             profile   will    be    obviously
                                             negative for the UK.
                                                                                     Source: OBR, Credit Suisse

European Strategy and Trades                                                                                                                                                                                            14
                                                                                                                        16 March 2012

                               Fitch notes three triggers that would prompt a rating downgrade:
                               • Discretionary fiscal easing;
                               • Adverse shocks that implied a higher level of government borrowing; and
                               • Material downward revision of medium-term growth potential.

                               We will be watching the OBR growth forecasts in March for any signs of more pessimism –
                               less likely now following stabilization in Europe.

                               Focus next week turns to 2012-13 Budget and gilt issuance remit
                               In our latest Sterling Investor (13-Mar-12) we updated our expectations for gilt issuance.
                               Our economists expect the budget deficit to be £5bn better than the OBR forecasts due to
                               pre-funding this year. We expect this to imply a small drop in gilt issuance versus this
                               fiscal year. We expect gross gilt issuance of £172bn versus £179bn this year.

                               As discussed in the above publication, we expect the DMO to skew issuance marginally
                               towards longs and linkers. We expand on this here by looking at a prospective gilt
                               issuance calendar.
                               Exhibit 22 shows our expected              Exhibit 22: Prospective issuance calendar
                               issuance calendar for the first quarter                Date             Sector         Prospective bond
                               of 2012-13 fiscal year. This forecast is   April
                               largely the same as this year’s            Tues        03-Apr-12          10y                 UKT 4s 22
                               schedule. We expect the DMO to start       Wed         04-Apr-12         Linker
                               with 10y issuance (given that this year    Wed         11-Apr-12           5y                UKT 1s 17s
                               ended with shorts and longs).              Thurs       12-Apr-12         Linker
                                                                          Wed         18-Apr-12          30y               UKT 4H 42s
                               We expect                                  May
                               • 3 short auctions with the UKT 1s 17s     Thurs       03-May-12          10y        UKT 22s/UKT 3T 21s
                                                                          Tues        08-May-12         Linker
                                 tapped twice and possibly the UKT
                                                                          Thurs       10-May-12          30y               UKT 4H 42s
                                 5s 18s or 2s 16s tapped once.
                                                                          Thurs       17-May-12           5y               UKT 1s 17s
                               • 3 medium auctions with taps of the                   21-25th May    Syndication?               Linker
                                 UKT 4s 22s and possibly the UKT          June
                                 3T 21s.                                  Thurs       07-Jun-12          10y        UKT 22s/UKT 3T 21s
                                                                          Tues        12-Jun-12         Linker
                               • 4 long auctions with at least two        Thurs       14-Jun-12         Long        UKT 25s or UKT 27s
                                 taps of the UKT 4H 42s.                  Tues        19-Jun-12          5y
                                                                                                                     UKT 2s 16s/UKT 1s
                                                                                                                        17s/UKT 5s 18s
                               • One linker and one conventional          Thurs       21-Jun-12         Linker
                                 syndication towards the end of the                   25-28th June   Syndication?         Conventional
                                 quarter. We think either the             Source: Credit Suisse
                                 conventional UKT 3T 52s or the 4s
                                 60s (or 100y bond) are syndicated
                                 in June.
                               In the front end, we think it is more likely that the DMO taps the UKT 2s 16s than the
                               UKT 1T 17s. The main reason for this is that there is a new UKT 1s 17s which is likely to
                               be re-opened twice – this makes it less likely that another 17s maturity is tapped this
                               quarter. We recommend buying the old UKT 1T 17s versus the UKT 2s 16s. Exhibit 23
                               and Exhibit 24 show that the 1T 17s has cheapened versus surrounding bonds in the
                               recent sell off.

European Strategy and Trades                                                                                                        15
                                                                                                                                                                           16 March 2012

Exhibit 23: UKT 2s 16s/1T 17s spread cheapening                                                   Exhibit 24: UKT 1T 17s cheap versus neighbours


 27.5                                                                                               8

 25.0                                                                                               7


        31 Aug 11             31 Oct 1130 Nov 11 31 Dec 11 30 Jan 1229 Feb 12                     29 Feb 12     03 Mar 12          06 Mar 12    09 Mar 12     12 Mar 12        15 Mar 12
        UKT 2s16/1T 17s yield                                                                           UKT 2s 16/1T 17/1s 17
Source: Credit Suisse Locus                                                                       Source: Credit Suisse

                                           Paying GBP frontend versus EUR is still positive roll
                                           In previous publications we discussed being long GBP vol versus EUR (see EST (16-Feb-
                                           12). We still favour long EUR positions, particularly in the front end. We now favour short
                                           GBP and find that paying GBP versus EUR still offers positive roll.
                                           Exhibit 25 shows the forward curves for GBP-EUR 1y and 2y swaps. Paying GBP versus
                                           EUR 2y2y rolls positive by 9bp per year.

                                           Exhibit 25: Paying GBP in the front end versus EUR is still positive carry
                                                                              30                                               Roll on 1y to preceding (annualised)
                                                                              25                                               Roll on 2y to preceding (annualised)
                                               GBP-EUR spreads and Rolldown

                                                                              20                                               GBP - EUR 1YR
                                                                              15                                               GBP - EUR 2YR
                                                                                                        9 9           9
                                                                              10                                           6
                                                                                    3 3       4                                        4
                                                                               5          2
                                                                               -5                                                                   -3
                                                                              -20                                                                               -16
                                                                                    6m    1y            2y                3y            4y           5y               6y
                                                                                                              Forward horizon
                                           Source: Credit Suisse Locus

                                           We do acknowledge that the GBP-EUR 2y2y spread has already moved higher since the
                                           start of this year. We expect the EUR front end to remain fairly anchored with all the
                                           excess liquidity – thus in a sell off, the EUR front end is expected to lag. Thus, for
                                           investors who think this is the start of a bear market for fixed income, then paying the front
                                           end of GBP versus EUR still makes sense at these levels.

European Strategy and Trades                                                                                                                                                         16
                                                                                                                                                                   16 March 2012

Exhibit 26: GBP-EUR 2y2y has already started to move                Exhibit 27: Annualised roll/120bd delivered vol
                                                                    Roll to preceding (annual)                      6M                      1Y                      2Y          3Y
                                                                    EUR-GBP 1y                                    0.09                0.07                         0.13       0.12
 200                                                          300
                                                                    EUR-GBP 2y                                    0.09                0.14                         0.14       0.08
                                                                    EUR-GBP 5y                                      0.1               0.07                         0.01       -0.07


   0                                                          0

              31-Dec-99         30-Dec-04         30-Dec-09
       GBP - EUR 2y 2y         GBP - EUR 2y rhs
Source: Credit Suisse Locus                                         Source: Credit Suisse

                                     We also show the risk-adjusted roll down in Exhibit 27. This table shows the annualized
                                     roll divided by the 120 business-day delivered vol. The GBP-EUR 2y1y and 2y2y spreads
                                     still offer positive risk-adjusted roll-down.

                                     Take profit in long NOK 2y1y versus GBP
                                     Last week we recommended               Exhibit 28: NOK 2y1y fell 15bp versus GBP
                                     paying GBP 2y1y versus NOK to           2.15                        NOK 2y1y vs GBP 2y1y
                                     position ahead of the Norges
                                     Bank meeting. We expected the           2.05

                                     Bank to be more dovish than the         1.95
                                     market was pricing – paying GBP
                                     versus NOK was one positive             1.85

                                     carry way to position for this.         1.75
                                     In fact the Norges Bank cut rates       1.65
                                     in a surprise move – and our
                                     recommendation moved 15bp in            1.55







                                     our favour following the move. We
                                     now recommend taking profits on
                                     this recommendation.                   Source: the BLOOMBERG PROFESSIONAL™ service

                                     Take profit in short UKT 4H 19s versus UKT 3T 20s
                                     We had recommended selling the         Exhibit 29: UKT 4H 19s/3T 20s spread tightened
                                     UKT 4H 19s versus the UKT 3T
                                     20s on the 9th Feb. This was a
                                     recommendation to position for         40
                                     the 19s falling out of mediums into
                                     the short basket for QE buybacks.
                                     The UKT 4H 19s/3T 20s tightened                                                                                               Avg: 35.17
                                     by 5bp since trade initiation.
                                     We recommend taking profits
                                     following the move of the 19s out      30

                                     of the medium basket on the 7th             30 Sep 11                     30 Nov 11                             30 Jan 12
                                                                                   UKT 4H 19s/3T 20s spread
                                     March.                                        Avg(UKT 4H 19s/3T 20s spread)
                                                                            Source: Credit Suisse Locus

European Strategy and Trades                                                                                                                                                    17
                                                                                                                                            16 March 2012

                                              Derivatives Strategy
                    Panos Giannopoulos
                       +44 20 7883 6947
                                              EUR vol – analyzing risk reversals; Buy 30y OTM payers   versus receivers
                                              The recent strength of risky assets has caused a bit of re-pricing in rates and vol (with both
                                              moving higher in the last couple of days). Our view is that the recent strength of
                                              economic data coupled with the (still) low starting level of rates suggests that payer
                                              skew should be higher than receiver skew (in other words, OTM payer vol ought to
                                              be higher than the receiver one), in our view.
                                              We analyze the 100-wide risk reversal (table in Exhibit 30) to see whether the vol market
                                              is in line with our view and find that it is mainly in agreement. We do notice, however, that
                                              the risk reversal is still negative for 30y tails (Exhibit 31). We think this is wrong. Our
                                              reasoning is as follows:
                                              • Reflation risk as a result of CB action. See the thoughts from our market strategies
                                                regarding reflation: MT – taking reflation more seriously.
                                              • Potential long-end supply by EFSF, new DBR 30y in April suggesting risks are on the
                                                upside I terms of yields.
                                              • Very low level of 30y by historical standards.
                                              • Continued appetite for long-end steepeners.
                                              • If (despite the above) the 30y does manage to rally, we think it will be a slow grinding
                                                rally and vol ought to sell-off.
                                              We therefore recommend buying a 3m30y 50bp OTM payer and selling a 3m30y 50bp
                                              OTM receiver. Trade details are shown in Exhibit 32. Alternative ways to express the trade
                                              would be simply to sell an OTM 3m30y receiver option. The risk reversal can also be done
                                              via 6m or 1y options. The risk to the trade is a disorderly unwind of long-end steepening
                                              positions the causes 30y swap and vol to rally.

                                              Exhibit 30: 100-wide risk reversal (50bp OTM payer-50bp OTM receiver, bp/ann)
                                              Receivers still rich to payers in 30y tails – we expect this to reverse.

                                              Expiry\Tenor                 2y              5y             10y            30y    DU    OE             RX
                                              3m                         25.6              7.3               0            -5    5.9   6.8            3.5
                                              1y                         21.5              8.3             2.8           -1.4
                                              2y                         15.7              6.1             3.1           0.7
                                              Source: Credit Suisse

European Strategy and Trades                                                                                                                          18
                                                                                                                                              16 March 2012

                                     Exhibit 31: 3m30y, 1y5y risk reversal. Both have been rising, but the risk
                                     reversal is still negative for 30y tails
                                                                      3m30y Risk reversal
                                                                      1y5y risk reversal






                                        16-Mar-07              15-Mar-08            15-Mar-09            15-Mar-10       15-Mar-11             14-Mar-12

                                     Source: Credit Suisse Locus

Exhibit 32: Trade details: EUR 3m30y risk-reversal – Buy OTM payer, sell OTM receiver
                                                                                                                        Par Src
Side      Product       CCY     Notional      Expiry         Tenor         Strike     Fwd        Value         DV01      Delta       N Vega      Gamma
Buy       Payer         EUR    50,000,000       3m            30y      3.1680%      2.6680%     185,968       105,920   10,317       9,545         476
Sell      Receiver      EUR    -50,000,000      3m            30y      2.1680%      2.6680%     -262,162      105,920   11,842       -9,855        -466
                                                                                                -76,194                 22,159        -310
Source: Credit Suisse

                                     EUR curvature update – take profit in receiving 1y
                                     2s5s10s30s condor conditionally via receivers
                                     In short, our curvature view in the EUR curve is as follows:
                                     • We continue to recommend receiving proxy 5s10s30s flies, such as 2s7s20s 2y fwd. We
                                       like this trade in delta space and via OTM payers.
                                     • We do not see value in receiving 2s5s10s 1y fwd, and we have already closed our
                                       recommendation there. In fact, if the back-up in yields were to gather pace, the 2s5s10s
                                       1y fwd would also move higher, in our view.
                                     In our 2012 outlook we recommended receiving EUR 1y into 2s5s10s30s condor (receive
                                     5s and 10s, pay 2s and 30s) conditionally via receivers. The idea behind this trade
                                     recommendation was that curvature in the EUR curve was too high and as a result any
                                     further rally would be led by the belly. The trade was essentially driven by three sub-
                                     components: 2s5s10s 1y fwd, 5s10s30s 1y fwd, and the conditional aspect. As explained
                                     above, we do not see huge value in receiving 2s5s10s 1y fwd. We also see an increased
                                     risk of a back-up in yields (which would reduce the delta of the trade and hence cause it to
                                     underperform). We therefore recommend closing the trade.

European Strategy and Trades                                                                                                                              19
                                                                                                          16 March 2012

                               Exhibit 33: EUR 1y into 2s5s10s30s condor has worked – take profits



                                                   31-Dec-07   30-Dec-08          30-Dec-09   30-Dec-10      31-Dec-11
                                      spot 2s5s10s30s condor   1y forward 2s5s10s30s condor
                               Source: Credit Suisse Locus

European Strategy and Trades                                                                                        20
                                                                                                                                  16 March 2012

                                               Money Market Strategy
                    Panos Giannopoulos
                       +44 20 7883 6947
                                               Buy 2y1y Euribor-Eonia versus 4y1y    • In today’s LTRO-driven environment, finding the new normal shape of money market
                            Marion Pelata        curves can be quite challenging. We find it interesting to look at the breakdown
                        +44 20 7883 1333         between rates pre and post maturity of the two three-year LTROs.
                                               • In our view, the Euribor-Eonia basis is too high near the 5y sector, while it is too low
                                                 near the 2y-3y sector. In the event of a further “blow-up” in the near future, we would
                                                 expect 3y FRA-Eonia to widen relative to 5y. Thus, buying Euribor-Eonia 2y1y versus
                                                 4y1y or a 3s5s basis spread flattener is a cheap hedge towards the possibility of a
                                                 renewed funding stress episode (LTRO not working).
                                               • The risk to this trade is a steepening of the 3s5s curve because of fixings dropping too
                                                 far and pushing the front end of the curve close to the 10bps level. Although we believe
                                                 investors will still consider the risks of potential ratings downgrades of some LIBOR
                                                 panel members as well as risks due to LIBOR scrutiny investigations, we think this risk is
                                                 worth taking.
                                               • Note that the slope of FRA-Eonia could go positive if the front-end basis comes in
                                                 a lot (as then a risk premium ought to be priced further out). This is a bigger risk
                                                 when trading 2y versus 5y basis, for example. It is less of a risk when trading 2y1y
                                                 versus 4y1y, in our view.
                                               Looking at our principal component analysis (PCA) latest residuals for the various FRA-
                                               Eonia forwards (Exhibit 34 and Exhibit 35), we find that the current level is too high relative
                                               to our reconstructed dataset for the 4y1y basis and too low for the 2y1y basis. This
                                               suggests that the 4y1y-2y1y spread is probably too rich by about 4bps compared to our
                                               model. It is worth noting that the roll is currently flat.

Exhibit 34: Principal component analysis, latest residuals
█: Residuals as of 14th of March close; ▲: as of the day before; ●: as of the week before ; * : as of last month

Source: Credit Suisse

European Strategy and Trades                                                                                                                21
                                                                                                                                        16 March 2012

                                              For those preferring to trade spot FRA-Eonia spreads, our model suggests that 3y FRA-
                                              Eonia is too low relative to the 5y.
                                              Since the announcement of       Exhibit 35: 4y1y and 2y1y basis PCA residuals
                                              these three-year LTROS,
                                              rates in both secured and
                                              unsecured markets have
                                              been falling drastically as     2.5

                                              well as the spread between
                                              both. The 1y Euribor-Eonia
                                              basis is currently around       0.0
                                              39bps, far from its Nov-11
                                              high of almost 80bps. If
                                              funding stresses continue to
                                              show positive signals, one      -2.5
                                              might expect this spread to
                                              continue falling, but it is
                                                                               01-Apr-11              01-Jul-11     30-Sep-11     31-Dec-11
                                              unlikely to us that the basis
                                                                                         EE 2y1y PCA residuals      EE 4y1y PCA residuals
                                              will drop much more from
                                                                              Source: Credit Suisse
                                              here (the LTRO is priced in).
                                              In the event of another “blow-up”, we still might expect some unconventional measures by
                                              the ECB and probably some additional LTROs. In that environment we would expect
                                              flattening of the MM term structure.
                                              Looking at Exhibits 36-39, we find a good RV opportunity in selling the 4y1y Euribor-
                                              Eonia basis versus the 2y1y, or similarly, in selling the Euribor-Eonia 5y basis versus
                                              the 3y basis.

Exhibit 36: Euribor-Eonia 4y1y basis is too high                              Exhibit 37: 2y1y-4y1y basis spread is too high near
versus 2y1y                                                                   -2bp




 30                                                                  25


   01-Apr-11            01-Jul-11        30-Sep-11      31-Dec-11                    01-Apr-11          01-Jul-11    30-Sep-11     31-Dec-11
      EE 2y1y basis                 EE 4y1y basis,rhs                                    EE 4y1y vs 2y1y basis
Source: Credit Suisse                                                         Source: Credit Suisse

European Strategy and Trades                                                                                                                      22
                                                                                                                                       16 March 2012

Exhibit 38: ... and a similar pattern can be seen in 3y                   Exhibit 39: … with a 3s5s basis spread approaching
versus 5y basis                                                           zero

 60                                                                  50


 30                                                                       -15

         30-Dec-08         30-Dec-09         30-Dec-10       31-Dec-11              30-Dec-08          30-Dec-09          30-Dec-10       31-Dec-11
      EE 3s basis        EE 5s basis, rhs                                       EE 3s5s basis spread
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service                Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service

                                         Buy L-ED 5-7 box (buy short-sterling; sell Eurodollars)
                                         • Following the decent steepening in the Eurodollars curve since January, we believe
                                           this ought to be temporary and find the reds too steep relative to the short-sterling curve.
                                           We constrain ourselves within a window that is well within the Fed’s “commitment
                                           window” and find the best opportunities between Mar-13 and Sep-13 (H3 versus U3).
                                         • Looking at the current levels, we find an interesting trade in buying the box short
                                           sterling-Eurodollar 5th-7th contracts.
                                         • We view the balance of risks in terms of hikes in 2013 as tilted slightly towards the MPC,
                                           as it has not pre-committed to maintaining rates at current levels.
                                         As shown in Exhibits 40 and 41, we find that markets have steepened in both Eurodollars
                                         and short-sterling but that the move in short-sterling has more room to steepen than in
                                         Eurodollars. This view is in line with our US colleagues who recently recommended a
                                         1s2s flattener.
                                         Looking at the SS- ED box (buying the SS 5-7 spread and selling the ED spread), we
                                         find a certain correlation with the spread of UK and US surprise index. It appears to us
                                         that relative to this index, the box appears too low. Similarly, relative to the 1y GBPUSD
                                         basis swap, we find that the SS-ED spread has tightened in the last month and has
                                         diverged with the cross-currency basis swap. We note that this trade currently has a
                                         positive roll of 5bps.
                                         A risk to this trade as highlighted previously is that the Fed decides to hike rates between
                                         Mar-13 and Sep-13 while the MPC is on hold, which really does not appear likely.

European Strategy and Trades                                                                                                                     23
                                                                                                                                                 16 March 2012

Exhibit 40: 5-7 spread in ED is too high relative to                                 Exhibit 41: Sep13 contracts are rich relative to
SS                                                                                   Mar13
                                                                              0.3    -0.3                                                                 -0.3

                                                                                     -0.4                                                                 -0.4

                                                                                     -0.5                                                                 -0.5

                                                                                     -0.6                                                                 -0.6

  0.0                                                                                -0.7
                                                                              0.0                                                                         -0.7
        31-Jul-11         30-Sep-11          30-Nov-11        30-Jan-12                         01-Jul-11         30-Sep-11          31-Dec-11
        SS 5-7 spread           ED 5-7 spread, rhs                                          SS vs ED 5th         SS vs ED 7th, rhs
Source: Credit Suisse, Credit Suisse Locus                                           Source: Credit Suisse

Exhibit 42: SS-ED box has room for improvement as                                    Exhibit 43: Relative to the 1y GBPUSD basis swap,
predicted by the UK – US surprise index                                              SS-ED box should correct

 0.1                                                                                 20                                                                  0.1

                                                                              0.0                                                                        0.0

-0.1                                                                                 10

                                                                              -0.1                                                                       -0.1

-0.3                                                                                   0
                                                                              -0.2                                                                       -0.2

              01-Jul-10         30-Dec-10         01-Jul-11       31-Dec-11                        30-Dec-10          01-Jul-11           31-Dec-11
        SS-ED 5-7 box, rhs             UK - US suprise index                                SS-ED 5-7 box, rhs       GBPUSD 1y basis swap, invtd

Source: Credit Suisse, Credit Suisse Locus                                           Source: Credit Suisse

                                               Sell [ERH3-ERM3] versus [ERU3-ERZ3] @ -2bp
                                               The recent sell-off in rates has caused the Euribor curve to steepen uniformly within
                                               2013 maturities. However we think that risks of hikes are not uniform; they are
                                               greater in the second half of 2013. We recommend positioning for this view by
                                               selling H3-M3 spreads and buying U3-Z3 spreads at -2bp. If we assume there are 1bp-
                                               2bps of “turn” adjustment in Z3, this essentially suggests that the same amount of hikes
                                               are priced in Q2 and Q4 of 2013, which we believe is incorrect. The risk to the trade is the
                                               FRA-Eonia term structure. However, we do not see this as a big risk in the near term.

European Strategy and Trades                                                                                                                               24
                                                                                                                                                   16 March 2012

Exhibit 44: Euribor term structure: Clear steepening for the 2013 contracts
     2.00                                                                                                                                  1.92   2.06
                                                                                                                                   1.78                       2.00
     1.50                                                                                                     1.40

                                                                                                 1.29                                                         1.00

     1.00                                                                                                                                                     0.00
                 0.85                                         0.88
                           0.70      0.70

               Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

         ER (Trade)           ER Z-score(Trade)              ER (1 month ago)
Source: Credit Suisse Locus

Exhibit 45: ERH3-ERM3 spread has widened to a                                         Exhibit 46: The box is at the higher end of the last
larger extent recently compared to ERU3-ERZ3; the                                     eight month range – we think that range should hold
spread between them is still too high

                                                                            0.15       0.00


                                                                            0.10      -0.05

             01-Jul-11             30-Sep-11          31-Dec-11                                                30-Dec-09           30-Dec-10             31-Dec-11
         ERH3-ERM3            ERU3-ERZ3, rhs                                                  ER Box
Source: Credit Suisse, Credit Suisse Locus                                            Source: Credit Suisse

European Strategy and Trades                                                                                                                                    25
                                                                                                                                 16 March 2012

                                                Covered Bonds
                            Sabine Winkler
                        +44 20 7883 9398
                                                Primary market: Steaming ahead
    The EUR-benchmark covered bond primary market picked up the pace. Since the start of
                                                the week, Bankinter (BKTSM) launched a EUR 1bn five-year covered bond at m/s +268bp,
                                                the fourth EUR-benchmark covered bond of a Spanish lender this year. Norway’s DNB
                                                Boligkreditt (DNBNO) was also in the market issuing a EUR 2bn ten-year covered bond at
                                                m/s +61bp. It is the lender’s second appearance in the market in 2012, following a EUR
                                                2bn five-year offering priced at m/s +68bp in January. Additionally in the EUR-benchmark
                                                covered bond market, Sweden’s Stadshypotek (SHBASS) priced a EUR 1.5bn five-year
                                                covered bond at m/s +30bp (Exhibit 47).

Exhibit 47: New EUR-benchmark covered bond supply (sorted by country)
Issue date ISIN                 Country Issuer          Maturity   Coupon     EURbn   ASW (bp)   TTM (years)   Collateral   Legal background
01/02/12    XS0743547183           AT      ERSTBK       08/02/22    3.500     1.000     130           10       Mortgages    Special-law-based
09/01/12    XS0731129234           AU      ANZ          18/07/22    3.625     1.000     130           11       Mortgages    Special-law-based
04/01/12    XS0729014281           AU      CBAAU        12/01/17    2.625     1.500     100            5       Mortgages    Special-law-based
05/01/12    XS0730559894           AU      NAB          13/01/17    2.625     1.000     100            5       Mortgages    Special-law-based
09/02/12    XS0747205101           AU      WSTP         16/02/16    2.125     1.750      72            4       Mortgages    Special-law-based
11/01/12    XS0732551550           CH      CS           18/01/17    2.125     1.250      60            5       Mortgages    General-law-based
03/01/12    XS0728789578           CH      UBS          10/01/17    2.250     1.500      61            5       Mortgages    General-law-based
12/03/12    ES0413679178           ES      BKTSM        22/03/17    4.125     1.000     268            5       Mortgages    Special-law-based
08/02/12    ES0440609040           ES      CABKSM       16/02/17    4.000     1.000     248            5       Mortgages    Special-law-based
06/02/12    ES0413860281           ES      SABSM        16/02/15    3.625     1.200     250            3       Mortgages    Special-law-based
01/02/12    ES0413900285           ES      SANTAN       17/02/15    3.250     2.000     210            3       Mortgages    Special-law-based
10/01/12    XS0731649660           FI      NBHSS        17/07/17    2.375     2.250      65            6       Mortgages    Special-law-based
04/01/12    FR0011179852           FR      ACACB        17/01/22    4.000     1.500     165           10       Mortgages    Special-law-based
06/02/12    FR0011200849           FR      BPCECB       16/02/17    2.750     1.250     120            5       Mortgages    Special-law-based
09/01/12    FR0011181171           FR      CFF          19/01/22    4.250     1.000     190           10         Mixed      Special-law-based
10/02/12    FR0011201995           FR      CFF          21/08/15    2.250     2.000      95            4         Mixed      Special-law-based
10/01/12    FR0011182542           FR      CMCICB       19/01/24    4.125     1.250     172           12       Mortgages    Special-law-based
03/01/12    FR0011178946           FR      CRH          17/06/22    4.000     2.000     160           10       Mortgages    Special-law-based
27/02/12    FR0011213453           FR      CRH          08/03/24    3.600     1.750     120           12       Mortgages    Special-law-based
05/01/12    FR0011180017           FR      SOCSFH       18/01/22    4.000     1.250     170           10       Mortgages    Special-law-based
01/03/12    FR0011215516           FR      SOCSFH       14/03/19    2.875     1.500     107            7       Mortgages    Special-law-based
15/02/12    XS0748955142           GB      BACR         22/02/17    2.250     2.000      78            5       Mortgages    Special-law-based
04/01/12    XS0729188606           GB      LLOYDS       11/01/17    3.500     1.250     180            5       Mortgages    Special-law-based
11/01/12    XS0732631824           NL      ABNANV       18/01/22    3.500     1.000     120           10       Mortgages    Special-law-based
03/01/12    XS0728783373           NL      INTNED       10/01/22    3.375     1.750     110           10       Mortgages    Special-law-based
04/01/12    XS0728790402           NO      DNBNO        11/04/17    2.375     2.000      68            5       Mortgages    Special-law-based
12/03/12    XS0759310930           NO      DNBNO        21/03/22    2.750     2.000      61           10       Mortgages    Special-law-based
23/01/12    XS0738895373           NO      SPABOL       01/02/19    2.750     1.250      77            7       Mortgages    Special-law-based
13/03/12    XS0760243328           SE      SHBASS       21/03/17    1.875     1.500      30            5       Mortgages    Special-law-based
Source: Credit Suisse

                                                Year to date, 34 lenders from 13 jurisdictions have raised EUR 45bn through the sale of
                                                EUR-benchmark covered bonds (-43% from the same period in 2011) and USD 15bn
                                                through the sale of USD-benchmark covered bonds (+152% from the same period in
                                                2011). With EUR 29bn and USD 3bn falling due, EUR- and USD-benchmark covered bond
                                                net supply was positive. The new benchmark covered bonds have an initial maturity of up
                                                to 12 years; their average initial term is seven years. All the new benchmark covered
                                                bonds, except two, are mortgage covered bonds – i.e., covered bonds backed by real
                                                estate loans (Exhibits 47 an 48).

European Strategy and Trades                                                                                                                    26
                                                                                                                                           16 March 2012

Exhibit 48: New USD-benchmark covered bond supply (sorted by country)
Issue date ISIN (144A)         Country Issuer         Maturity   Coupon        USDbn   ASW (bp)       TTM (years)    Collateral       Legal background
05/03/12      US20271AAB35       AU    CBAAU          16/03/17    2.250        2.000      115             5          Mortgages        Special-law-based
23/01/12      US063679ZT48       CA    BMO            30/01/17   1.950         2.000       76             5          Mortgages        General-law-based
20/01/12      US06415CAC38       CA    BNS            30/01/17   1.950         2.500       77             5          Mortgages        General-law-based
28/02/12      US12800UAL44       CA    CCDJ           06/03/17    1.600        1.500       51             5          Mortgages        General-law-based
05/03/12      US891145TN42       CA    TD             13/03/17   1.500         3.000       45             5          Mortgages        General-law-based
01/03/12      US225448AL32       CH    CS             06/03/15   1.625         2.000      105             3          Mortgages        General-law-based
19/01/12      US902674MY32       CH    UBS            23/01/15   1.875         1.500      135             3          Mortgages        General-law-based
Source: Credit Suisse

                                       Secondary market: Mainly out of stock
                                       The rally in the secondary covered bond market rolls on for now, grinding covered bond
                                       ASW tighter. Tighter covered bond ASW mean lower funding costs for lenders affecting
                                       covered bond primary market activities. As Exhibit 49 shows, ASW of covered bonds from
                                       most countries remain, however, above the levels seen at the start of 2010. Secondary
                                       market liquidity is low and thus investors often have no choice but to focus on new
                                       covered bond issues.

                                       Exhibit 49: Covered bonds’ asset swap spread performance
                                                                     ASW        ASW Change (YTD)              ASW Change (2011)       ASW Change (2010)
                                       CBI All                           151                    -65                           10                          90
                                       CBI AT                             91                    -23                           45                          43
                                       CBI CA                             36                     5                                8                       -17
                                       CBI CH                             47                     -3                           12                            -
                                       CBI DE                             34                    -16                           16                          17
                                       CBI DK                             59                     -3                           16                          13
                                       CBI ES                            306                -109                              12                      221
                                       CBI FI                             37                    -14                               9                        7
                                       CBI FR                             82                    -67                           34                          50
                                       CBI GB                             89                    -56                          -25                          -46
                                       CBI IE                            393                -119                             -83                      223
                                       CBI IT                            255                -156                             123                      210
                                       CBI LU                            134                     -9                           43                          86
                                       CBI NL                             60                    -14                               9                        8
                                       CBI NO                             38                    -14                               4                        7
                                       CBI NZ                             70                    -23                               5                         -
                                       CBI PT                            696                -285                             244                      636
                                       CBI SE                             29                    -17                           -2                           -8
                                       CBI US                            141                    -20                           45                          23
                                       CBI SLB                           154                    -67                           10                          97
                                       CBI GLB                            96                    -40                               2                       -28
                                       CBI Public                        103                    -51                           32                          65
                                       CBI Mortgage                      165                    -72                           -4                          93
                                       CBI Mixed                          90                    -54                           37                          53
                                       CBI AAA                            61                    -95                          -49                          12
                                       CBI AA                            198                    -86                          -44                          84
                                       CBI A                             354                -192                             -79                            -
                                       Source: Credit Suisse

European Strategy and Trades                                                                                                                              27
                                                                                                                16 March 2012

                               While risk-affine investors are exploring opportunities in higher-yielding covered bonds,
                               risk-averse investors still favour covered bonds that have experienced a more moderate
                               ASW widening and covered bonds of lenders with a superior credit history and business
                               profile and from non-peripheral European countries.
                               From the beginning of 2012, our EUR Covered Bond Index (CBI) has tightened by 65bp.
                               In the same period, the ASW of Canadian covered bonds have widened by 5bp, while
                               those of Portuguese covered bonds have tightened by 285bp (Exhibit 49). In mid-March
                               2012, our EUR CBI was at m/s +151bp. It was at m/s +61bp at the start of 2010.
                               We think that further episodes of higher market volatility are likely until economic recovery
                               and fiscal consolidation are firmly secured. Thus, we caution investors to be prepared for
                               more negative headlines and pressure on sovereigns’ and banks’ credit strength. Spread
                               differentiation by country and issuer remains high by historical standards.

European Strategy and Trades                                                                                              28
                                                                                                                              16 March 2012

                        David Sneddon
                      +44 20 7888 7173
                                             2s10s and 2s5s German should extend their steepening
    The dramatic move higher in yields this week has seen curves reprice sharply. In
                                             Germany, our immediate focus is on 2s5s and 2s10s, although we may also be close to a
                                             break in 10s30s.
                                             We have maintained the view that while support at 152bps holds, the choppy
                                             January/March range for the 2s10s German bond curve is a consolidation/corrective
                                             phase following the completion of a base last year. The sharp steepening this week
                                             suggests we may be set to see a resumption of the underlying steepening trend.
                                             A close above the late January high at 178bps should add weight to this steepening story,
                                             with 61.8% retracement resistance at 181bps then seen as the trigger to a move back to
                                             the 195bps late November high. Our broader bias and core objective remains for an
                                             eventual break through here to target 207/213bps – the measured target from the base
                                             and late 2010 high. Near-term support is pegged at 178/176bps, then 169bps.
                                             For the 2s5s German bond curve, the close above 68bps has seen a “head & shoulders”
                                             reversal complete, which already leaves the curve 10bps higher. We look for steepening
                                             to extend to 85/86bps – the target from the base and late November high. This will then
                                             present the next major challenge.
                                             A close above 86bps is needed to suggest a more significant reversal has been
                                             established, clearing the way for further steepening to 94bps, then 101bps – the 61.8%
                                             retracement of the 2009/2011 flattening. With the 108bps highs of 2011 not far above, we
                                             would look for this to then cap.
                                             Support for 2s5s should now be found from the “neckline” to the base at 68bps.
                                             The 10s30s German bond curve has extended its steepening to retest key resistance at
                                             68bps – the high for the year from January and the 38.2% retracement of the 2011
                                             flattening. A close above here is needed to suggest the steepening bias can be
                                             maintained here also for a test of 75bps next, then back to what should be tougher
                                             resistance at 81/82bps – the 61.8% retracement of the 2011 flattening and November
                                             high. Support at 65.5bps needs to hold to keep the immediate risk steeper.

                                             Exhibit 50 2s10s German Bond Curve – Weekly

                                             Source: CQG, Credit Suisse

European Strategy and Trades                                                                                                            29
                                                                                                                                                                   16 March 2012

EUR and UK Supply Analysis
Exhibit 51: Forward supply calendar
 Week Day       Date           T-bills Issues                            2/3y                5/7y               10y             15/20y              >=30y             Linkers
  12    Mon    19-Mar DTC 3M & 6M     1.7*   SK                                         SLOVGB 16 0.3*
  12    Mon    19-Mar      BTF        7.5*
  12    Tue    20-Mar SGLT 12M & 18M 5.5*
  12    Tue    20-Mar     GTB 3M      1.6*
  12    Wed    21-Mar PTB 4M & 6M    0.875   DE      Schatz 14                   5.0
  12    Thu    22-Mar                        UK                                                                                                                    UKTi 42      0.9*
  12    Thu    22-Mar                        US                                                                                                                   TIPS 10Y      11*
  12    Fri    23-Mar       UK
                         EUR total   17.18 EUR total                             5.0                0.3
  13    Mon    26-Mar         BTF               7.5*
  13    Mon    26-Mar       Bubill 12M          3.0
  13    Tue    27-Mar     SGLT 3M & 6M          3.0*      US        2Y Note      35*
  13    Tue    27-Mar                                     IT        CTZ 2Y*      2.9*                                                                             BTPei 5Y* 1.4*
  13    Wed    28-Mar           BOT             9.0*      US                             5Y Note    35*
  13    Thu    29-Mar                                     IT                             CCT 5Y*    5.0*
  13    Thu    29-Mar                                     IT                             BTP 5Y*    3.5*   BTP 10Y* 2.5*
  13    Thu    29-Mar                                     US                             7Y Note    29*
  13    Fri    30-Mar          UK
                             EUR total          22.5                             2.9                8.5               2.5                                                       1.4
  14    Mon    02-Apr     DTC 3M & 9M           1.7*
  14    Mon    02-Apr         BTF               7.5*
  14    Tue    03-Apr     BGB 3M & 12M          3.0*
  14    Wed    04-Apr                                   DE/ES      SPGB 2Y*      3.0*    Bobl 17 3.0
  14    Wed    04-Apr                                    ES                             SPGB 5Y* 2.0*
  14    Thu    05-Apr                                    FR                                                OAT 10Y* 4.0*    OAT 15Y*     2.0*    OAT 30Y* 1.5*
  14    Fri    06-Apr          UK
                             EUR total          12.2                             3.0                5.0               4.0                 2.0               1.5
  15    Mon    09-Apr        Bubill 3M           4.0
  15    Mon    09-Apr          BTF              7.5*
  15    Tue    10-Apr          GTB              1.6*  NL/US      3Y Note  32*                              DSL 10Y* 2.0*     DSL 20Y*    1.0*
  15    Tue    10-Apr                                   AT                     RAGB 5Y*             0.9*                    RAGB 15Y*    0.9*
  15    Wed    11-Apr           BOT             7.5*   DE                                                  Bund 22    5.0
  15    Wed    11-Apr                                  US                                                  10Y Note   24*
  15    Thu    12-Apr                                 IT/US      BTP 3Y* 3.5* BTP 8Y*               2.5*                                         30Y Bond 16*
  15    Fri    13-Apr         UK                        BE                                                                  BGB ORI      0.25*
                           EUR total            20.6 EUR total                                      0.9               9.5                5.65
  16    Mon    16-Apr    DTC 3M & 6M            1.7*    SK     SLOVGB 3Y* 0.3*
  16    Mon    16-Apr        BTF                7.5*
  16    Tue    17-Apr   SGLT 12M & 18M          5.5*
  16    Tue    17-Apr        GTB                1.6*
  16    Tue    17-Apr        BTB                3.0*
  16    Wed    18-Apr                                  DE       Schatz 14 5.0
  16    Thu    19-Apr                                   FR      BTAN 3Y* 2.5* BTAN 4Y*              2.0*                                                          OATei 15Y* 1.8*
  16    Thu    19-Apr                                 FR/US                     OAT 5Y*             3.0*                                                           TIPS 5Y 12*
  16    Thu    19-Apr                                   ES                                                 SPGB 10Y* 2.0* SPGB 15Y*      1.5*
  16    Fri    20-Apr          UK
                             EUR total          19.3 EUR total                   7.8                5.0               2.0                 1.5                                   1.8
*Estimates/Likely auction dates, **Syndications/Tenders/Mini-Tenders, *** USD denominated;
Source: Credit Suisse, National Treasuries;

   European Strategy and Trades                                                                                                                                                  30
                                                                                                                                                                                   16 March 2012

  Exhibit 52: Cash flow analysis – Europe
                                                         R ed em p tio n s (€                                                                     To tal                               N et D V01
                                  Su p p ly (€ b n )                bn)                            C o u p o n s (€b n )                 To tal   C ash                     N et      (€ m n p er
   W eek       D ate      D ay   C n tr y     Am t       C n tr y         Am t        0-2          2-5     5-7      7-10    10y+         Cpn      In flo w    Su p p ly   Su p p ly       bp)
     12       19-M ar     M on                0.30                          -          -       0.03          -        -        -         0.03      0.03         0.30        0.27        (0.00)
     12       20-M ar     T ue                  -                           -          -            -        -        -        -           -         -            -           -            -
     12       21-M ar     Wed      DE         5.00                          -          -            -        -        -        -           -         -          5.00        5.00         0.99
     12       22-M ar     T hu                  -                           -          -            -        -        -        -           -         -            -           -            -
     12       23-M ar     F ri                  -                           -          -            -        -        -        -           -         -            -           -            -
     13       26-M ar     M on                  -                           -          -            -        -        -        -           -         -            -           -            -
     13       27-M ar     T ue      IT        4.30                          -          -            -        -        -        -           -         -          4.30        4.30         1.04
     13       28-M ar     Wed                   -          BE             3.84       1.10      1.55       0.84      0.56     2.35        6.41     10.25           -        -10.25       (5.29)
     13       29-M ar     T hu      IT       11.00                          -          -            -        -        -        -           -         -         11.00       11.00         5.48
     13       30-M ar     F ri                  -                           -        0.00           -        -        -        -         0.00      0.00           -         0.00        (0.00)
     14        2-Apr      M on                  -                           -        0.22           -        -        -        -         0.22      0.22           -        -0.22        (0.04)
     14        3-Apr      T ue                  -                           -          -            -        -        -        -           -         -            -           -            -
     14        4-Apr      Wed    DE, ES       8.00                          -          -            -        -        -        -           -         -          8.00        8.00         2.90
     14        5-Apr      T hu     FR         7.50                          -          -            -        -        -        -           -         -          7.50        7.50         8.59
     14        6-Apr      F ri                  -                           -          -            -        -        -        -           -         -            -           -            -
     15        9-Apr      M on                  -                           -          -       0.50          -        -        -         0.50      0.50           -        -0.50        (0.21)
     15       10-Apr      T ue   AT , N L     4.80                          -          -       0.43          -        -        -         0.43      0.43         4.80        4.37         3.38
     15       11-Apr      Wed      DE         5.00                          -        0.43           -        -        -        -         0.43      0.43         5.00        4.57        (0.09)
     15       12-Apr      T hu      IT        6.00                          -        0.60           -        -        -        -         0.60      0.60         6.00        5.41         2.49
     15       13-Apr      F ri     BE         0.25         DE             16.00      0.64           -        -        -        -         0.64     16.64         0.25       -16.39        0.28
     16       16-Apr      M on                0.30          IT            15.06      1.29      1.06       0.38      0.98     0.29        4.00     19.06         0.30       -18.76       (1.13)
     16       17-Apr      T ue                  -                           -          -            -        -        -        -           -         -            -           -            -
     16       18-Apr      Wed      DE         5.00                          -        0.30      0.47          -      0.53       -         1.30      1.30         5.00        3.70         0.49
     16       19-Apr      T hu   ES, F R     12.80                          -          -            -        -        -        -           -         -         12.80       12.80         5.71
     16       20-Apr      F ri                  -                           -          -            -        -      0.29       -         0.29      0.29           -        -0.29        (0.26)
            TO TA L S                        70.25                        34.91      4.58      4.03       1.22      2.37     2.64        14.84    49.75        70.25       20.50         24.33
 Source: Credit Suisse.

                                             Exhibit 53: Issuance, coupon & redemptions summary (€, bn)
                                                                                    Issuance                               Coupon                          Redemption                 Net Supply
                                             19 Mar-23 Mar                                  5.30                              0.03                                0.00                         5.27
                                             26 Mar-30 Mar                                 15.30                              6.41                                3.84                         5.04
                                             02 Apr-06 Apr                                 15.50                              0.22                                0.00                      15.28
                                             09 Apr-13 Apr                                 16.05                              2.59                               16.00                         -2.54
                                             16 Apr-20 Apr                                 18.10                              5.59                               15.06                         -2.55
                                             Total                                         70.25                             14.84                               34.91                      20.50
                                             Source: Credit Suisse, Greece will restructure its debt.

                                             Exhibit 54: Year-to-date bond issuance (€, bn)
                                                                                Amount issued                    Expected issuance                    % completed                  Amount issued
                                             Country                              YTD in 2012                              for 2012                    year-to-date                      in 2011
                                             Austria                                           8                                    22                           34%                             17
                                             Belgium                                          13                                    26                           50%                             41
                                             Finland                                           3                                    15                           20%                             14
                                             France                                           59                                   178                           33%                            208
                                             Germany                                          38                                   170                           22%                            189
                                             Italy                                            58                                   209                           28%                            223
                                             Netherlands*                                     25                                    60                           42%                             53
                                             Spain                                            38                                    86                           44%                             97
                                             Total                                           241                                   766                           32%                            841
                                             Source: Credit Suisse, National Treasuries, * USD issuance included

European Strategy and Trades                                                                                                                                                                     31
                                                                                                                                                                                                                            16 March 2012

                                                                                                                               Exhibit 56: Euro issuance, coupon & redemptions by
Exhibit 55: Nominal supply vs. DV01                                                                                            week (€, bn)
         20                                                                                            14
         16                                                                                                                           20

                                                                                                            € million per bp
  € bn

         10                                                                                                                           10

                                                                                                                                 € bn
          6                                                                                            4
          4                                                                                                                              0
          0                                                                                            0                                -5
                                                                                                                                               19 Mar- 23 Mar     26 Mar-30 Mar        02 Apr -06 Apr     09 Apr-13 Apr     16 Apr -20 Apr
               19-Mar-23-Mar     26-Mar-30-Mar        2-Apr-6-Apr     9-Apr-13-Apr     16-Apr-20-Apr
                                                                                                                                                    Issuance            Coupon                   Redempt ion                 Net Supply
                                     Nominal Supply                       DV01

Source: Credit Suisse, National Treasuries                                                                                     Source: Credit Suisse, National Treasuries

Exhibit 57: Net supply by country for the next five
weeks ─ from 19-Mar-12 to 20-Apr-12 (€, bn)                                                                                    Exhibit 58: Euro weekly net supply (€, bn)
         20                                           17                                                                         40


         10                                                                                                 8                    10

                                                                           4                                                      0

          5                                                                            3
                                                                                                -1                              -10
  € bn

          0                                                                                                                     -20

                                          -1                    -1

          -5                                                                                                                    -40


                                                                                                                                        29 Oct-02 Nov
                                                                                                                                       05 Nov-09 Nov
                                                                                                                                       12 Nov-16 Nov
                                                                                                                                       19 Nov-23 Nov
                                                                                                                                       26 Nov-30 Nov
                                                                                                                                        01 Oct-05 Oct
                                                                                                                                        08 Oct-12 Oct
                                                                                                                                        15 Oct-19 Oct
                                                                                                                                        22 Oct-26 Oct
                                                                                                                                         02 Jul-06 Jul
                                                                                                                                         09 Jul-13 Jul
                                                                                                                                         16 Jul-20 Jul
                                                                                                                                         23 Jul-27 Jul

                                                                                                                                       03 Dec-07 Dec
                                                                                                                                       10 Dec-14 Dec
                                                                                                                                       17 Dec-21 Dec
                                                                                                                                       24 Dec-28 Dec
                                                                                                                                        02 Jan-06 Jan
                                                                                                                                        09 Jan-13 Jan
                                                                                                                                        16 Jan-20 Jan
                                                                                                                                        23 Jan-27 Jan
                                                                                                                                       30 Jan-03 Feb
                                                                                                                                       06 Feb-10 Feb
                                                                                                                                       13 Feb-17 Feb
                                                                                                                                       20 Feb-24 Feb

                                                                                                                                       04 Jun-08 Jun
                                                                                                                                       11 Jun-15 Jun
                                                                                                                                       18 Jun-22 Jun
                                                                                                                                       25 Jun-29 Jun

                                                                                                                                        30 Jul-03 Aug
                                                                                                                                      06 Aug-10 Aug
                                                                                                                                      13 Aug-17 Aug
                                                                                                                                      20 Aug-24 Aug
                                                                                                                                      27 Aug-31 Aug
                                                                                                                                      28 May-01 Jun
                                                                                                                                       27 Feb-02 Mar

                                                                                                                                       02 Apr-06 Apr
                                                                                                                                       09 Apr-13 Apr
                                                                                                                                       16 Apr-20 Apr
                                                                                                                                       23 Apr-27 Apr
                                                                                                                                      30 Apr-04 May
                                                                                                                                      07 May-11 May
                                                                                                                                      14 May-18 May
                                                                                                                                      21 May-25 May

                                                                                                                                      03 Sep-07 Sep
                                                                                                                                      10 Sep-14 Sep
                                                                                                                                      17 Sep-21 Sep
                                                                                                                                      24 Sep-28 Sep
                                                                                                                                      05 Mar-09 Mar
                                                                                                                                      12 Mar-16 Mar
                                                                                                                                      19 Mar-23 Mar
                                                                                                                                      26 Mar-30 Mar

                    AT         BE         FI          FR        DE         IT          NL       PT         ES
Source: Credit Suisse, National Treasuries                                                                                     Source: Credit Suisse, National Treasuries

                                                                                                                               Exhibit 60: UK issuance, coupon & redemptions by
Exhibit 59: Issued amount % completed YTD                                                                                      week (₤, bn)
 60%                                                                                                                                         1.0

              50%                                                                                                                            0.8
                         44%                                                                                                                 0.6

 40%                                                                                                                                         0.4
                                                                                                                                  £ bn

 30%                                                                             28%

                                                                                            22%                                              0.0
 20%                                                                                                                                         -0.2

                                                                                                                                                       19 Mar-23 Mar   26 Mar-30 Mar      02 Apr-06 Apr     09 Apr-13 Apr    16 Apr-20 Apr

                                                                                                                                                Issuance               Coupon                  Redemption                   Net Supply
              BE         ES             NL            AT             FR          IT           DE            FI

Source: Credit Suisse, National Treasuries                                                                                     Source: Credit Suisse, UK Treasury

  European Strategy and Trades                                                                                                                                                                                                               32
                                                                                                                                                                                    16 March 2012

Exhibit 61: Cash flow analysis – UK
                                                                                                                                             To tal                                    N et D V01
                                      Su p p ly            R ed em ptio n s                  C o up o n s (b n )                    To tal   C ash                         N et       (€ m n p er
 W eek      D ate       D ay    C n try     Am t           C ntry     Am t       0-2       2-5          5-7    7-10        10y+     Cpn      In flo w    Su p p ly       Sup p ly         b p)
   12      19-M ar      M on                      -                     -          -         -           -         -         -           -      -            -              -              -
   12      20-M ar      T ue                      -                     -          -         -           -         -       0.09     0.09      0.09           -            -0.09            -
   12      21-M ar      Wed                       -                     -          -         -           -         -         -           -      -            -              -              -
   12      22-M ar      T hu         UK      0.90                       -          -         -           -         -         -           -      -          0.90           0.90            2.62
   12      23-M ar      F ri                      -                     -          -         -           -         -         -           -      -            -              -              -
   13      26-M ar      M on                      -                     -          -       0.34          -         -         -      0.34      0.34           -            -0.34            -
   13      27-M ar      T ue                      -                     -          -         -           -         -         -           -      -            -              -              -
   13      28-M ar      Wed                       -                     -          -         -           -         -         -           -      -            -              -               -
   13      29-M ar      T hu                      -                     -          -         -           -         -         -           -      -            -              -               -
   13      30-M ar      F ri                      -                     -          -         -           -         -         -           -      -            -              -               -
   14       2-Apr       M on                      -                     -          -         -           -         -         -           -      -            -              -               -
   14       3-Apr       T ue                      -                     -          -         -           -         -         -           -      -            -              -               -
   14       4-Apr       Wed                       -                     -          -         -           -         -         -           -      -            -              -               -
   14       5-Apr       T hu                      -                     -          -         -           -         -         -           -      -            -              -               -
   14       6-Apr        F ri                     -                     -          -         -           -         -         -           -      -            -              -               -
   15       9-Apr       M on                      -                     -          -         -           -         -         -           -      -            -              -               -
   15       10-Apr      T ue                      -                     -          -         -           -         -         -           -      -            -              -               -
   15       11-Apr      Wed                       -                     -          -         -           -         -         -           -      -            -              -               -
   15       12-Apr      T hu                      -                     -          -         -           -         -         -           -      -            -              -               -
   15       13-Apr       F ri                     -                     -          -         -           -         -         -           -      -            -              -               -
   16       16-Apr      M on                      -                     -          -         -           -     0.08          -      0.08      0.08           -            -0.08             -
   16       17-Apr      T ue                      -                     -          -         -           -         -         -           -      -            -              -               -
   16       18-Apr      Wed                       -                     -          -         -           -         -         -           -      -            -              -               -
   16       19-Apr      T hu                      -                     -          -         -           -         -         -           -      -            -              -               -
   16       20-Apr       F ri                     -                     -          -         -           -         -         -           -      -            -              -               -
        TOTA L                               0.90                     0.00       0.00      0.34         0.00   0.08        0.09     0.52      0.52         0.90           0.38            2.62
Source: Credit Suisse, UK Treasury

                                                      Exhibit 62: UK weekly issuance, coupon & redemptions (£, bn)
                                                                                        Issuance                             Coupon                     Redemption                     Net Supply
                                                      19 Mar-23 Mar                          0.90                               0.09                           0.00                           0.81
                                                      26 Mar-30 Mar                              0.00                             0.34                            0.00                           -0.34
                                                      02 Apr-06 Apr                              0.00                             0.00                            0.00                           0.00
                                                      09 Apr-13 Apr                              0.00                             0.00                            0.00                           0.00
                                                      16 Apr-20 Apr                              0.00                             0.08                            0.00                           -0.08
                                                      Total                                      0.90                             0.52                            0.00                           0.38
                                                      Source: Credit Suisse, UK Treasury

                                                      Exhibit 63: Year-to-date UK bond issuance (fiscal year, £, bn)
                                                                                  Amount issued                        Amount issued           Expected issuance                     % completed
                                                      Country                        in 2010-11                        YTD in 2011-12                 for 2011-12                     year-to-date
                                                      UK                                   166,132                           177,587                         178,900                            99.27
                                                      Source: Credit Suisse, National Treasury

European Strategy and Trades                                                                                                                                                                       33
                                                                                                                                      16 March 2012

                               Exhibit 64: Total issuance fiscal year-to-date (£, mn)
                                                            Short Term        Medium Term          Long Term   Total Conventional     Index Linked
                               YTD Total Sales                60,579             40,122              39,097          139,798             37,789
                               Target for the Year            60,600               39,800            39,500         139,900              39,000
                               % completed                    100%                 101%                  94%          98%                 97%
                               % Remaining                     0%                   -1%                  1%           0%                  3%
                               Source: Credit Suisse

                               Exhibit 65: DMO issuance calendar
                               Operation Date                          Gilt Name                                   Nominal Amount Issue (₤, mn)
                               22-Mar-2012                      0 5/8% Index-linked Treasury Gilt 2042                          900
                               Source: DMO, Credit Suisse

European Strategy and Trades                                                                                                                      34
                                                                                                                                     16 March 2012

                               Exhibit 66: Credit Suisse interest rate forecasts

                               Euro - German Benchmarks           Current     2012 Q1           2012 Q2           2012 Q3                 2012 Q4
                               ECB Repo                              1.00        1.00              1.00              1.00                    1.00
                               2-Yr Yield                            0.22         0.20              0.20               0.20                   0.40
                               5-Yr Yield                            0.86         1.00              1.10               1.35                   1.45
                               10-Yr Yield                           1.87         2.00              2.20               2.45                   2.55
                               30-Yr Yield                           2.48         2.60              2.80               3.00                   3.20

                               2s5s                                   64           80                    90            115                    105
                               2s10s                                 166          180                200               225                    215
                               10s30s                                 61           60                 60                55                        65
                               2s5s10s                                -37          -20               -20                 5                         -5
                               5s10s30s                               40           40                    50             55                        45

                               UK Gilts                           Current     2012 Q1           2012 Q2           2012 Q3                 2012 Q4
                               Base Rate                             0.50        0.50              0.50              0.50                    0.50
                               2-Yr Yield                            0.46         0.45              0.45               0.50                   0.50
                               5-Yr Yield                            1.05         1.00              1.10               1.25                   1.30
                               10-Yr Yield                           2.23         2.20              2.25               2.30                   2.35
                               30-Yr Yield                           3.28         3.30              3.40               3.50                   3.55

                               2s5s                                   59           55                    65             75                        80
                               2s10s                                 178          175                180               180                    185
                               10s30s                                105          110                115               120                    120
                               2s5s10s                                -60          -65               -50                -30                       -25
                               5s10s30s                               14           10                     0             -15                       -15
                               Source: Credit Suisse

                               Exhibit 67: European inflation forecasts
                                                 Euro Area HICP ex-tobacco       French CPI ex-tobacco                   UK RPI
                                                Index      YoY        MoM     Index      YoY        MoM       Index           YoY         MoM
                               Mar-12           114.60     2.22       0.94    124.14     1.84       0.45      240.80          3.57        0.46
                               Apr-12           115.00     2.00        0.35   124.46     1.75        0.26     241.70          3.11         0.37
                               May-12           115.10     2.09        0.09   124.80     1.96        0.27     242.80          3.23         0.46
                               Jun-12           115.10     2.09        0.00   124.81     1.89        0.01     243.30          3.44         0.21
                               Jul-12           114.40     2.10       -0.61   124.30     1.94       -0.41     242.90          3.49        -0.16
                               Aug-12           114.60     2.09        0.17   124.85     1.84        0.44     243.80          3.26         0.37
                               Sep-12           115.10     1.79        0.44   124.46     1.61       -0.31     244.50          2.77         0.29
                               Oct-12           115.70     1.99        0.52   125.19     2.00        0.59     244.70          2.82         0.08
                               Nov-12           115.70     1.91        0.00   125.36     1.92        0.14     245.10          2.77         0.16
                               Dec-12           116.10     1.92        0.35   125.91     1.94        0.44     245.90          2.72         0.33
                               Source: Credit Suisse

European Strategy and Trades                                                                                                                      35
                                         INTEREST RATE STRATEGY

                                                Eric Miller, Managing Director
                                     Global Head of Fixed Income and Economic Research
                                                        +1 212 538 6480

US RATES                                EUROPEAN RATES                               US DERIVATIVES
Carl Lantz, Director                    Helen Haworth, CFA, Director                 George Oomman, Managing Director
US Head                                 European Head                                Derivatives Head
+1 212 538 5081                         +44 20 7888 0757                             +1 212 325 7361      

Ira Jersey, Director                    Michelle Bradley, Director
                                                                                     TECHNICAL ANALYSIS
+1 212 325 4674                         +44 20 7888 5468             David Sneddon, Managing Director
                                                                                     +44 20 7888 7173
Scott Sherman, Vice President           Sabine Winkler, Director           
+1 212 325 3586                         +44 20 7883 9398           Steve Miley, Director
                                                                                     +44 20 7888 7172
Michael Chang, Vice President           Panos Giannopoulos, Director       
+1 212 325 1962                         +44 20 7883 6947         Christopher Hine, Vice President
                                                                                     +1 212 538 5727
Carlos Pro, Associate                   Thushka Maharaj, Vice President    
+1 212 538 1863                         +44 20 7883 0211              Pamela McCloskey, Vice President
                                                                                     +44 20 7888 7175
Eric Van Nostrand, Associate            Florian Weber, Associate           
+1 212 538 6631                         +44 20 7888 3779              Cilline Bain, Associate
                                                                                     +44 20 7888 7174
                                        Marion Pelata, Analyst             
                                        +44 20 7883 1333

Jennifer Drag, Director
Locus Analytics Specialist
+1 212 538 4303

PARIS                                   SINGAPORE                                    TOKYO
Giovanni Zanni, Director                Jarrod Kerr, Director                       Kenro Kawano, Director
European Economics – Paris              +65 6212 2078                               Japan Head
+33 1 70 39 0132                             +81 3 4550 9498                                          
                                                                                    Shinji Ebihara, Vice President
                                                                                    +81 3 4550 9619
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