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Credit Suisse - US Interest Rate Strategy Weekly

VIEWS: 116 PAGES: 42

  • pg 1
									                                                                                                                     29 March 2012
                                                                                                            Fixed Income Research
                                                                                        http://www.credit-suisse.com/researchandanalytics




                                                  US Interest Rate Strategy Weekly
                                                  Interest Rate Strategy



                       Research Analysts          Strategy
                            Michael Chang
                          +1 212 325 1962
                                                  • Bernanke’s remarks earlier this         week    brought     thoughts    of   further
            michael.chang.2@credit-suisse.com       accommodation back onto the table.

                                    Ira Jersey    • We investigate the pros and cons of various asset purchase options beyond
                            +1 212 325 4674         the June completion of the “maturity extension program” and suggest that an
                   ira.jersey@credit-suisse.com
                                                    extension of “twist” through year-end could be an ideal compromise.
                                   Carl Lantz
                            +1 212 538 5081
                                                  • We continue to expect rates to remain rangebound and look for 10-year
                   carl.lantz@credit-suisse.com     Treasury yields to trade between 2.10% and 2.40%.

                        George Oomman             • But even as we approach the low end of this range, we are biased to lean
                        +1 212 325 7361             slightly long duration heading into month-end and quarter-end.
            george.oomman@credit-suisse.com
                                                  • We expect swap spreads to widen modestly on underwhelming financial
                                 Carlos Pro
                           +1 212 538 1863
                                                    issuance.
                  carlos.pro@credit-suisse.com
                                                  Derivatives
                            Scott Sherman
                          +1 212 325 3586         • We believe over the next few weeks swap spreads have scope to widen
              scott.sherman@credit-suisse.com
                                                    modestly as financial issuance is likely to underwhelm and reduce fixed-to-
                          Eric Van Nostrand         floating swapping needs. Thus we recommend swap spread wideners as a
                           +1 212 538 6631          tactical trade. But structurally we continue to expect swap spreads to remain
            eric.vannostrand@credit-suisse.com
                                                    at the low end of their historical ranges in the current low rate regime.

                                                  Treasuries
                                                  • We investigate the seasonal decline in T-bill supply due to tax filing behavior.
                                                  • We recommend real money investors consider shifting into the July 5 bill.

                                                  Inflation
                                                  • TIPS breakevens have eased off their mid-month highs, and amid weakening
                                                    core inflation, we do not expect a major move upward until clearer QE
                                                    signaling materializes.
                                                  • We look to our fitted real yield curve on Locus to help gauge relative value in
                                                    global linker markets. Recent dislocations lead us to favor BTPei 2017s vs.
                                                    2016s, and OATei 2027s vs. 2022s.

                                                  Supranationals, Agencies & Sovereigns
                                                  • Agency benchmark issuance so far in 2012 has outpaced that of the first
                                                    quarter of the past two years.
                                                  • We review net issuance patterns and distribution statistics so far in 2012
                                                    compared with data of the prior two years.




ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER
IMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.
                                                                           29 March 2012




                                   Table of Contents

                                   Trade Update                                       3

                                   Strategy                                           5

                                   Derivatives                                      12

                                   Treasuries                                       16

                                   Inflation                                        19

                                   Supranationals, Agencies & Sovereigns            24

                                   Technical Analysis                               28

                                   Economics                                        30

                                   Databank                                         32




US Interest Rate Strategy Weekly                                                      2
                                                                                                                               29 March 2012




Trade Update
YTD Total P&L: $2,644,356
Total P&L weekly change: $484,716
 Current Trade Recommendations
                                                                                                        P&L change on
 Trade                                                       Start Date    Last Mark      P&L ($)         week ($)      Target/ Stop-out ($)
 5y swap spreads widener                                     29-Mar-12     29-Mar-12          0               0            250k / (200k)
 Long 10s on the fly vs. 7s and 30s                          22-Mar-12     28-Mar-12       46,429           46,429         200k / (100k)
 Long Jan 21s TIPS vs. July 21s                              22-Mar-12     28-Mar-12       -11,992         -11,992         250k / (125k)
 Long 1y5y ATM straddles vs. 3m5y & 3y5y ATM straddles       22-Mar-12     28-Mar-12         197             197           350k / (200k)
 ED Z3/Z4/Z5                                                 20-Mar-12     28-Mar-12       -6,261          -37,511         250k / (175k)
 3m Fwd 2s4s7s fly                                           15-Mar-12     28-Mar-12       -40,079         -47,824         250k / (175k)
 Sell FHLB 5.375s 5/16 vs. FHLMC 2.5 5/16                     9-Mar-12     28-Mar-12       -21,361         -30,518          100k / (50k)
 Sell FHLMC 4.75s 1/16 vs. 4.75 11/15                         9-Mar-12     28-Mar-12       23,470           29,205          100k / (50k)
 EDU2 bull risk reversal                                      9-Mar-12     28-Mar-12        6,253           50,001          100k / (50k)
 2y fwd 10s30s bear steepener                                 1-Mar-12     29-Mar-12      -121,320         160,310         250k / (175k)
 ED11-ED19 Steepener vs. 4s10s swaps flattener               23-Feb-12     28-Mar-12       76,665          -100,953        250k / (175k)
 Long 30y TIPS Breakevens vs. 30y CPI Swaps                  16-Feb-12     28-Mar-12       350,798           -202          500k / (250k)
 Long FNMA 12/16s vs. FHLB 12/16s                             2-Feb-12     28-Mar-12       -37,280          24,824         225k / (125k)
 6m1y 3s1s Basis Steepener                                   25-Jan-12     28-Mar-12        -260           -12,359          150k / (75k)
 2Y Fwd 7s30s Steepener                                      26-Jan-12     28-Mar-12        2,796          176,296         300k / (200k)


 EUR-denominated Trade Recommendations                                                                  P&L change on    Target/ Stop-out
                                                             Start Date    Last Mark     P&L (EUR)       week (EUR)           (EUR)
 Long BTPei 17s vs. BTPei16s                                 29-Mar-12     29-Mar-12          0               0            375k / (250k)
 Long OATei 27s vs. OATei22s                                 29-Mar-12     29-Mar-12          0               0            375k / (250k)

 Trades closed year-to-date in 2012
                                                                                                        P&L change on   Target/Stop-out P&L
 Trade
                                                             Start Date   Closed Date   Final P&L ($)     week ($)               ($)
 1Y Fwd 2s10s CMS Straddle                                   27-Oct-11     28-Mar-12       282,675         238,813         250k / (175k)
 Short 10y inflation basis                                    9-Mar-12     20-Mar-12      -234,702         -61,202         250k / (200k)
 1s2s Flattener                                              15-Mar-12     20-Mar-12      -162,390         -162,390        160k / (120k)
 Long FFJ2                                                    7-Oct-11     21-Mar-12       -29,984         -90,001         420k / (300k)
 Long 10y20y TIPS Breakevens                                 25-Jan-12     20-Mar-12       454,871          11,417         750k / (375k)
 10s30s Flattener                                             9-Mar-12     16-Mar-12       362,082         160,967         300k / (225k)
 3m5y Payer Ladder                                           16-Feb-12     14-Mar-12      -319,608           N/A           250k / (200k)
 Buy 1y3y, 4y2y vs. 1y5y Straddles                            9-Mar-12     13-Mar-12      -437,941           N/A           250k / (175k)
 Sell 25 OTM 3m10y Payer vs. Receiver                         9-Feb-12     14-Mar-12      -299,096           N/A           350k / (200k)
 1y10y Payer Ladder                                          19-Jan-12     14-Mar-12      -217,468           N/A           300k / (200k)
 Long Jul 15 TIPS BE vs. CLZ4 Oil                             1-Mar-12     14-Mar-12       683,213           N/A            750k / 350k
 ED mid-curve put spread                                     19-Jan-12     14-Mar-12      -143,750           N/A           250k / (150k)
 Long Jan 22 TIPS vs. Jul 21 TIPS                             2-Feb-12     8-Mar-12        45,811            N/A           500k / (250k)
 Long 7s on the fly vs. 5s and 10s                            2-Nov-11     8-Mar-12        174,145           N/A            160k / (80k)
 7s30s Steepener                                             29-Feb-12     8-Mar-12        659,477           N/A            800k/(400k)
 Short FRA/OIS (IMM2) at 37.5 bps                            23-Feb-12     6-Mar-12        125,366           N/A           250k / (175k)
 Buy 6m30y Strangle vs. 6m10y Strangle                        2-Feb-12     16-Feb-12      -205,460           N/A           300k / (200k)
 5s10s Flattener (110bps target)                              8-Feb-12     16-Feb-12       299,805           N/A           450k / (300k)
 TSY Switch: Long 3.625 8/15/19, Short 8.125 8/15/19          8-Feb-12     15-Feb-12       201,309           N/A           200k / (100k)
 7s30s Steepener (adjusted from 5s30s Steepener on 2/2/12)   25-Jan-12     13-Feb-12       18,043            N/A           700k / (400k)
 Short 5y5y inflation basis                                   6-Jan-12     15-Feb-12       18,447            N/A           500k / (300k)
 EDG2/EDH2 Flattener                                         24-Jan-12     13-Feb-12       56,002            N/A            120k / (60k)



US Interest Rate Strategy Weekly                                                                                                               3
                                                                                                                                                                                     29 March 2012



 Tsy Switch: Long 3.25s 6/30/16, Short 1.5s 6/30/16                                           6-Jan-12             16-Feb-12           -53,608               N/A                 225k / (115k)
 Shift from Tsy 1% 5/14 to 4.75% 5/14                                                        15-Sep-11              8-Feb-12           -50,146               N/A                 200k / (150k)
 Shift from Tsy 0.75% 12/13 to 2% 11/13                                                      13-Sep-11              8-Feb-12             3,248               N/A                 200k / (150k)
 Tsy switch: Long 3 5/8% 2/15/20, Short 8 1/2% 2/15/20                                       26-Aug-11              8-Feb-12           -177,255              N/A                 250k / (175k)
 Long FHLMC 2.5s of 01/07/2014 vs. T 0.125s of 12/31/2013                                     6-Jan-12              8-Feb-12           110,268               N/A                 120k / (60k)
 Pay the 5-year 6s3s basis at 7.5bps                                                         21-Jan-11              8-Feb-12           169,839               N/A                 250k / (175k)
 3s1s widener (EDH2 roll)                                                                    17-Nov-11              8-Feb-12           -186,052              N/A                 500k / (250k)
 Buy 5y10y OTM payer vs. 1y10y OTM payers costless                                           13-Oct-11              2-Feb-12          1,018,258              N/A                  1000k / 0k
 Receive 3y2y Fwd                                                                             1-Dec-12             26-Jan-12          3,081,610              N/A                2750k / 1000k
 3m Fwd 3s5s10s Receiver Fly Tightener                                                        6-Jan-12             31-Jan-12           322,582               N/A                 300k / (200k)
 Sell 2x4 Cap/Floor Straddle vs. 2y2y Swaption Straddles                                     29-Sep-11             30-Jan-12           256,009               N/A                 250k / (175k)
 2y Fwd 2s5s10s fly tightener                                                                03-Nov-11             19-Jan-12           205,764               N/A                 500k / (250k)
 3m Fwd 2s5s10s Receiver Fly Tightener                                                       17-Nov-11             19-Jan-12           155,794               N/A                 300k / (200k)
 Long 5y5y real yield                                                                         8-Dec-11             17-Jan-12           600,703               N/A                 500k / (300k)
 Long July 2021 TIPS vs. January 2021 TIPS                                                   15-Sep-11             18-Jan-12            22,191               N/A                 500k / (250k)
 3m10y 43.5 OTM rec vs. 50 OTM payer                                                         17-Oct-11             11-Jan-12          174,6121               N/A               1000k / (1000k)
 Short EDH2                                                                                  10-Jan-12             12-Jan-12           -150,000              N/A                 300k / (150k)

 Summary of trades in 2011
 Profit making trades P&L                                                                   $26,686,020
 Loss making trades P&L                                                                    ($11,385,029)
 Net P&L (2011)                                                                             $15,300,991


 Source: Credit Suisse

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 may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Supporting documentation for any claims, comparisons,
 recommendations, statistics or other technical data will be supplied upon request. Any trade information is preliminary and not intended as an official transaction confirmation.

 OTC derivative transactions are not highly liquid investments; before entering into any such transaction you should ensure that you fully understand its potential risks and rewards and
 independently determine that it is appropriate for you given your objectives, experience, financial and operational resources, and other relevant circumstances. You should consult with such tax,
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US Interest Rate Strategy Weekly                                                                                                                                                                      4
                                                                                                                             29 March 2012




                                               Strategy
                                               Bernanke’s comeback
                                                 • Bernanke’s remarks earlier this week brought thoughts of further accommodation
                                                   back onto the table.
                                                 • We investigate the pros and cons of various asset purchase options beyond the
                                                   June completion of the “maturity extension program” and suggest that an
                                                   extension of “twist” through year-end could be an ideal compromise.
                                                 • We continue to expect rates to remain rangebound and look for 10-year Treasury
                                                   yields to trade between 2.10% and 2.40%.
                                                 • But even as we approach the low end of this range, we are biased to lean slightly
                                                   long duration heading into month-end and quarter-end.
                                                 • We expect swap spreads to widen modestly on underwhelming financial issuance.

                                Carl Lantz     We continue to expect rates to remain rangebound and look for 10-year Treasury yields to
                         +1 212 538 5081
                                               trade between 2.10% and 2.40%. But even as we approach the low end of this range, we
                carl.lantz@credit-suisse.com
                                               are biased to lean slightly long duration heading into month-end and quarter-end.
                                 Ira Jersey
                         +1 212 325 4674       The market generally does well at month-end with rallies from the seven-year auction stop
                ira.jersey@credit-suisse.com   to month-end occurring the vast majority of the time. There could be an even stronger
                          Michael Chang        case this quarter-end given the very large outperformance of equities in Q1 (S&P 500 is
                        +1 212 325 1962        up 10.8% YTD while aggregate bond market performance is up around 0.62%), which
          michael.chang.2@credit-suisse.com
                                               potentially can lead to rebalancing flow out of equities and into bonds.
                          Scott Sherman
                        +1 212 325 3586        Generally speaking, empirical evidence for the “rebalancing trade” has been relatively
            scott.sherman@credit-suisse.com    tenuous and unconvincing. But focusing solely on the first quarter-end of each year, we
                                               find that there is a tendency for rates to do well when equities have outperformed fixed
                                               income by a meaningful amount on a total return basis.
                                               Exhibit 1 shows the relative cumulative change in 10-year Treasury yields in days
                                               preceding and following each year’s first quarter-end where the S&P 500 outperformed the
                                               US bond market by 5% or more since 1989.
                                               There has been six such occurrences and the 10-year Treasury yield had declined over
                                               the two trading days following quarter-end for all of them. On average, the market has
                                               rallied approximately 10 bps from the two days before to the two days after quarter-end.
                                               The market should be well supported over the next few days but we look to exit the long
                                               duration recommendation ahead of the FOMC minutes on Tuesday in anticipation of setup
                                               trades ahead of payrolls at the end of next week.




US Interest Rate Strategy Weekly                                                                                                        5
                                                                                                                                                                               29 March 2012




                                                Exhibit 1: Rates tend to do well around the first quarter-end of each year when
                                                equities have significantly outperformed fixed income
                                                Relative cumulative change in 10-year Treasury yield in days preceding and following each year’s first quarter-end where
                                                the S&P 500 outperformed the US bond market by 5% or more




                                                Relative Change in 10yr Tsy Yield (bps)
                                                                                          20


                                                                                          10


                                                                                          0


                                                                            -10


                                                                            -20
                                                                                               -6   -5       -4   -3   -2      -1        0         1        2      3     4        5
                                                                                                                            Days Before/After Quarter-end

                                                                                           Avg           3/1989   3/1991      3/1996          3/1998            3/1999       3/2011
                                                Source: Credit Suisse



                                                We believe over the next few weeks swap spreads have scope to widen modestly as
                                                financial issuance is likely to underwhelm and reduce fixed-to-floating swapping needs.
                                                Structurally we continue to expect swap spreads to remain at the low end of their historical
                                                ranges in the current low rate regime. We expect financial issuance in April to be
                                                somewhat lower than it has been the last three months as domestic borrowers are unable
                                                to issue due to earnings blackout periods. Five-year spreads tend to have the best
                                                correlation to financial issuance, and there we suggest swap spread wideners as a tactical
                                                trade.

                                                Twisted Sisters: Options for Asset Purchases Beyond
                                                June
                                 Carl Lantz     Chairman Bernanke’s remarks on Monday were interpreted as mildly dovish, pushing
                          +1 212 538 5081
                 carl.lantz@credit-suisse.com   expectations for the first policy rate increase back a bit and reclaiming some of the
                                                expectation for additional asset purchases.
                          Scott Sherman
                        +1 212 325 3586         This followed apparent market disappointment with the March FOMC statement. After the
            scott.sherman@credit-suisse.com
                                                statement’s release, market participants pushed forward their rate hike expectations and
                 Mahesh Swaminathan             priced out the probability of further asset purchases.
                       +1 212 325 8789
      mahesh.swaminathan@credit-suisse.com




   This is an exact excerpt
  from the US Interest Rate
   Strategy Focus: Twisted
      Sisters, published
        29 March 2012




US Interest Rate Strategy Weekly                                                                                                                                                          6
                                                                                                                   29 March 2012




                                   Exhibit 2: The market brought forward Fed tightening expectations after the
                                   March FOMC but reversed course after Bernanke’s comments: Probability
                                   distribution of initial Fed hike in a given quarter
                                   See methodology in our March 23 US Interest Rate Focus: Take a Hike




                                   Source: Credit Suisse



                                   We still think the market is underpricing the likelihood of additional purchases. Indeed, if
                                   the March 7 Wall Street Journal article is to be believed, the Fed is likely debating among
                                   several potential routes when it comes to further asset purchases, including outright QE,
                                   sterilized QE, and an extension of its maturity extension program (Twist).
                                   We investigate the pros and cons of the three options and suggest that an extension of
                                   “twist” through year-end could be an ideal compromise.

                                   QE3
                                   Pros
                                   The benefit of the Fed reverting back to outright reserve creation is that it would provide
                                   for greater stimulus than could be achieved through maturity extension, as it wouldn’t be
                                   limited by the assets available to sell. It would also better enable the FOMC to target the
                                   most relevant borrowing rates.
                                   In its maturity extension program, the limited volume of saleable assets prompted the Fed
                                   to direct a greater proportion of its purchases into the long end than had been the case in
                                   QE1 or QE2 in order to achieve similar duration extraction. In contrast, without similar
                                   constraints, the Fed could focus its purchases where it would most impact borrowing
                                   costs, despite less efficient duration extraction.
                                   Balance sheet expansion would most directly allow the Fed to target assistance to the
                                   mortgage market by creating incremental net demand. We estimate that an incremental
                                   MBS-only program of $250 billion in outright purchases should contribute to roughly 25bp
                                   of tightening in MBS basis to Treasuries. This is consistent with the market reaction
                                   following the Fed’s 20 September 2011 announcement regarding reinvesting MBS pay-
                                   downs. Coincident purchases of longer-dated Treasuries would reduce the magnitude of
                                   basis tightening, but could still result in effectively lowering mortgage rates.



US Interest Rate Strategy Weekly                                                                                              7
                                                                                                                     29 March 2012



                                   Cons
                                   The main drawback of outright QE is the reaction that it would elicit from monetarists about
                                   the potential impact of a further increase in excess reserves on inflation.
                                   The Fed largely discounts any impact of higher reserve levels on inflation in the current
                                   environment and has emphasized its capability to keep this cash in its hands even as the
                                   economy recovers through its TDF (term deposit facility), RRPs (reverse repos), and
                                   adjustments to IOER (interest on excess reserves).
                                   Nonetheless, inflation expectations are a psychological phenomenon that can be self-
                                   fulfilling, so if enough people believe reserves will feed inflation, it could happen despite
                                   any fundamental cause.

                                   Sterilized asset purchases
                                   Pros
                                   The benefits of a sterilized purchase program would be essentially the same as QE3. The
                                   one additional benefit is the fact that it would not raise the alarm bells of monetarists
                                   concerned about another increase in reserves.
                                   Cons
                                   One drawback of sterilizing a portion of QE would be the impact on front-end rates. The
                                   purpose of the Fed’s sterilization programs, when they become necessary, will be to
                                   prevent the fed funds effective rate from sagging below the target rate during a cycle of
                                   rates. Implementing those facilities now should put some upward pressure on short rates.
                                   Sterilization would likely dampen the positive impact of the Fed’s MBS purchases
                                   compared to outright transactions because potential increases in short-term rates would
                                   reduce carry. Assuming a $250 billion reverse repo operation increased the cost of funds
                                   by roughly 5bp, MBS carry would decline by roughly 2%-3%.
                                   On its own, such a small reduction in carry would not have a meaningful impact on overall
                                   MBS demand/valuations. However, if markets start extrapolating to much higher front-end
                                   rates, it could reduce the attractiveness of MBS to private investors, thus reducing the
                                   demand tailwind.
                                   The primary drawback is the potential hit to Fed credibility. Chairman Bernanke and other
                                   influential FOMC members have long expressed confidence that the current level of
                                   reserves is not an issue and that draining them in the future will not present a problem. To
                                   now arbitrarily sterilize a portion of excess reserves would seem to contradict that view
                                   and lend credence to those concerned about reserve levels.
                                   Indeed, we discussed in our March 9 weekly the fact that sterilization would largely
                                   represent window dressing, as the draining tools are unlikely to be sufficient to suck out all
                                   the reserves. As such, any further increases in excess reserves should further complicate
                                   the Fed’s eventual need to drain, whether or not the purchases are sterilized.




US Interest Rate Strategy Weekly                                                                                                8
                                                                                                                                                   29 March 2012




 Exhibit 3: If we assume $500 billion in additional QE
 in H2 2012, and $1 trillion in ultimate draining                               Exhibit 4: If we assume the same purchase
 capacity via RRPs and term deposits, the Fed would                             program, but fully sterilized, the Fed would still be
 be sitting with over $1 trillion in excess reserves it                         sitting with over $1 trillion in excess reserves it
 would be unable to drain without asset sales                                   would be unable to drain without asset sales
   $ Blns                                                                        $ Blns                $500 bln in sterilization
   2,500            $1 trillion in sterilization capacity                         2,500
                    Reserves beyond draining capacity                                                  $500 bln in sterilization capacity
                    Proj. excess with add. $500 bln of QE                                              Reserves beyond draining capacity
    2,000           Excess reserves                                                                    Proj. excess with add. $500 bln of QE
                                                                                   2,000               Excess reserves

    1,500                                                                          1,500


    1,000                                                                          1,000


      500                                                                            500


       -                                                                              -
            J-08      O-08       A-09       J-10      M-11   J-12   O-12                   J-08      O-08       A-09       J-10      M-11   J-12     O-12

 Source: Haver Analytics®, Federal Reserve, Credit Suisse                       Source: Haver Analytics®, Federal Reserve, Credit Suisse



                                                Extension of “Twist”
                                                Pros
                                                We noted in our February 16 weekly that if the Fed were willing to extend the maturity
                                                range of its sellable securities out to the four-year point, it could continue to extract the
                                                same net duration from the market as it is currently through the end of the calendar year.
                                                There are several advantages we see for an extension of Twist.
                                                First, it would avoid the potential policy mistake of withdrawing stimulus prematurely.
                                                Second, given that it is the status quo, it would not really represent a change in policy and
                                                could be used to push off a directional decision until after the November elections. Third, it
                                                should be relatively uncontroversial, as it seems to be viewed as more of a technical
                                                operation by the political class.
                                                Taken together, an extension of twist would likely fly under the political radar while
                                                continuing to support longer-term rates until after the elections.
                                                Another potential direction the Fed could take with twist would be to extend it in a
                                                hybridized fashion, selling short-dated Treasuries, but reinvesting the proceeds into a
                                                combination of Treasuries and agency MBS.
                                                The main benefit of this hybrid approach would be the targeted support to mortgage rates
                                                that Fed officials appear anxious to provide, while still remaining relatively innocuous to
                                                monetarists.
                                                Although the pace of net duration extraction would necessarily be lower than that of a
                                                Treasury-specific twist due to the lower duration of agency MBS, the greater focus on
                                                mortgage borrowing rates would likely appeal to the FOMC. In our proposed format, we
                                                assume the sale of the same $300 billion in short-dated Treasuries outlined above, but
                                                reinvest $200 billion into Agency MBS and $100 billion in Treasuries.




US Interest Rate Strategy Weekly                                                                                                                              9
                                                                                                                                                     29 March 2012




                                   Exhibit 5: : The Fed can accomplish similar duration extraction as Twist 1.0 if
                                   the maturity range of sellable Treasuries is extended to the four-year point
                                                                                    Operation Twist 1.0         Operation Twist 1.5         Operation Twist 1.5
                                                                                  75% of holdings thru 6/15) 75% of holdings thru 12/15) 75% of holdings thru 12/16)
                                   Size (B)                                                 400                         165                         300
                                   Duration (months)                                          9                          6                            6
                                   Sales/Purchases per Month (B)                            44.4                        27.5                        50.0
                                   Monthly Duration Sold (10y Equiv)                         7.3                        4.40                       14.75
                                   Monthly Duration Purchased (10y Equiv)                   59.1                        36.9                        67.2
                                   Net Duration Purchased Per Month (10y Equiv)             51.8                        32.5                        52.4


                                   Total Duration Purchased (net, 10y Equiv)               466.2                       195.2                       314.4
                                   Total Duration Purchased (gross, 10y Equiv)             531.9                       221.6                       402.9


                                   Monthly Purchase ($B)                                    44.4                        27.5                        50.0
                                   TIPS                                                      1.3                        0.8                          1.5
                                   6-8                                                      14.2                        8.8                         16.0
                                   8-10                                                     14.2                        8.8                         16.0
                                   10-20                                                     1.8                        1.1                          2.0
                                   20-30                                                    12.9                        8.0                         14.5


                                   Monthly DV01 Purchase (10y Equiv)                        59.7                        36.9                        67.2
                                   TIPS                                                      1.2                        0.7                          1.3
                                   6-8                                                      11.4                        7.1                         12.9
                                   8-10                                                     13.8                        8.5                         15.5
                                   10-20                                                     3.0                        1.9                          3.4
                                   20-30                                                    30.3                        18.7                        34.0


                                   Monthly Purchase (% of notional)
                                   TIPS                                                      3%                         3%                           3%
                                   6-8                                                      32%                         32%                         32%
                                   8-10                                                     32%                         32%                         32%
                                   10-20                                                     4%                         4%                           4%
                                   20-30                                                    29%                         29%                         29%
                                   Source: Credit Suisse



                                   We estimate that $200 billion of Agency MBS purchases under such a program should
                                   contribute to roughly 15bp of spread tightening. Purchases of $100 billion in longer-term
                                   Treasuries should dampen the basis tightening compared to a roughly 20bp impact a $200
                                   billion MBS-only program could generate. Nevertheless, the combination should reduce
                                   mortgage rates by around 20bp over time.




US Interest Rate Strategy Weekly                                                                                                                                  10
                                                                                                                                                              29 March 2012




                                   Exhibit 6: A hybridized Twist extension would extract less net duration but would
                                   target mortgage rates more directly while still remaining relatively reserve neutral
                                                                                    Operation Twist 1.0           Operation Twist 1.5        Operation Twist 1.5 with MBS
                                                                                  75% of holdings thru 6/15)   75% of holdings thru 12/16)    75% of holdings thru 12/16)
                                   Size (B)                                                  400                          300                            300
                                   Duration (months)                                          9                            6                              6
                                   Max Maturity it will ultimately sell                    Jun-15                       Dec-16                         Dec-16
                                   Sales/Purchases per Month (B)                            44.4                          50.0                           50.0
                                   Monthly Duration Sold (10y Equiv)                         7.3                         14.75                          14.75
                                   Monthly Duration Purchased (10y Equiv)                   59.1                          67.2                           44.6
                                   Net Duration Purchased Per Month (10y Equiv)             51.8                          52.4                           29.9


                                   Total Duration Purchased (net, 10y Equiv)                466.2                        314.4                          179.1
                                   Total Duration Purchased (gross, 10y Equiv)              531.9                        402.9                          267.6


                                   Treasuries                                                400                          300                            100


                                   Monthly Purchase ($B)                                    44.4                          50.0                           16.7
                                   TIPS                                                      1.3                          1.5                            0.5
                                   6-8                                                      14.2                          16.0                           5.3
                                   8-10                                                     14.2                          16.0                           5.3
                                   10-20                                                     1.8                          2.0                            0.7
                                   20-30                                                    12.9                          14.5                           4.8


                                   Monthly DV01 Purchase (10y Equiv)                        59.7                          67.2                           22.4
                                   TIPS                                                      1.2                          1.3                            0.4
                                   6-8                                                      11.4                          12.9                           4.3
                                   8-10                                                     13.8                          15.5                           5.2
                                   10-20                                                     3.0                          3.4                            1.1
                                   20-30                                                    30.3                          34.0                           11.3


                                   MBS                                                       100                          100                            200


                                   Monthly Purchase ($B)                                      0                            0                             33.3
                                   3.00%                                                      0                            0                             22.2
                                   3.50%                                                      0                            0                             11.1


                                   Monthly DV01 Purchase (10y Equiv)                          0                            0                             22.2
                                   3.00%                                                      0                            0                             15.4
                                   3.50%                                                      0                            0                             6.8

                                   Source: Credit Suisse



                                   Cons
                                   The drawback to either form of twist is the fact that there are limited quantities of assets to sell to
                                   support the purchases. If the Fed desired to be more impactful than its maturity extension
                                   program has been, an extension is unlikely to be sufficient. Another complication is the impact
                                   on the front end of the coupon curve of such a high volume of Fed selling. Since the
                                   implementation of Twist, the 2-year Treasury spread to OIS immediately widened in anticipation
                                   of front-end sales. The spread would likely widen further upon an extension.




US Interest Rate Strategy Weekly                                                                                                                                        11
                                                                                                                             29 March 2012




                                             Derivatives
                                             Recommend tactically paying in five-year swap spreads
                        Michael Chang
                      +1 212 325 1962          • We believe over the next few weeks swap spreads have scope to widen
        michael.chang.2@credit-suisse.com
                                                 modestly as financial issuance is likely to underwhelm and reduce fixed-to-
                               Ira Jersey        floating swapping needs. Thus we recommend swap spread wideners as a
                       +1 212 325 4674           tactical trade. But structurally we continue to expect swap spreads to remain at
              ira.jersey@credit-suisse.com
                                                 the low end of their historical ranges in the current low rate regime.


                                             Structurally we continue to expect swap spreads to remain at the low end of their historical
                                             ranges in the current low rate regime. However, over the very near term we believe the
                                             lack of fixed-to-floating swapping needs due to the financial issuance calendar could move
                                             spreads wider. We expect financial issuance in April to be somewhat lower than it has
                                             been the last three months as domestic borrowers are unable to issue due to earnings
                                             blackout periods.

                                             Exhibit 7: Intermediate swap spreads have been trending to the low end of their
                                             historical range since the end of last year


                                                100
                                             Bps




                                                   50




                                                    0

                                                    01-Jul-02               30-Dec-04         01-Jul-07         30-Dec-09
                                                   5yr Swap Spread         10yr Swap Spread
                                             Source: Credit Suisse Locus



                                             Seasonally, April has been one of the lower fixed coupon financial issuance months
                                             (Exhibit 8). The risk to this coming April is that Yankee bank issuers could come to market
                                             if spreads continue to tighten and rates don’t backup meaningfully, offering more attractive
                                             all-in-coupon levels This lack of issuance should pressure five-year swap spreads wider
                                             from the current level but create some choppiness around issuance over the next month –
                                             which tends to occur on the heels of earnings releases. Thus we recommend tactically
                                             paying in five-year swap spreads heading into April with the understanding that the
                                             potential spread widening would likely be temporary. The trade carries approximately -1bp
                                             per month at current repo levels.




US Interest Rate Strategy Weekly                                                                                                       12
                                                                                                                                                     29 March 2012




                                   Exhibit 8: Fixed-rate financial issuance, which tends to be swapped to floating,
                                   is expected to be relatively light in April
                                                        60.0
                                                                                            Avg 2001-2011
                                                                                            Avg 2009-2011
                                                        50.0                                2012


                                                        40.0



                                        Issuance ($B)
                                                        30.0



                                                        20.0



                                                        10.0



                                                          0.0
                                                                   Jan   Feb   Mar   Apr      May    Jun       Jul       Aug       Sep      Oct     Nov      Dec

                                   Source: Credit Suisse Locus


                                   Typically financial companies would issue fixed-rate debt and swap to floating rate to
                                   match their exposure to rates. Thus a smaller amount of fixed-rate financial issuance flow
                                   would suggest less swapping needs (less need to receive fixed rate in swaps) and should
                                   bias swap spreads wider. Exhibit 9 shows that historically monthly changes in five-year
                                   swap spreads have broadly tracked monthly fixed-rate financial issuance flows. The
                                   relationship is the most pronounced in the five year sector because corporate issuance is
                                   usually focused in that area and longer maturity corporates are often left unswapped.

                                   Exhibit 9: Smaller fixed-rate financial issuance would suggest less swapping
                                   needs (less need to receive fixed) and should bias swap spreads wider
                                                        70.0                                                                                              -30.00
                                                                                                        Fixed-rate financial issuance

                                                                                                        Change in 5y swap spread (RHS, inverted scale)    -25.00
                                                        60.0
                                                                                                                                                          -20.00

                                                        50.0                                                                                              -15.00




                                                                                                                                                                   Spread Change
                                                                                                                                                          -10.00
                                      Issunace ($B)




                                                        40.0

                                                                                                                                                          -5.00

                                                        30.0
                                                                                                                                                          0.00


                                                        20.0                                                                                              5.00

                                                                                                                                                          10.00
                                                        10.0
                                                                                                                                                          15.00

                                                         0.0                                                                                              20.00
                                                          Apr-07                           Apr-09                                  Apr-11

                                   Source: Credit Suisse Locus


                                   On an intraday basis, US financials that leave blackout periods are more likely to come to
                                   market – particularly banks and diversified financials. The four charts below show
                                   expected reporting dates with the market capitalization and number of S&P 1500 firms
                                   reporting each day. Banks and diversified financials are currently expected to report
                                   earlier in the month, with insurance companies later (Exhibits 10 and 12). We also provide
                                   the same information for the whole S&P 1500 universe (Exhibits 11 and 13).


US Interest Rate Strategy Weekly                                                                                                                                           13
                                                                                                                                                                 29 March 2012




 Exhibit 10: Market capitalization of firms reporting                                Exhibit 11: Market capitalization of firms reporting
 US$ bn, Dates subject to change                                                     US$ bn, Dates subject to change


  $400                                                                                $3,000
                                                     Insurance
  $350                                                                                                                                              Non-Financials
                                                     Diversified Financials           $2,500
  $300                                                                                                                                              Financials
                                                     Banks                            $2,000
  $250
  $200                                                                                $1,500
  $150
                                                                                      $1,000
  $100
                                                                                      $0,500
    $50
        $0                                                                              $0,00
             4/9    4/13 4/17 4/21 4/25 4/29                      5/3      5/7                    4/9       4/14       4/19       4/24       4/29          5/4       5/9

 Source: Company reports, Credit Suisse Quantitative Equity Strategy                 Source: Company reports, Credit Suisse Quantitative Equity Strategy



 Exhibit 12: Number of firms reporting each day                                      Exhibit 13: Number of firms reporting each day
 Dates subject to change                                                             Dates subject to change


  35                                                                   Insurance      300

  30                                                                                  250
                                                                       Diversified
                                                                                                         Non-Financials
  25                                                                   Financials
                                                                                      200                Financials
                                                                       Banks
  20
                                                                                      150
  15
                                                                                      100
  10

    5                                                                                   50

    0                                                                                     0
        4/9        4/13 4/17 4/21 4/25 4/29                       5/3      5/7                4/9       4/14        4/19        4/24       4/29            5/4       5/9

 Source: Company reports, Credit Suisse                                              Source: Company reports, Credit Suisse



                                                 During the depths of the financial crisis financial issuance was sporadic and issuance had
                                                 little, if any, correlation to spreads on an intraday basis. However, in 2010 the correlation
                                                 began to right itself, with days of light or no financial issuance starting to see swap
                                                 spreads widen, while spreads appear to tighten more often than not during days with
                                                 heavy issuance. Exhibit 14 shows daily swap spread changes against financial issuance
                                                 for the April 2010 reporting season suggesting that more often than not, the lack of
                                                 issuance has meant wider spreads.




US Interest Rate Strategy Weekly                                                                                                                                           14
                                                                                                                                                                                                   29 March 2012




                                   Exhibit 14: April 2010 swap spreads widened without financial issuance
                                   Financial issuance in US$ millions

                                                                         6.0                                                                                                                               3,500
                                                                                                 2010 Issuance (rhs)




                                       Change in 5yr Swap Spread (bps)
                                                                         4.0                                                                                                                               3,000
                                                                                                 2010 Swap Spread Chg
                                                                                                                                                                                                           2,500
                                                                         2.0
                                                                                                                                                                                                           2,000
                                                                         0.0
                                                                                                                                                                                                           1,500
                                                                         -2.0
                                                                                                                                                                        Widening                           1,000
                                                                                                                                                                        without
                                                                         -4.0                                                                                                                              500
                                                                                                                                                                        Issuance

                                                                         -6.0                                                                                                                              0
                                                                                  1        3      5        7       9      11     13      15    17    19     21     23   25     27   29        31     33
                                                                                                                         Days into reporting period (April 1st)


                                   Source: Credit Suisse



                                   The trade detail shows that the one-month carry is approximately -1bp assuming a repo
                                   rate of -5bps. The primary risk to the trade is an unexpected pick up in swapped issuance
                                   through April.

                                   Exhibit 15: Trade construction for long five-year spread position
                                                                                                                                                                                                      1m Fwd
                                      Position                                          Notional ($)            Instrument              Rate/Yield       DV01 (bps)     DV01 ($)        Repo
                                                                                                                                                                                                      Rate/Yld
                                                         Pay                            100,000,000             5-year Swap              1.237%             4.88         48,808           -           1.248%
                                                         Buy                            100,427,984            T 1.000 3/31/17           1.010%             4.86         -48,808        -0.05%        1.032%
                                                                                                                                         0.227%                                                       0.216%
                                   Source: Credit Suisse



                                   Alternatively, investors can structure a conditional bearish version of the swap spread
                                   widener by selling puts on five-year Treasury futures and buying matched-maturity
                                   swaption payers to express the view that the swap spread is more likely to widen in a rate
                                   sell-off. Based on the current vol ratio between Treasury futures vol and swaption vol,
                                   investors can get into the zero-cost conditional trade at an implied invoice spread
                                   (20.5bps) that is flat to the current invoice spread (20.5bps). The primary risk to the trade
                                   is that the Treasury future sells off at a faster pace than swap rates.

                                   Exhibit 16: Trade construction for the zero-cost conditional bear swap spread
                                   widener
                                                                           Notional /                                                        Start Date /                   Implied               Current
                                   Position                                           Instrument                Strike      Expiration                      Maturity
                                                                           Quantity                                                         Last Delivery               Invoice Spread        Invoice Spread
                                     Buy                                    122 MM              Payers          1.23%          25-May         7/5/2012      8/31/2016           -                      -
                                      Sell                                      1,000          FVM2 Puts         122           25-May         7/5/2012      8/31/2016        20.5 bps               20.5 bps
                                   Source: Credit Suisse Locus




US Interest Rate Strategy Weekly                                                                                                                                                                                 15
                                                                                                                                                       29 March 2012




                                            Treasuries
                                            T-bill supply due to contract sharply
                        Scott Sherman
                      +1 212 325 3586         • We investigate the seasonal decline in T-bill supply due to tax filing behavior
          scott.sherman@credit-suisse.com
                                              • We recommend real money investors consider shifting into the July 5 bill

                                            Treasury bill issuance rose sharply through February and March, a well-recognized
                                            seasonal pattern driven by the Treasury’s issuance of refunds to individual taxpayers who
                                            had too much withheld during the year. These taxpayers have an incentive to file their
                                            taxes well before the April deadline. Factoring in both the increase in weekly T-bill
                                            issuance and a couple of substantial longer-maturity cash management bills, the total
                                            outstanding volume of Treasury bills has increased by just under $160 billion since the end
                                            of 2011.
                                            However, with tax season upon us, refunds will soon be replaced by last-minute tax
                                            payments from those taxpayers that owe additional taxes and have the incentive to file as
                                            late as possible. This sudden inflow of cash in mid-April leaves the Treasury flush with
                                            cash, reducing the need to have all those previously issued bills outstanding. Given the
                                            Treasury can’t simply keep large cash balances, outstanding bill supply tends to contract
                                            sharply in mid-April.
                                            This happens through two channels. The first is through the issuance of the previously
                                            mentioned cash management bills, as the Treasury sets the maturity dates on and around
                                            the tax deadline. In addition, weekly issuance tends to drop sharply, particularly for the 4-
                                            week bill. Although we don’t anticipate a collapse in issuance down to the most extreme
                                            levels ($8 billion 4-week bills), we anticipate the total bill supply to contract by
                                            approximately $90 billion from the current level by the middle of May.

                                            Exhibit 17: T-bill supply has risen sharply since the end of 2011, but is due to
                                            contract sharply in mid-April
                                            Cumulative change in T-bill supply since the end of 2011


                                              $Blns
                                             180                                         change in T-bill supply          projected change in
                                                                                         since Dec 2011                   supply post tax date
                                             160
                                             140
                                             120
                                             100
                                               80
                                               60
                                               40
                                               20
                                                 0
                                              -20
                                                     1/2     1/16       1/30        2/13       2/27    3/12        3/26     4/9     4/23         5/7   5/21

                                            Source: Haver Analytics®, US Treasury, Credit Suisse




US Interest Rate Strategy Weekly                                                                                                                                 16
                                                                                                                    29 March 2012



                                   In past years, this seasonal swing in supply has resulted in a fairly consistent pattern of
                                   richening in short-dated T-bills from early April to early May. Indeed, since 2000, the yield
                                   on the 4-week bill has tended to richen by 5bps, on average, over the seven business
                                   days heading into April tax date and another 6bps over the four weeks beyond the tax date
                                   (we excluded 2008 due to large swings in short rates).

                                   Exhibit 18: Four-week bill yields tend to richen both into and out of the April tax
                                   deadline due to a contraction in available supply
                                   Change in 4-week bill rates into and out of the April tax deadline




                                   Source: Credit Suisse Locus



                                   Conversely, the cyclical richening in the 3-month sector is not nearly as defined. Although
                                   the 3-month T-bill rate does tend to richen over the same period, the pattern is less
                                   defined and of smaller magnitude.

                                   Exhibit 19: Thirteen-week bills show much less seasonality around tax season
                                   Change in 13-week bill rates into and out of April tax deadline




                                   Source: Credit Suisse Locus




US Interest Rate Strategy Weekly                                                                                              17
                                                                                                                                              29 March 2012



                                   We suggest bill market investors considering shifting into the July 5 bill. Although other
                                   bills that will ultimately be in the 1- to 2-month maturity range in mid-May have rallied
                                   heading into quarter end, the July 5 bill has barely budged. In addition, the bill gets
                                   investors beyond the turn for Q2, a fact that should only increase demand for the specific
                                   issue as we head into the second quarter. Looking at data extending back to 2002
                                   (excluding the high volatility of short rates in 2008), the first T-bill to mature in July has
                                   richened by an average of 8bps from early April through mid-May. The risk is that T-bill
                                   issuance is greater than anticipated or quarter-end demand less than expected.

                                   Exhibit 20: The first T-bill to mature beyond Q2 has richened by an average of
                                   8bps from early April through mid-May for data going back to 2002
                                   Yield change on the first T-bill maturing in July in each year going back to 2002 (excluding 2008)


                                     %
                                     0.2


                                     0.1


                                         0


                                    -0.1


                                    -0.2                  2011                   2010
                                                          2009                   2007
                                                          2006                   2005
                                    -0.3
                                                          2004                   2003
                                                          2002                   Avg
                                    -0.4                                             Days to May 15
                                             -29   -27   -25     -23    -21     -19   -17    -15  -13          -11      -9      -7      -5   -3    -1

                                   Source: US Treasury, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




US Interest Rate Strategy Weekly                                                                                                                        18
                                                                                                                                                        29 March 2012




                                             Inflation
                                             Global Dislocations
                      Eric Van Nostrand
                       +1 212 538 6631         • TIPS breakevens have eased off their mid-month highs, and amid weakening
        eric.vannostrand@credit-suisse.com       core inflation, we do not expect a major move upward until clearer QE signaling
                                                 materializes.
                                               • We look to our fitted real yield curve on Locus to help gauge relative value in
                                                 global linker markets. Recent dislocations lead us to favor BTPei 2017s vs.
                                                 2016s, and OATei 2027s vs. 2022s.

                                             The strength in US inflation expectations from the first half of the month has retreated as
                                             nominal yields fade the sharp post-FOMC sell-off. Although expectations for domestic
                                             monetary tightening have moved back out, as described in this week’s Strategy section,
                                             softening oil prices and a weak backdrop for spot inflation restrains our enthusiasm for
                                             rising inflation expectations.
                                             As shown below, 10-year TIPS breakevens are trading largely in line with or slightly rich to
                                             our fundamentals-based model.

                                             Exhibit 21: 10-year US breakevens are trading in line with (or slightly rich to)
                                             fundamentals
                                             10-year TIPS breakevens vs. fundamental model based on fed funds expectations, US dollar, gold, oil, ISM


                                                   3.00%
                                                   2.50%
                                                   2.00%
                                                                     Modeled 10yr TIPS breakeven
                                                   1.50%
                                                                     Actual 10yr TIPS breakeven
                                                   1.00%
                                                                     Residual
                                                   0.50%
                                                   0.00%
                                                  -0.50%
                                                  -1.00%
                                                        2005           2006          2007         2008          2009          2010          2011           2012

                                             Source: Credit Suisse



                                             From here, we think a new dovish surprise from the Fed is needed to help breakevens re-
                                             test their 2011 highs. In the long term, we remain bullish breakevens given the Fed’s
                                             commitment to policies that will tend to stoke them. But with next week’s FOMC minutes
                                             unlikely to move the QE needle materially – and the Credit Suisse economics team calling
                                             for softer realized inflation in the US, UK, and Europe in their Inflation Watch – we do not
                                             expect major near-term repricing.
                                             This week, we turn our focus to trades with a more micro focus, using our fitted real yield
                                             curve to help identify dislocations in global inflation markets.

                                             Inflation on Locus: Fitting the Real Yield Curve
                                             Central to our new suite of global inflation tools on our Locus analytics system is a global
                                             fitted real yield curve tool. Herein we review the methodology behind our fitted curve for
                                             TIPS and linkers abroad and consider some global trades to benefit from dislocations on
                                             the curve.



US Interest Rate Strategy Weekly                                                                                                                                  19
                                                                                                                            29 March 2012



                                            Fitting a linker curve is a more complex process than a nominal bond curve because there
                                            are legitimate reasons for the curve to be discontinuous, such as inflation seasonality and
                                            floor premia. Such dislocations might appear at first glance to be relative value
                                            opportunities, but since they can be justified by the bond technicals, we would not want to
                                            trade off them.
                                            So we use inflation markets to value the floors and remove the optionality from the market
                                            values of our bonds. Similarly, we adjust the market values of bonds maturing in different
                                            months by the expected seasonal benefit/detriment of inflation at maturity.
                                            Finally, we select the spline par yield curve that results in the smallest error between the
                                            (adjusted) real yields and the curve-implied real yields. We do this accounting for all cash
                                            flows of the bond, so that particularly high (low) coupon bonds do not appear particularly
                                            rich (cheap) to the curve for only that reason.
                                            Below we show the fitted par yield curve for the TIPS universe, available on the Locus
                                            “Inflation-Linked Bond Curve” page. Listed below the curve on Locus is a table of the
                                            rich/cheap spreads (spread to fitted yield of each bond.) The curve highlights the recent
                                            cheapness of the Jan 21, which we recommended overweighting in last week’s US
                                            Interest Rate Strategy Weekly.

Exhibit 22: Fitted TIPS Real Yield Curve
TIPS fitted par curve vs. seasonality and deflation floor




Source: Credit Suisse Locus




US Interest Rate Strategy Weekly                                                                                                      20
                                                                                                                   29 March 2012



                                   Favor BTPei 2017s vs. 2016s
                                   In Italian linker space, the BTPei 2017 appears 8bps cheap to the fitted curve in real yield
                                   terms while the preceding bond, the BTPei 2016, is 8bps rich.

                                   Exhibit 23: In Italian linker space, the BTPei 2017 has sharply cheapened to the
                                   BTPei 2016




                                   Source: Credit Suisse Locus


                                   This dislocation has not been very long-standing, with the curve between the two issues
                                   steepening to a two-standard deviation extreme in the past few weeks, as shown below in
                                   Exhibit 24.

                                   Exhibit 24: In Italian linker space, the BTPei 2017 has sharply cheapened to the
                                   BTPei 2016




                                   Source: Credit Suisse Locus



                                   We recommend that real money investors overweight the 17s relative to the 16s to profit
                                   from the unusually steep curve here. We enter the switch in our model portfolio at a size of
                                   25k/01, at a real yield spread of 45bps. The primary risk to the trade is continued
                                   dislocation between the two issues. We target a 15bp correction in the real yield curve.

                                   Favor OATei 2027s vs. 2022s
                                   Similar dislocation can be found in French inflation space, where 10-year OATeis (French
                                   bonds linked to European HICP as opposed to domestic French inflation) have seen
                                   strong inflows in recent weeks. As a result, 2020 and 2022 OATeis have richened sharply
                                   relative to longer instruments, bringing the 2022-2027 OATei real yield curve out to a two-
                                   standard-deviation extreme.


US Interest Rate Strategy Weekly                                                                                             21
                                                                                                                   29 March 2012




                                   Exhibit 25: 10s15s OATei real yield curve has steepened sharply in recent
                                   weeks




                                   Source: Credit Suisse Locus



                                   One reason we think this “flow-related” dislocation can be faded (and not an economically
                                   meaningful term structure shift) is that we have seen a concurrent swing in the iota curve,
                                   shown below in Exhibit 26. Iota is the spread of linker z-spread to nominal z-spread, and is
                                   an effective metric of relative value between cash linkers and nominals. The spread of iota
                                   on the 2027s and 2022s tends to be mean reverting, as shown below.

                                   Exhibit 26: The dislocation of the past few weeks has occurred in iota space




                                   Source: Credit Suisse Locus



                                   The 10bps of real yield curve steepening in recent weeks has been paralleled with 10bps
                                   of iota steepening, suggesting a flow-related dislocation.
                                   Usually, the 2022-2027 real yield is directional with the level of 2022 real yields, but the
                                   historically low level of rates does not justify the current steepness, as shown in the
                                   regression below.




US Interest Rate Strategy Weekly                                                                                             22
                                                                                                                   29 March 2012




                                   Exhibit 27: The curve is directional with the level of real yields, but is currently
                                   dislocated to the steep side
                                   2022-2027 OATei real yield curve vs. OATei 2022 real yields




                                   Source: Credit Suisse Locus



                                   We recommend real money investors with an OATei mandate similarly overweight 27s
                                   versus 22s to profit from a correction in the real yield curve. We enter the switch into our
                                   model portfolio at a size of 30k/01, at a spread of 39.5 bps. The risk to the trade is
                                   continued steepening in the 10s15s OATei real yield curve. We target a 15bp correction in
                                   the curve.




US Interest Rate Strategy Weekly                                                                                             23
                                                                                                                                  29 March 2012




                                              Supranationals, Agencies & Sovereigns
                                              Bullet Supply
                                Ira Jersey
                        +1 212 325 4674         • Agency benchmark issuance so far in 2012 has outpaced that of the first
               ira.jersey@credit-suisse.com       quarter of the past two years.
                                                • We review net issuance patterns and distribution statistics so far in 2012
                                                  compared with data of the prior two years.

                                              Agency issuance during the first quarter has outpaced that of the past two years by about
                                              $10 billion. Although gross debt outstanding continues to shrink thanks to smaller balance
                                              sheets, tight spreads and low yields have created an incentive for the GSEs to come
                                              earlier in the year. We expect benchmark issuance later in the year to slow somewhat.

                                              There has been nearly $40 billion of benchmark         Exhibit 28: GSE 1Q issuance
                                              issuance so far this year, helping to increase price   US$ billions
                                              discovery and liquidity for those issuers which have
                                                                                                           Jan - March           Issuance
                                              come to market. Exhibit 28 shows the new (non-
                                                                                                              2010                $27.40
                                              reopened) issuance so far.
                                                                                                              2011                $28.30
                                              Even with this relatively heavy calendar compared             2012             $39.00
                                              with that of the past few years, demand remains Source: Credit Suisse
                                              robust. Issuance beyond 5-years was limited mostly
                                              to reopenings in the past few years, but in mid-January Freddie Mac came with a 10-year
                                              that priced at T+52bp over Treasuries and is currently about T+37.5bp. Fannie Mae’s 5-
                                              year issued a week before at T+40bp is now trading about 22bp tighter at T+17.5bp. The
                                              spread rally has accelerated amid the recent backup in rates, and while we are tempted to
                                              fade it, we suspect that the supply/demand dynamics will remain supportive of spreads.

                                              Exhibit 29: Agency net issuance by quarter
                                              US$ bn


                                                200
                                                150                              Long Term Agency Net Issuance
                                                100
                                                                                 Short Term Agency Net Issuance
                                                 50
                                                  0
                                                -50
                                               -100
                                               -150
                                               -200
                                                  Q4 08                 Q2 09   Q4 09    Q2 10        Q4 10              Q2 11      Q4 11
                                              Source: Credit Suisse, SIFMA



                                              Exhibit 29 shows aggregate GSE net debt issuance by quarter over the past few years.
                                              While this has generally supported spreads, in 2010 and 2011 aggregate net issuance
                                              over particular time periods (including callables, MTNs, etc) appears to have had an
                                              influence on spreads as noted in Exhibit 30. Exhibits 31 and 32 highlight the outstanding
                                              term and short-term debt respectively by issuer. We note that much of the decline in total
                                              outstanding debt has come from run-off and calls of short-term debt.



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                                                                                                                              29 March 2012




                                   Exhibit 30: Spreads was correlated with issuance in 2010 and 2011
                                       40,000                                                  AGY Net Issuance >1yr (lhs, US$ bn) 20
                                       20,000                                                  3-5yr AGY Spread Chg (rhs, bps)       15
                                               0
                                                                                                                                     10
                                      -20,000
                                                                                                                                     5
                                      -40,000
                                                                                                                                     0
                                      -60,000
                                                                                                                                     -5
                                      -80,000
                                    -100,000                                                                                         -10

                                    -120,000                                                                                         -15
                                           Mar-10             Jun-10      Sep-10    Dec-10     Mar-11     Jun-11    Sep-11       Dec-11

                                   Source: Credit Suisse Locus, SIFMA



                                   Exhibit 31: Outstanding GSE debt by issuer due in more than a year
                                   US$ bn

                                                                                    FNMA     FHLMC      FFCB    FHLB    FARMER/TVA

                                    2,000


                                    1,500


                                    1,000


                                       500


                                           0
                                               Q3 08              Q1 09     Q3 09      Q1 10        Q3 10      Q1 11         Q3 11

                                   Source: Credit Suisse, SIFMA



                                   Exhibit 32: Outstanding GSE debt by issuer due in less than a year
                                   US$ bn


                                    1,200                                      FNMA    FHLMC       FFCB     FHLB    FARMER/TVA

                                    1,000

                                       800

                                       600

                                       400

                                       200

                                           0
                                               Q3 08              Q1 09     Q3 09      Q1 10        Q3 10      Q1 11         Q3 11

                                   Source: Credit Suisse, SIFMA




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                                                                                                                                   29 March 2012




 Exhibit 33: 2010 Agency benchmark distribution                           Exhibit 34: 2011 Agency benchmark distribution

  2010                        Other
                                                                                                    Other
                              12.6%
                Europe                                                                        Europe13.4%
                 3.1%                                                                          2.7%

                                                                                            Asia
             Asia                                                                          12.7%
            17.9%


                                                         US/North
                                                         America                                                                  US/North
                                                          66.4%                                                                   America
                                                                                2011                                               71.2%

 Source: Company reports, Credit Suisse                                   Source: Company reports, Credit Suisse



                                          As shown in Exhibits 33         Exhibit 35: 2012 Agency benchmark distribution
                                          through 35, the distribution
                                          of GSE benchmarks has
                                          become more domestic in
                                          nature over time. In 2010                                            Other
                                                                                          Europe               16.1%
                                          about two thirds of issuance
                                                                                           2.6%
                                          was     taken    down     by
                                          domestic    buyers,     while                 Asia
                                          almost 18% was purchased                      8.6%
                                          by Asia.
                                                                                                                       US/North
                                          So far in 2012 Asia has only                                                 America
                                          represented about 8.6% of                                                     72.7%
                                          new issue purchases, while
                                          North       America       has            2012 YTD
                                          increased to just under three
                                          quarters of purchases.          Source: Company reports, Credit Suisse

                                          Although spreads remain
                                          tight, asset managers continue to be large purchasers of GSE debt at new issue.
                                          Exhibits 36 through 38 show purchases by investor type. Although demand generally has
                                          decreased from Asia, Central Bank purchases continue to be robust – still representing
                                          over 20% of new issuance demand, although this is down from over a quarter in 2010.
                                          Investment managers and Insurance demand appears to have picked up the slack, both
                                          having meaningful increases in purchases so far this year compared with that of the recent
                                          past. Investment managers now represent about 55% of Agency primary market
                                          purchases, after having represented under 45% in the prior two years.




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                                                                                                                       29 March 2012




 Exhibit 36: 2010 Agency benchmark distribution                 Exhibit 37: 2011 Agency benchmark distribution
                                                                                     Insurance/
   2010        Insurance/                 Others                                      Pension             Others      2011
                 Pension                   5%                                            4%                7%
                   4%
                                                                                  Other
           Other                                                                                                      Investment
                                                                                Financial
         Financial                                 Investment                                                            Mgr
                                                                                  10%
           11%                                        Mgr                                                                41%
       Banks/Stat                                     44%
       e & Local
                                                                       Banks/Stat
         Govt
                                      Central                          e & Local
         10%                                                                                             Central
                                       Bank                              Govt
                                                                                                          Bank
                                       26%                               10%
                                                                                                          28%


 Source: Company reports, Credit Suisse                         Source: Company reports, Credit Suisse



                                                                Exhibit 38: 2011 Agency benchmark distribution
                                                                                                           Others
                                                                                    Insurance/              2%      2012 YTD
                                                                            Other
                                                                                     Pension
                                                                          Financial
                                                                                       9%
                                                                             5%

                                                                       Banks/Stat
                                                                       e & Local
                                                                         Govt
                                                                          5%                   Central
                                                                                                Bank
                                                                                                21%
                                                                                                                      Inv. Mgr
                                                                                                                        55%

                                                                Source: Company reports, Credit Suisse




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                                                                                                                            29 March 2012




                                              Technical Analysis
                        David Sneddon
                      +44 20 7888 7173         • Nasdaq 100 all but achieves our 2800/2900 core bull target.
           david.sneddon@credit-suisse.com
                                               • Background indicators are warning of a stalling in the S&P 500 rally.
                        Christopher Hine
                        +1 212 538 5727        • Corrective equity weakness may help to continue to support bonds further.
             Chirstopher.@credit-suisse.com

                                The relentless move higher in the US equity market has seen the Nasdaq 100 extend its
                                uptrend to within a whisker of our 2800/2900 core bull target. This represents not only the
                                50% retracement of the entire 2000/2002 bear market, but the “neckline” to the 2000 top.
            Nasdaq 100 has all
                                With momentum stalling and daily DeMark warning of potential exhaustion, we look for
              but achieved our evidence of a top. Given the size/importance of Apple, we shall also continue to monitor
            2800/2900 core bull this stock closely.
                        target.
                                A push into the 2800/2900 should still be allowed for, with 2842 our “ideal” target.
                                However, we look for failure here for a slide back to the recent low and rising 13-day
                                average at 2728/14. Below here is needed to mark the completion of a minor top, clearing
                                the way for a slide back to 2650, potentially 2575.
                                              Above 2900 would suggest the immediate trend can remain higher for 2990 next. This is
                                              seen as the trigger to the 61.8% retracement of the 2000/2002 bear market at 3280.
                                              Bigger picture, our bias is to view this anticipated weakness as a corrective decline only
                                              for now.

                                              Exhibit 39: Nasdaq 100 – Monthly




                                              Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




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                                                                                                                      29 March 2012



           Volume has shown         For the broad S&P 500, strength has extended to within a whisker of key price and
                the first sign of   medium-term channel resistance at 1432/40, and our bias has been for this to cap at first,
                                    prompting a correction lower.
           stalling for the S&P
                  500 since last    Indeed, when we look at OnBalanceVolume, which has been confirming the uptrend for
                 October’s low.     the past year, for the first time since last October, we are now seeing a bearish
                                    divergence, with the volume indicator not confirming the recent move to a new price high.
                                    Additionally, the Advance/Decline breadth line is also stalling (although has yet to top), but
                                    more importantly, RSI momentum is sporting a clear bearish divergence (c.f. lower panel
                                    below).

             Only below 1386 Our bias is thus for a top to form ahead of 1440, for a corrective phase lower. Below the
           would mark a small 1386 recent low is needed to confirm a minor reversal, which would also see the 13-day
                              accelerated moving average removed. If achieved, this should then clear the way for a
                  top though.
                              slide back to 1340/20. We would expect fresh buyers to show here.
                                    Bigger picture, our bias at present is to this anticipated weakness as a corrective decline
                                    only.
                                    Should strength extend above 1440, this would raise the possibility of an eventual move
                                    back to the 1576 record high.

                                    Exhibit 40: S&P 500, Breadth, Volume & Momentum – Daily




                                    Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




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                                                                                                                              29 March 2012




                                               Economics
                          Jonathan Basile      This is an excerpt from the US Economics Digest published 27 March 2012.
                                   Director
                         +1 212 538 1436
           jonathan.basile@credit-suisse.com
                                               A Flow of Funds Anthology: Three Short Stories
                            Jay Feldman        We view the quarterly “Flow of Funds Accounts of the United States,” compiled by the
                                  Director     Federal Reserve, as an anthology, brimming with stories about the financial life of the US.
                        +1 212 325 7634
              jay.feldman@credit-suisse.com
                                               In this research note, we highlight three of these stories, using the Q4-2011 “Flow of
                                               Funds” report released this month.
                          Dana Saporta
                                 Director      • Story One: Look who’s borrowing
                       +1 212 538 3163
            dana.saporta@credit-suisse.com        Domestic credit outstanding grew by an annualized $1.3 trillion in Q4-2011, marking the
                                                  seventh consecutive quarterly increase. The household sector was a net borrower for the
                               Neal Soss
                       Managing Director          first time since mid-2008. Meanwhile, for 2011 as a whole, state and local debt declined
                        +1 212 325 3335           nearly 2%, its first annual decrease since 1996.
                neal.soss@credit-suisse.com
                                               • Story Two: Household finances on a rollercoaster
                                                  A nearly $1.2trn gain in household net worth in Q4 put the total rebound from the mid-
                                                  crisis trough at $8.0trn, approaching the halfway mark in recovering the $16.4trn that
                                                  was lost during the crisis. But household wealth has become much more volatile in
                                                  recent years, fuelling heightened risk aversion among consumers and retail investors.
                                               • Story Three: Corporations build a cash cushion
                                                  Healthy profits, combined with opportunistic borrowing at very favorable market interest
                                                  rates, are providing corporations with a cushion against any renewed business
                                                  downturn. The ratio of liquid assets to total assets on nonfinancial corporate balance
                                                  sheets reached a new 48-year high.




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                                   Events
                                                                                                                Credit Suisse       Market             Prior
                                   Events                                                                        estimates         estimates          results

                                   Monday, April 2
                                       10:00AM ISM Manufacturing (Mar)                                                52.5             53.5             52.4
                                                     -Prices Paid                                                     NA               62.1             61.5
                                       10:00AM Help Wanted Online Ads (Mar)                                           NA               NA              39.9K
                                       10:00AM Construction Spending (Feb)                                            NA              0.8%             -0.1%
                                       10:00AM St. Louis Fed’s Bullard speech on “Monetary Policy in a Global Setting: China & the US” (Non-Voter)
                                       12:35PM Cleveland Fed’s Pianalto speaks on “The Fed and The Economy: Striving for Stability” (Voter)

                                   Tuesday, April 3
                                        7:45AM   ICSC-GS Chain Store Sales, Wk/Wk (Mar 31)                            NA                NA             -0.5%
                                        8:55AM   Redbook Retail Store Sales, MoM (Mar 31)                             NA                NA             0.5%
                                        9:45AM   ISM New York (Mar)                                                   NA                NA              63.1
                                       10:00AM   Factory Orders (Feb)                                                1.5%              1.4%            -1.0%
                                            AM   ASA Staffing Index, Wk/Wk (Mar 25)                                   NA                NA             0.6%
                                        2:00PM   FOMC Minutes (Mar 13 meeting)
                                        4:05PM San Francisco Fed’s Williams speaks at FOMC meeting simulation at UC San Diego (Voter)
                                            PM Total Vehicle Sales (Mar)                                             14.5M            14.7M            15.0M
                                                -Domestic Vehicle Sales                                              11.3M            11.5M            11.7M
                                   Wednesday, April 4
                                        7:45AM   ECB Rate Announcement                                               1.00%            1.00%            1.00%
                                        8:15AM   ADP Employment (Mar)                                                  NA             200K             216K
                                       10:00AM   ISM Non-Manufacturing (Mar)                                          56.5             56.8             57.3
                                       10:30AM   DOE Crude Oil Stocks, mn/bbl (chg) (Mar 30)                           NA               NA           353.4 (7.1)
                                       11:00AM San Francisco Fed’s Williams speaks to San Francisco Planning & Urban Research (Voter)

                                   Thursday, April 5
                                        7:00AM BoE Rate Announcement                                                 0.50%            0.50%            0.50%
                                        7:30AM Challenger Job Cuts (Mar)                                              NA                NA             51,728
                                        8:30AM Initial Jobless Claims (Mar 31)                                       370K               NA              359K
                                        9:10AM St. Louis Fed’s Bullard speaks on US economy and monetary policy (Non-Voter)
                                            AM ICSC Chain Store Sales, YoY (Mar)                                      NA                NA              4.1%
                                            AM St. Louis Financial Stress Index (Mar 30)                              NA                NA              0.19

                                   Friday, April 6
                                            AM Monster Employment Index (Mar)                                         NA               NA                143
                                        8:30AM Employment Report (Mar)
                                                -Non-Farm Payrolls                                                   235K             210K              227K
                                                -Private Payrolls                                                    245K             220K              233K
                                                -Unemployment Rate                                                   8.2%             8.2%              8.3%
                                                -Average Hourly Earnings                                             0.2%             0.2%              0.1%
                                        3:00PM Consumer Credit (Feb)                                                $10.5B           $12.0B            $17.8B
                                   Source: the BLOOMBERG PROFESSIONAL™ service, © 2012 Thomson Reuters Limited, Credit Suisse estimates.




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                                                                                                  29 March 2012




Databank
Exhibit 41: Treasury yields (03/29/2012)                Exhibit 42: Treasuries yield weekly change




Exhibit 43: Treasuries asset swap yield-yield (daily)   Exhibit 44: Treasuries asset swap yield-yield weekly
                                                        change




Exhibit 45: Eurodollar strip                            Exhibit 46: AGY, TSY, swap weekly change




Exhibit 47: US Treasuries 2s10s                         Exhibit 48: UST 2s-5s-10s fly




Source for all: Credit Suisse Locus


                                                                                   Link to intra-week updates
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                                                                               29 March 2012




Exhibit 49: USD forward yield (%)
March 29, 2012 closing values




Exhibit 50: Forward swap curves       Exhibit 51: Forward swap rates




Exhibit 52: Forward 2s10s curve       Exhibit 53: Forward 5s30s curve




Source for all: Credit Suisse Locus


                                                                Link to intra-week updates




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                                                                                              29 March 2012




 Exhibit 54: 10yr Treasury seasonals               Exhibit 55: 2s-10s Treasury curve seasonals




 Exhibit 56: 10yr swap spread seasonals            Exhibit 57: 3m10y vol. seasonals




 Exhibit 58: AGY OTR 10yr spread to TSY OTR 10yr
 seasonals                                         Exhibit 59: LUCI+ benchmark spread seasonals




 Exhibit 60: 10yr Treasury roll around auctions    Exhibit 61: 5yr Treasury roll around auctions




 Source for all: Credit Suisse Locus
                                                                               Link to intra-week updates


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                                                                                         29 March 2012




 Exhibit 62: 2yr and 10yr swap spreads          Exhibit 63: FNMA sr. debt vs. MBS spreads




 Exhibit 64: FNMA asset swaps                   Exhibit 65: FNMA spread to Treasuries




 Exhibit 66: Corporate 5yr CDS spreads          Exhibit 67: Bank & broker CDS vs. swap spreads




 Exhibit 68: IG corporate bond term structure
 (LUCI Index)                                   Exhibit 69: VIX Index




 Source for all: Credit Suisse Locus


                                                                          Link to intra-week updates



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                                                                                                   29 March 2012




 Exhibit 70: Current coupon vs. agency debt             Exhibit 71: Mortgage Index Price




 Exhibit 72: Extension/contraction risk imbalance vs.   Exhibit 73: Rolling 1m beta: 10yr spreads vs. 10-yr
 duration levels                                        OTR yields




 Exhibit 74: USD vol. term structure;                   Exhibit 75: USD vol. term structure;
 10-year swap rate                                      2-year swap rate




 Exhibit 76: USD, 10-year swap volatility cones         Exhibit 77: USD, 2-year swap volatility cones




 Source for all: Credit Suisse Locus


                                                                                    Link to intra-week updates


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                                                                                               29 March 2012




 Exhibit 78: FNMA 2s-5s spread to Treasury curve    Exhibit 79: FNMA 2s-3s spread to Treasury curve




 Exhibit 80: FNMA 2s-10s spread to Treasury curve   Exhibit 81: FNMA 5s-10s spread to Treasury curve




 Exhibit 82: FHLMC 2s-5s asset swap curve           Exhibit 83: FHLMC 2s-3s asset swap curve




 Exhibit 84: FHLMC 2s-10s asset swap curve          Exhibit 85: FHLMC 5s-10s asset swap curve




 Source for all: Credit Suisse Locus


                                                                              Link to intra-week updates




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                                                                                                                                             29 March 2012




                                   Exhibit 86: Basis point swaption vol ratio to 6mo-10yr
                                   March 29, 2012. Color evaluated over the last three months. Color extreme is three standard deviations from average.




                                   Source: Credit Suisse




                                   Exhibit 87: Credit Suisse interest rate forecasts
                                   US - Treasuries                             Last            2012 Q1          2012 Q2          2012 Q3          2012 Q4
                                   Fed Funds                                 0-0.25             0 –0 .25         0 –0 .25         0 – 0.25         0 – 0.25
                                   2-Yr Yield                                   0.34               0.30             0.30             0.35             0.40
                                   5-Yr Yield                                   1.01               1.10             1.15             1.20             1.20
                                   10-Yr Yield                                  2.16               2.25             2.35             2.45             2.50
                                   30-Yr Yield                                  3.27               3.50             3.60             3.70             3.80


                                   UK - Gilts                                  Last            2012 Q1          2012 Q2          2012 Q3          2012 Q4
                                   Base Rate                                   0.50                0.50             0.50             0.50             0.50
                                   2-Yr Yield                                  0.44                0.45             0.45             0.50             0.50
                                   5-Yr Yield                                  1.05                1.00             1.10             1.25             1.30
                                   10-Yr Yield                                 2.21                2.20             2.25             2.30             2.35
                                   30-Yr Yield                                 3.35                3.30             3.40             3.50             3.55


                                   Euro - German Benchmarks                    Last            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                                  0.81                1.00             1.10             1.35             1.45
                                   10-Yr Yield                                 1.81                2.00             2.20             2.45             2.55
                                   30-Yr Yield                                 2.48                2.60             2.80             3.00             3.20


                                   Japan - JGBs                                Last            2012 Q2          2012 Q3          2012 Q4          2013 Q1
                                   Overnight                                 0-0.10              0-0.10           0-0.10            0-0.10           0-0.10
                                   2-Yr Yield                                   0.11               0.10             0.10             0.10             0.10
                                   5-Yr Yield                                   0.33               0.30             0.35             0.35             0.35
                                   10-Yr Yield                                  1.01               1.20             0.90             1.00             1.00
                                   30-Yr Yield                                  1.95               2.15             1.90             2.00             2.00

                                   Source: Credit Suisse




US Interest Rate Strategy Weekly                                                                                                                          38
US Interest Rate Strategy Weekly



                                   Exhibit 88: Credit Suisse global economic, growth, and interest rate forecasts (as of March 22)
                                                                                              2010                              2011E                              2012E                           Q4/Q4                         Annual Avg.
                                                                                     Q1       Q2      Q3      Q4        Q1       Q2      Q3       Q4      Q1        Q2      Q3       Q4     09    10    11E       12E     10      11E     12E        13E
                                                       US             Real GDP       3.7      1.7     2.6     3.1       0.4     1.3      1.8     3.0      2.2       2.2      2.3      2.3 -0.5    3.1      1.6     2.2    3.0       1.7    2.3        2.0
                                                                             IP      1.5      6.5     6.9     6.3       5.5     3.8      3.7     3.7      3.4       4.3      3.6      3.7 -5.5    6.3      3.9     3.4    5.3       4.2    3.7        3.0
                                                                       Inflation     2.4      1.8     1.2     1.2       2.1     3.3      3.8     3.3      2.8       2.0      1.7      1.7   1.5   1.2      3.3     1.7    1.6       3.1    2.0        1.7
                                     Credit Suisse Official Effective Fed Funds 0 – .25 0 – .25 0 – .25 0 - .25      0 - .25 0 - .25    0-.25 0 – .25 0 – .25     0-.25 0 – .25 0 – .25     ...   …        …       …       ...      ...        ...
                                                                      2-Yr Yield    0.95    0.72     0.48    0.60     0.68     0.40     0.24    0.24    0.30      0.30     0.35     0.40    …     …        …       …      …         …                 …
                                                                      5-Yr Yield    2.42    1.99     1.40    1.92     2.10     1.56     0.95    0.83    1.10      1.15     1.20     1.20    …     …        …       …      …         …                 …
                                                                    10-Yr Yield     3.72    3.19     2.64    3.28     3.40     2.99     1.92    1.88    2.25      2.35     2.45     2.50    …     …        …       …      …         …                 …
                                                                    30-Yr Yield     4.65    4.13     3.77    4.42     4.51     4.23     2.91    2.89    3.50      3.60     3.70     3.80    …     …        …       …      …         …                 …
                                                   Global             Real GDP       5.1      5.2     4.9     4.6       4.5     3.9      3.8     3.5      3.4       3.5      3.5      3.8   2.1   4.9      3.5     3.8    5.1       3.8    3.5        4.2
                                                                             IP     10.4    11.1      9.0     8.0       6.7     4.9      5.2     3.7      3.7       4.7      4.6      5.9   1.3   8.0      3.5     5.9    9.6       5.0    4.7         ...
                                                                       Inflation     3.4      3.5     3.4     3.7       4.4     4.9      5.0     4.6      3.8       3.6      3.5      3.6   2.4   3.8      4.6     3.6    3.5       4.7    3.6        3.6
                                                   Japan              Real GDP       9.1      0.2     3.8    -3.0      -6.9     -1.2     7.1     -0.7     0.9       1.8      1.5      1.7 -0.6    3.2      -0.6    1.5    4.4      -0.7    1.5        1.6
                                                                             IP     27.5    21.0     13.5     4.9      -2.6     -6.8     -2.1    -2.8     4.5      10.2      6.6      7.6 -5.1    0.0      -2.8    7.6   16.5      -3.5    7.2        2.8
                                                                       Inflation    -1.2     -1.2    -1.1    -0.5      -0.8     -0.3     0.2     -0.2     0.0       0.0      0.0      0.0 -1.7    0.0      -0.2    0.0   -1.0      -0.3    0.0       -0.1
                                                            Overnight Call Rate     0.10    0.10     0.10    0.10    0-0.10 0-0.10 0-0.10 0-0.10 0-0.10          0-0.10                     ...   …        …       …      …         …      …
                                                              10-Yr Bond Yield      1.34    1.21     1.06    1.19     1.25     1.13     1.03    0.99    1.10      1.20     0.90     1.00    ...   …        …       …      …         …                 ...
                                                 Euro-16              Real GDP       1.6      4.0     1.3     1.1       3.1     0.6      0.5     -1.3     0.0       0.1      0.7      1.5 -2.1    2.0      0.7     0.5    1.8       1.5    0.0        1.7
                                                                             IP      4.6      8.9     7.0     6.3       6.7     4.2      3.9     -0.2     -1.5      -1.8    -2.0      0.5 -7.1    8.2      -0.2    0.5    7.4       3.6   -1.2        3.6
                                                                       Inflation     1.1      1.6     1.7     2.0       2.5     2.8      2.7     2.9      2.3       2.1      2.0      1.9   0.9   2.2      2.7     1.9    1.6       2.7    2.1        1.6
                                                                ECB Repo Rate       1.00    1.00     1.00    1.00     1.00     1.25     1.50    1.00    1.00      1.00     1.00     1.00          …        …       …      …         …                 …
                                                              10-Yr Bund Yield      3.12    2.62     2.34    2.96     3.25     2.97     1.89    1.83    2.00      2.20     2.45     2.55    ...   …        …       …      …         …                 …
                                                       UK             Real GDP       1.2      4.6     2.9     1.8       1.7     0.0      2.3     -0.8     0.0       0.8      2.0      2.4 -0.8    1.7      0.8     1.3    2.1       0.9    0.7        2.4
                                                                             IP       0.2     1.5      3.2     3.5      2.0     -0.8     -1.4    -2.5     -2.9      -1.3    -0.4      1.0 -6.0    3.3      -2.5    1.0    2.1      -0.7   -0.9        2.0
                                                                       Inflation      3.2     3.4      3.1     3.1      4.1     4.4      4.7     4.7      3.5       2.9      2.7      2.3   2.1   3.4      4.7     2.3    3.3       4.5    2.9        2.5
                                                                BOE Base Rate       0.50    0.50     0.50    0.50     0.50     0.50     0.50    0.50    0.50      0.50                      ...   …        …       …      …         …                 …
                                                                10-Yr Gilt Yield    3.91    3.32     3.02    3.50     3.29     3.24     2.43    1.98    3.00      3.40     3.50     3.55    ...   …        …       …      …         …                 …
                                   IMF PPP weights are used to compute regional and global aggregate figures. GDP growth is quarter/quarter annualized, except for global GDP, which is year/year. Industrial production and inflation are
                                   expressed as year/year changes. US, UK, and Euro-16 inflation rates are headline, whereas Japan inflation rates are excluding fresh food. Fed fund target rate changed to effective rate starting Q1 2008, and
                                   annual forecasts are year-end forecasts. Actual reported quarterly interest rates are the average of closing rates over the last month of the quarter.
                                   Source: Credit Suisse




                                                                                                                                                                                                                                                             29 March 2012
39
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