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					                                                                                                                             Cross Asset Research
                                                                                                                                             2 June 2013


Global Portfolio Manager’s Digest
Reassessing risk factors
• Continued rate volatility: We believe uncertainty around Fed tapering is likely to                     Best of Barclays
    remain elevated in the near term with the possibility of large moves in US rates in                  The Data Miner
                                                                                                         Positive Earnings Revisions                     4
    either direction. In addition, we continue to believe the curve looks too steep given
                                                                                                         Global Macro Daily
    modest inflation expectations and favor curve flattening strategies (page 5).
                                                                                                         Constructive on the US despite a weaker USD 5
• A bright spot in Europe: Although slumping global demand drives near term cuts                         Euro Themes
    to our German GDP forecast, our medium-term outlook remains constructive with                        Germany outlook: Global headwinds               8

    robust labor and housing markets supporting consumption. Moreover, polls                             Quantitative Portfolio Strategy
                                                                                                         Managing Conflicting Views
    suggest that another term for the current government is the likely outcome, which
                                                                                                         in Asset Allocation Decisions                   9
    should lead to more stability in contrast to the rest of the region (page 8).
                                                                                                         Global Strategy & Economic Outlook
• Improving portfolio management: It is common for actively managed portfolios to                        Equity Strategy
    have dissimilar views in the allocation process. These views can conflict with                       US: Revisiting our exit strategy from
    historical correlations, leading to concentrated risks and unrealistic return                        bond-like stocks                                10

    expectations. In our risk budgeting framework, we suggest that investors should                      Credit Strategy
    factor in underlying correlations into their information ratio (page 9).                             Americas: Higher Yields, Higher Anxiety         12
                                                                                                         Europe: Discounting future expectations         14
                                                                                                         Asia ex-Japan: Stay hunkered down               16
CHART OF THE WEEK
Hawkish Fed, not underlying economic views driving current rates sell-off                                Rates Strategy
                                                                                                         Regime shift                                    17
120
                                                                                                         Economic Outlook
100                                                                                                      The taper worm                                  20

                                                                                                         Key Inflection Points
  80
                                                                                                         Equity
  60                                                                                                     Select Rating Changes:
                                                                                                         Cheniere Energy Partners LP, Sempra Energy 23
  40
                                                                                                         Regulars
  20                                                                                                     Barclays Macro, Commodities & FX Forecasts 2
                                                                                                         Barclays Events                                 3
   0
                                                                                                         Summary of equity rating changes                22
-20                                                                                                      Summary of credit rating changes                24
           Oct-Dec 10             Oct 11              Mar 12           July-Aug 12     May 13
                         Change in real yields, bp         Change in breakevens, bp                      All research referenced herein has been
                                                                                                         previously published. You can view the full
Source: Barclays Research, (see Global Rates Weekly: Regime shift, 30 May 2013)
                                                                                                         reports, including analyst certifications and
                                                                                                         other required disclosures, by clicking the
                                                                                                         hyperlinks in this publication or by going to
                                                                                                         our Research portal on Barclays Live.




Barclays Capital Inc. and/or one of its affiliate does and seeks to do business with companies covered
in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by equity research analysts based outside
the US who are not registered/qualified as research analysts with FINRA.
FOR ANALYST CERTIFICATION(S), PLEASE SEE PAGE 26.
FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 26.
FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 28.
Barclays | Global Portfolio Manager’s Digest


BARCLAYS MACRO, COMMODITIES AND FX FORECASTS
More detailed global macro, commodities and FX forecasts can be viewed on the Global Forecasts page on Barclays Live.


Real GDP                                                                   Central Bank Rates
                                        2012          2013          2014                                 Current    2Q 13   3Q 13    4Q 13
US                                        2.2           1.8         2.3    Fed funds rate                0–0.25    0–0.25   0–0.25   0–0.25
Brazil                                    0.9           2.5         3.5    BoJ overnight rate            0–0.10    0–0.10   0–0.10   0–0.10
Japan                                     2.0           1.9         2.2    ECB main refinancing rate      0.50      0.50     0.50     0.50
China                                     7.8           7.9         8.1    BOE bank rate                  0.50      0.50     0.50     0.50
India                                     5.1           5.3         6.9    China: Working capital rate    6.00      6.00     6.00     6.00
Euro area                                -0.5          -0.4         1.4    India: Repo rate               7.25      7.00     6.75     6.50
United Kingdom                            0.3           0.9         1.8    Brazil: SELIC rate             8.00      8.00     8.25     8.25
Russia                                    3.4           3.0         3.5    Russia: Refi rate              5.50      5.50     5.25     5.25



Consumer Prices                                                            Global Bond Yields
                                        2012          2013          2014                                 2Q 13      3Q 13   4Q 13    1Q 14
US                                        2.1           1.6         2.2    US 10y                         1.80      1.80     2.00     2.00
Brazil                                    5.4           6.4         5.7    US 10y RY                      -0.75     -0.80   -0.65    -0.75
Japan                                    -0.1           0.0         2.3    Euro Govt. 10y                 1.40      1.60     1.70     1.85
China                                     2.6           3.0         3.5    Euro Govt. 10y RY              -0.15     -0.10   -0.10     0.00
India                                     7.5           5.6         5.5    UK 10y                         2.00      2.10     2.20     2.30
Euro area                                 2.5           1.5         1.4    UK 10y RY                      -1.35     -1.30   -1.25    -1.15
United Kingdom                            2.8           2.7         2.5    Japan 10y                      0.65      0.60     0.55     0.55
Russia                                    5.1           6.6         5.6    Japan 10y RY                   0.00      0.20     0.30     0.30



Commodity Prices                                                           Foreign Exchange
                                        2013          2014          2015                                  Spot     1 Month 6 Month   1 Year
Brent (US$/bbl)                          112           130          135    EUR/USD                        1.30      1.29     1.25     1.23
WTI (US$/bbl)                             95           117          120    USD/JPY                        100.5      103     103      98
US Natural Gas (US$/mmbtu)               3.90          4.10         N/A    GBP/USD                        1.52      1.53     1.47     1.47
Gold (US$/oz)                           1483           1450         1375   USD/CHF                        0.96      0.95     1.00     1.03
Copper (US$/t)                          7920           7500         9500   USD/CAD                        1.04      1.02     1.00     0.99
                                                                           AUD/USD                        0.96      1.00     0.96     0.93
                                                                           USD/CNY                        6.13      6.18     6.14     6.08
                                                                           USD/BRL                        2.14      1.95     2.00     2.00
Source: Barclays
Numbers in bold indicate forecasts; non-bold numbers are actuals.




2 June 2013                                                                                                                                   2
Barclays | Global Portfolio Manager’s Digest


BARCLAYS EVENTS

Conference Calls & Webcasts
Date                    Time                                Call/Webcast
Please click on the links to view details of forthcoming conference calls and webcasts
4 June                  7:45 am EST/12:45 pm GMT            Barclays Tuesday Credit Call
4 June                  1:00 pm EST                         Physician Check-up – Focus on the Orthopaedic Opportunity for PCRX’s Exparel
7 June                  10:00 am EST / 15:00 GMT            Big Data Series: The Disruptive Potential of Hadoop



Conferences & Special Events
Date                    Event                                                                                     Location
Please contact your Barclays Sales representative for availability.
4 June                  NYU Lodging Conference                                                                    Paris
5 June                  High Grade Consumer & Retail Conference                                                   New York
5 June                  Atlanta Financials IR Corporate Day                                                       Atlanta
5 – 6 June              Barclays Nagoya Select Conference 2013                                                    Nagoya, Japan
10 – 11 June            Energy Debt Investor Field Trip                                                           Washington, DC
10 – 11 June            Barclays Select Series 2013: Gems of GEMs Forum                                           Boston and New York
13 – 14 June            Barclays Select Series 2013: India Corporate Days                                         London
17 – 18                 Barclays Select Corporate Day 2013: Smart Mobility – The Rise                             Singapore and Hong Kong
17 – 19 June            50th International Paris Air Show – Barclays Hosted Events                                Paris
17 – 21 June            U.S. Oil Services & Equipment Forum                                                       Europe
19 – 20 June            Oil & Gas Canada Day for Debt Investors                                                   Calgary, Canada
19 – 21 June            Barclays European Select Franchise Conference 2013                                        Yountville, California
24 – 25 June            Barclays Select Series 2013: Internet in the Emerging World Corporate Days                London
27 June                 High Yield Bond Roundtable                                                                Boston
9 – 10 July             Toronto CFO Energy Corporate Day                                                          Toronto
2 September             Barclays Select Series: European Media and Telecom Forum                                  London
3 – 4 September         Back-to-School Consumer Conference                                                        Boston
9 – 11 September        Global Financial Services Conference                                                      New York
12 September            European High Yield and Leveraged Finance Conference                                      London
11 – 13 September       CEO Energy-Power Conference                                                               New York
17 September            Barclays Select Series 2013: European Payments Forum: Identifying the winners             London
19 September            Barclays Kansai Select Conference 2013                                                    Kyoto, Japan
18 November             Barclays Select Series 2013: Select Growth Conference                                     New York
12 December             Barclays Select Series 2013: Information and IT Services Forum                            New York



Replays from the Past Week
Date                    Conference Call/Webcast/Conference
Please click on the links for select conference call replays and webcasts/podcasts from the past week.
29 May                  Barclays Tuesday Credit Call – Policy Palpitations
28 May                  Review of PJM Capacity Auction Results




2 June 2013                                                                                                                                 3
Barclays | Global Portfolio Manager’s Digest


THE DATA MINER: POSITIVE EARNINGS REVISIONS
Rob Rouse, +1 212 526 7323, robert.rouse@barclays.com, BCI, New York

Now that first quarter earnings season is largely past, we can step back and take stock of how US companies fared so far in 2013.
As our last U.S. Earnings Scorecard showed, both sales and EPS growth were relatively weak, the positive surprise ratio was
moderate and forward estimates continue to be revised lower. Over the eight weeks ending May 24, 2013, full year 2013 growth
forecasts for the average company within the S&P 500 were revised down approximately 40 bp.

This week’s screen looks to identify the US stocks that came through first quarter earnings season with the most improved
growth outlooks within their sectors. Our screen considers the following factors:

• Earnings revisions: We screened for the companies that scored in the top quartile on both earnings and sales estimate
    revisions over the past four weeks. Revisions were based on consensus estimates for the current fiscal year, considered on a
    percentage basis and ranked relative to the rest of the stock’s GICS sector.

• Implied growth: We screened for companies that scored in the top quartile for implied growth in earnings and sales for the
    current fiscal year. Implied growth was based on consensus estimates for the current year and ranked relative to the rest of
    the stock’s GICS sector.

Our screen found 18 names, presented in Figure 1 and ranked by implied EPS growth. The universe is the Russell 1000 Index.

FIGURE 1:
Top quartile in earnings revisions and implied growth
                                                                  Market          Price   Sales Revision, EPS Revision, FY1 Implied FY1 Implied
Company Name                                Sector                 Cap        (5/30/2013)    4 Weeks        4 Weeks     Sales Growth EPS Growth

Cabot Oil & Gas Corp                        Energy               $15.2 bn         $72.17             1.3%              4.5%            47.9%           128.9%
Range Resources Corp                        Energy               $12.4 bn         $76.22             0.6%              2.4%            24.5%             67.2%
AMC Networks Inc                            Discretionary          $4.7 bn        $65.42             0.6%            12.6%             14.1%             66.0%
Continental Resources Inc/OK                Energy               $15.8 bn         $84.86             1.6%              3.5%            48.2%             56.8%
Palo Alto Networks Inc                      Tech                   $3.8 bn        $54.39             0.3%              2.0%            55.2%             51.4%
Mohawk Industries Inc                       Discretionary          $8.2 bn       $113.35             4.2%              4.4%            26.8%             50.7%
Fortune Brands Home & Security Inc          Industrials            $7.0 bn        $42.62             0.2%              0.3%            10.7%             49.7%
Workday Inc                                 Tech                 $10.9 bn         $65.42             1.0%              9.2%            60.6%             44.0%
Regeneron Pharmaceuticals Inc               Healthcare           $24.7 bn        $252.18             0.3%              2.3%            40.8%             43.7%
Flowers Foods Inc                           Staples                $4.6 bn        $33.63             2.6%            10.7%             20.7%             40.5%
Cree Inc                                    Tech                   $7.4 bn        $63.63             0.1%              0.3%            19.1%             38.1%
Michael Kors Holdings Ltd                   Discretionary        $13.2 bn         $65.68             3.6%              8.0%            31.6%             29.8%
FleetCor Technologies Inc                   Tech                   $7.1 bn        $87.39             0.2%              0.6%            17.4%             27.3%
DaVita HealthCare Partners Inc              Healthcare           $13.4 bn        $126.48             1.8%              2.8%            41.3%             23.4%
Onyx Pharmaceuticals Inc                    Healthcare             $7.1 bn        $97.08             5.5%            14.4%             72.8%             23.2%
QUALCOMM Inc                                Tech                $110.9 bn         $64.18             0.1%              0.1%            28.1%             22.3%
Biogen Idec Inc                             Healthcare           $56.7 bn        $238.89             1.4%              2.7%            18.6%             20.9%
National Fuel Gas Co                        Utilities              $5.2 bn        $62.14             0.2%              0.8%            12.5%             19.8%
Source: Barclays, Bloomberg. This screen only takes into account the factors expressly stated above and does not necessarily represent the fundamental views of the
analysts. For more details on our analyst views on individual names please find the latest research on Barclays Live or contact the relevant analyst. Please contact
the U.S. Equity Product Management Group if you are interested in any customized revisions to the criteria used.




2 June 2013                                                                                                                                                            4
Barclays | Global Portfolio Manager’s Digest


BEST OF BARCLAYS: GLOBAL MACRO DAILY

                                               Constructive on the US despite a weaker USD
CROSS ASSET RESEARCH                          Excerpted from Global Macro Daily: Constructive on the US despite a weaker USD,
Guillermo Felices                             published on May 30, 2013
+44 (0)20 3555 2533
guillermo.felices@barclays.com                Rates: This time is different
                                              Over the past few years, we have consistently viewed every inordinate rate sell-off as an
Rajiv Setia                                   opportunity to “buy the dip.” We are no longer in that camp. Our base view has always been
+1 212 412 5507                               that rates would start to rise on a sustainable basis, as growth accelerated to above trend,
rajiv.setia@barclays.com                      most likely in 2014. While we still expect this to be the case, our change of stance on
                                              duration to neutral last week (see Unusually uncertain, May 23, 2013) was not driven by a
Anshul Pradhan                                fundamental shift in our economic outlook. Rather, it was driven purely by our view that the
+1 212 412 3681                               market’s perception of the Fed’s reaction function has shifted quite dramatically following
anshul.pradhan@barclays.com                   mixed messages from Fed leadership. Specifically, unless Fed speakers clarify what metrics
                                              they are looking at to gauge the appropriate timing of the withdrawal of stimulus, volatility
                                              is likely to remain elevated in the months ahead.

                                               Over the past week, the violent sell-off has caused carry trades of all flavors to be punished.
                                               Given current rate levels, we are getting close to where it might be worth outright longs on
                                               a tactical basis. From our vantage point, longer-term forwards already reflect any likely
                                               taper. The only question is how much more the hiking cycle can be pulled forward. With the
                                               market still pricing in the first Fed hike in mid-2015, the market can “reasonably” price to
                                               early 2015 (after all, the unemployment rate could be at 6.5% by late 2014 if recent trends
                                               continue). This could push 10y rates to ~2.25% in the near term. We therefore maintain our
                                               neutral duration view for now. On the other hand, if consumption data surprise to the
                                               downside and payrolls disappoint, 10y rates could rally to the levels of early May as hike
                                               expectations are pushed out and the term premium declines.

                                               Given the possibility of large moves in either direction, we continue to recommend being
                                               long gamma on mid-tails. While 1m7y has richened to 88bpv annualized (from 73bpv at the
                                               time of recommendation), it is still trading cheap to delivered vol. We also maintain our
                                               7s30s/10s30s curve flattener view. While the 10s30s curve has flattened 7bp since mid-

FIGURE 1                                                                         FIGURE 2
In contrast to prior rate sell-offs, this one has been driven                    Fed’s forecasts have consistently overestimated growth and
only by real yields, signaling a hawkish Fed                                     underestimated the drop in the unemployment rate

120                                                                                                                     2010        2011    2012   2013*
100                                                                              Real GDP growth , 1y ahead               3.0        3.3    2.7    2.55
                                                                                 Fed forecast, Q4/Q4, %
  80
                                                                                 Realized                                 2.4        2.0    1.7      –
  60
                                                                                 Unemp. rate , 1y ahead                   9.5        9.0    8.6     7.4
  40
                                                                                 Fed forecast, %, Q4 average
  20                                                                             Realized                                 9.5        8.7    7.8      –

   0

 -20
       Oct-Dec 10       Oct 11       Mar 12      July-Aug 12     May 13
              Change in real yields, bp      Change in breakevens, bp
Note: We use Fed CMT data for all the episodes, with the exception of the most   Note: 2013 forecasts are the latest and not from 1y ago.
recent one, where we use OTRs. Source: Federal Reserve, Barclays Research        Source: Federal Reserve


2 June 2013                                                                                                                                               5
Barclays | Global Portfolio Manager’s Digest


                                     May, when concerns about tapering were picking up, we believe curve flatteners still offer
                                     attractive risk-reward. In our view, the curve continues to look too steep, given modest
                                     inflation and inflation expectations.

                                     What has changed?
                                     Not the economic outlook
                                     Has the sell-off been driven by expectations of a better economic outlook? We do not think
                                     so. While consumer confidence has been higher than expected, manufacturing surveys and
                                     industrial production have surprised to the downside. Our economists’ tracking estimate of
                                     Q2 real GDP growth has actually fallen from 1.7% in mid-May to 1.4%. Similarly, consensus
                                     and Barclays’ forecasts for H2 real GDP growth have barely budged at 2.4% and 2%,
                                     respectively. Inflation data have also surprised to the downside and market expectations of
                                     CPI inflation 1y and 2y ahead are at the lower end of the range.

                                     Hence, it does not seem that expectations of the economy have suddenly shifted to justify
                                     the rate move. In past sell-offs, which have resulted from improving fundamentals, real
                                     yields and breakevens have participated. In the recent move, only real yields have moved
                                     higher (Figure 1); breakevens have actually tightened. This is another sign that the move is
                                     not a reflection of better economic outlook, but rather a hawkish Fed.

                                     Mainly the perception of the Fed’s reaction function
                                     So what changed? In our view, the market’s perception of the Fed’s reaction function has
                                     changed, given mixed messages from key Fed officials. New York Fed President Dudley
                                     noted that he would wait for 3–4 months to decide whether to taper; St. Louis Fed President
                                     Bullard noted that he wanted to wait for inflation to rise before tapering; the May FOMC
                                     minutes showed that “views differed about what evidence would be necessary” to gauge
                                     substantial progress and, hence, to commence tapering. At the same time, Chairman
                                     Bernanke said the Fed may begin to taper at the next few meetings and also did not rule out
                                     the possibility before Labor Day, i.e., at the June or July meeting.

                                     The exact timing of the taper should not have much of an effect on the term premium at
                                     the long end of the curve, especially if the taper is gradual and halting, as the stock of Fed
                                     purchases may not end up being different than what the market was expecting prior to the
                                     recent Fedspeak. However, the conditions under which the Fed will begin to taper convey
                                     what metrics it is looking at to judge the appropriateness of monetary policy and, therefore,
                                     its reaction function. This should have significant implications for the hiking cycle.

                                     Until a few weeks ago, we assumed that the Fed would look at not only the partial progress
                                     made in the labor market since the launch of QE3, but also the modest growth and inflation
                                     backdrop. This is where there has been a change in market perception. For instance, were the
                                     Fed to begin tapering at one of the next few meetings despite data that only match consensus
                                     (e.g., modest growth in Q2/Q3, a slowdown in payroll growth vs. the past six months, below-
                                     target inflation), that could convey that the Fed is focused on the unemployment rate. This is
                                     relevant because the forward guidance is explicitly linked to the unemployment rate, which
                                     has been steadily falling faster than Fed’s forecast despite growth being consistently lower
                                     than its forecast (Figure 2). Were the unemployment rate to keep dropping at the current pace
                                     (driven by modest job gains/a continued decline in LFPR), it could get to 6.5% by the end of
                                     2014 and investors would price in a high chance of a Fed hike in early 2015.

                                     While the Fed has stressed that the 6.5% is a threshold, not a trigger, it has also been non-
                                     committal on how it views declines in the unemployment rate to the extent they are driven by a
                                     drop in the LFPR. At the March FOMC press conference, Chairman Bernanke noted that the
                                     drop was mostly structural, but at the latest testimony, he characterized that as a sign of a weak
                                     labor market. Hence, there is now considerable confusion on how investors are supposed to
                                     judge the progress in the economy in the context of the outlook for monetary policy.

2 June 2013                                                                                                                          6
Barclays | Global Portfolio Manager’s Digest


                                     Market implications
                                     What is the near-term outlook for rates? We believe volatility is likely to remain high over
                                     the coming weeks. Since it established forward guidance, the Fed has been able to suppress
                                     the transmission of economic uncertainty into interest rate volatility. However, with its
                                     reaction function becoming uncertain, interest rate volatility should remain elevated, and
                                     there could be large moves in either direction.

                                     The market still expects the first hike around mid-2015. If the Fed intends to focus on the
                                     unemployment rate, then the hiking can still be pulled forward. A re-pricing to Q1 15 could
                                     result in another 10–15bp rise in 10y rates. This would mainly affect the intermediate
                                     sector, as longer-term forward rates have also risen enough to compensate for the smaller-
                                     than-expected Fed balance sheet; 10y10y swap rates are already at 4.1%.

                                     On the other hand, if labor market data weaken materially or the Fed re-emphasizes the
                                     modest growth and inflation backdrop, hikes should be pushed out the and term premium
                                     should decline. For instance, Vice Chair Yellen has argued that to compensate for the zero
                                     lower bound, the Fed should keep rates on hold till mid-2016, after unemployment has
                                     dropped to about 6%. Even if the market were to push out the Fed hikes to say Q3 15, 10y
                                     rates could decline to early May levels.

                                     Hence, while we maintain our neutral duration view, we continue to recommend long
                                     gamma on mid-tails. While 1m7y has richened to 88bpv (from 73bpv at the time of
                                     recommendation), it still looks attractive on both un-delta hedged and delta hedged bases.

                                     We also maintain our 7s30s/10s30s curve flattener view. While the 10s30s curve has
                                     flattened 7bp since mid-May, when concerns about tapering were picking up, we believe
                                     curve flatteners still offer attractive risk-reward. Further repricing of the hiking cycle should
                                     result in the underperformance of the belly in a sell-off, as falling long-term inflation
                                     expectations and the negative reaction of risk assets should support the long end. On the
                                     other hand, dovish Fedspeak or weak data should result in a decline in the term premium as
                                     well and the long end may not underperform in a rally. In our view, the curve continues to
                                     look too steep, given modest inflation and inflation expectations.




2 June 2013                                                                                                                         7
Barclays | Global Portfolio Manager’s Digest


BEST OF BARCLAYS: EURO THEMES

                                     Germany outlook: Global headwinds
ECONOMICS RESEARCH                   Excerpted from Euro Themes: Germany outlook – Global headwinds, published on
Thomas Harjes                        May 28, 2013
+49 69 716 11825
thomas.harjes@barclays.com
                                     • The German economy suffered a soft start into 2013, with GDP expanding by a mere
                                         0.1% q/q in Q1 13 following the sharp contraction in Q4 12 (-0.7% q/q), which was
                                         caused by a slump in external demand. Private consumption was strong but
                                         exceptionally cold weather weighed on construction activity earlier this year. Growth
                                         should accelerate markedly in Q2 but owing to the weak economic performance over
                                         the past couple of quarters, we have revised down our annual 2013 GDP forecast to
                                         0.5%. The strength of global demand, both from Europe and overseas, remains a
                                         concern in the near term.

                                     • Our medium-term outlook remains relatively bullish for Germany’s economy in view of
                                         its sound domestic fundamentals and export strength. Robust labour and housing
                                         markets, which are benefitting from low interest rates and strong net immigration flows,
                                         continue to support consumption. Corporate investment declined again in Q1 but the
                                         pace of contraction is moderating and the latest factory orders imply that a turn in the
                                         domestic investment cycle is near.

                                     • Federal elections (22 September) dominate the political agenda over the next few
                                         months. A new euro-critical party (AfD) has emerged but is unlikely to gain major
                                         support this fall. The SPD/Green party opposition is campaigning for higher taxes and
                                         social benefits, tighter financial regulation, and has endorsed a common debt
                                         redemption fund for euro area countries proposed by the government’s Council of
                                         Economic Experts. Current polls suggest that another term for the current
                                         CDU/CSU/FDP government is still the most likely outcome of the elections.


                                     FIGURE 1
                                     Actual and forecast of quarterly GDP growth and its contributors
                                      1.00
                                      0.75                                                                     Projections
                                      0.50
                                      0.25
                                      0.00
                                     -0.25
                                     -0.50
                                     -0.75
                                     -1.00
                                                 Q3          Q4       Q1   Q2          Q3     Q4   Q1   Q2 E     Q3 E        Q4 E
                                                      2011                      2012                       2013
                                                       Net exports                 Inventories            Fixed investment
                                                       Consumption                 Real GDP
                                     Source: Destatis, Barclays Research




2 June 2013                                                                                                                         8
Barclays | Global Portfolio Manager’s Digest


BEST OF BARCLAYS: QUANTITATIVE PORTFOLIO STRATEGY

                                     Managing Conflicting Views in Asset
                                     Allocation Decisions
QUANTITATIVE RESEARCH                Excerpted from Managing Conflicting Views in Asset Allocation Decisions, published on
Albert Desclée                       May 28, 2013
+44 (0)20 7773 3382
albert.desclee@barclays.com
                                     • Investors often formulate active views that conflict with historical correlations of
                                        underlying assets. A combination of bullish credit and bearish equity views is an
                                        example of such a conflict.
Anando Maitra
+44 (0)20 3134 0091                  • While conflicting views appear to diversify portfolio risk, their contribution to portfolio
anando.maitra@barclays.com              returns may be insignificant because the disagreements with historical correlations
                                        make their joint successful realisation unlikely.
Simon Polbennikov
+44 (0)20 3134 0752                  • How should investors allocate the risk budget when their active views conflict with
simon.polbennikov                       historical correlations? We suggest a simple technique that incorporates conflicting
@barclays.com                           views into a risk budgeting framework by adjusting individual strategy information ratios
                                        according to the payoff correlation structure.

                                     • Our proposed adjustment generally improves diversification and provides more
                                         conservative performance estimates. The methodology can be applied in a broader
                                         portfolio management context than just tactical risk budgeting.

                                     • We use historical simulations with imperfect foresight to illustrate how our proposed
                                         adjustment helps improve realised portfolio performance.




2 June 2013                                                                                                                      9
Barclays | Global Portfolio Manager’s Digest


U.S. EQUITY STRATEGY

                                            Revisiting our exit strategy from
                                            bond-like stocks
Barry Knapp                                 Excerpted from U.S. Portfolio Strategy Weekly, published on May 31, 2013
+1 212 526 5313
barry.knapp@barclays.com
                                            • Monetary policy expectations have been substantially reset since the April employment
                                               report. The equity market has not been immune; stocks with bond-like characteristics
BCI, New York
                                               have performed poorly over the last month.

                                            • From a strategic perspective, we are leaning toward believing this is indeed the
                                               beginning of the end for bond-like stocks. However, from a tactical perspective even If
                                               we have reached the monetary policy inflection point, history suggests the window was
                                               missed to sell bond-like stocks at their maximum point of outperformance and making a
                                               wholesale allocation shift now means paying too much for cyclicals as they’re not
                                               immune to monetary policy related equity market corrections.


                                            Getting your hand slapped in the reach for yield
                                            Monetary policy expectations have been substantially reset since the April employment
                                            report; for evidence, look no further than 10 year real yields (TIPS), which have shot up from
                                            -0.72% in late April to -0.08% on Friday morning. As our colleagues in interest rates
                                            strategy point out in this week’s report titled “Regime Change,” this is different from most
                                            Treasury market corrections this cycle, which generally were driven by a combination of
                                            higher inflation expectations (inflation breakevens) as well as growth and policy (real rates).

Economically sensitive                      The equity market has not been immune, as our stocks with bond-like characteristics theme
sectors and stocks that we                  had a bad month. Our game plan was always to wait for the clear signal of a policy shift and
want exposure to after the                  the related equity market correction to exit this theme, in part because history tells us the
monetary policy normalization               more economically sensitive sectors and stocks that we want exposure to after the
related correction will also                monetary policy normalization related correction will also come under pressure in the
come under pressure                         second stage of the adjustment. In other words, rushing to sell defensive dividend paying



FIGURE 1                                                                  FIGURE 2
Monetary policy expectation policy expectations have been                 … But, unlike most treasury market corrections this cycle
substantially reset with 10 year real yields rising steeply …             inflation expectations are falling

  %                                                                        %
  0.0                                                                      3.0
 -0.1                                                                      2.9
 -0.2
                                                                           2.8
 -0.3
 -0.4                                                                      2.7
 -0.5                                                                      2.6
 -0.6                                                                      2.5
 -0.7
                                                                           2.4
 -0.8
 -0.9                                                                      2.3
 -1.0                                                                      2.2
   May-12          Aug-12          Nov-12        Feb-13       May-13        May-12           Aug-12          Nov-12         Feb-13      May-13
                                 10y UST Real Yield                                                   Barclays 5y5y Fwd Inflation BEs
Source: Bloomberg, Barclays Research                                      Source: Barclays Research


2 June 2013                                                                                                                                  10
Barclays | Global Portfolio Manager’s Digest


                                     stocks to buy cyclicals prior to the Fed-related corrections that occurred in 1983, 1994 or
                                     2004 was tactically difficult and, therefore, likely expensive.

The tapering talk has been           A week from today one of the most widely anticipated monthly employment reports in quite
highly conditional on                some time will be released. It appears the six-month average increase in payrolls of 208,000
employment data                      is approaching the FOMC’s threshold for a substantial improvement in the labor market at
                                     least in terms of level, if not consistency. The latest significant example came from the
                                     generally dovish Boston Fed President Rosengren who noted he would like to see growth
                                     above 200,000 and that asset purchase reductions might make sense later this year. Since
                                     the beginning of 2012, payrolls have exceeded 300,000 in two months, but neither
                                     appeared on your screen in the initial print. The latest was the 332,000 increase in February;
                                     the original report was only 236,000. The tapering talk has been highly conditional on
                                     employment data; so, if our economics team’s forecast of 175,000 proves correct, we
                                     suspect the “reach for yield” will at least stabilize, if not resume. On the other hand, a
                                     250,000 report along with positive revisions to March and April, as has been the pattern the
                                     last two months ,could be a significant step along the path toward slowing the rate of
                                     purchases this fall.


                                     FIGURE 3
                                     It seems the 6 month average increase in payrolls of 208,000 is approaching the FOMC’s
                                     threshold for substantial improvement, at least in terms of level, if not consistency

                                      thous, m/m chg
                                       400
                                       300
                                       200
                                       100
                                          0
                                      -100
                                      -200
                                      -300
                                      -400
                                               90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
                                                                             Nonfarm Payrolls, 6mma SA
                                     Source: BLS, Haver, Barclays Research




2 June 2013                                                                                                                     11
Barclays | Global Portfolio Manager’s Digest


AMERICAS CREDIT STRATEGY

                                       Higher Yields, Higher Anxiety
Jeffrey Meli                           Excerpted from U.S. Credit Alpha, published on May 31, 2013
+1 212 412 2127
                                       Continuing the trend from last week, risk assets remained volatile, driven by the selloff in
jeff.meli@barclays.com
                                       Treasuries. 10y yields spiked 16bp on Tuesday – the largest single-day move in more than a
                                       year – before retracing part of the move later in the week. The S&P 500 index was up more
Bradley Rogoff, CFA
                                       than 1% on Tuesday but gave up those gains on Wednesday. The CDX HY index was down
+1 212 412 7921
                                       $0.30 for the week as of Wednesday’s close, while high yield cash spreads were 10bp wider,
bradley.rogoff@barclays.com
                                       leading to a 24bp increase in the yield of the Barclays High Yield Index. The move in
                                       investment grade credit spreads was more muted, with the CDX IG index widening 2bp,
                                       while the Barclays Corporate Index was unchanged.

                                       The selloff in Treasuries has once again brought to the fore concerns about the effect of
                                       rising rates on credit spreads. As we discussed in The Great Rotation: Myth or Reality?
                                       February 1, 2013, we continue to believe that in a rising rate environment, investment grade
                                       spreads are likely to be supported by increased buying from insurance companies, which
                                       should be enough to offset any selling driven by mutual fund outflows. Indeed, investment
                                       grade spreads across the ratings spectrum have tightened since May 2 (the start of the
                                       rates move higher), even though total returns have been negative (Figure 2). Although high
                                       yield spreads have widened during the recent Treasury selloff, we believe that given the
                                       wider spread cushion, high yield is better positioned to absorb a rate increase as long as it is
                                       accompanied by at least a moderately improving macroeconomic environment. We
                                       continue to forecast total returns of 6–8% for high yield in 2013 (please see The Year of the
                                       Coupon Return, May 17, 2013).

                                       Despite the recent increase in volatility, M&A activity picked up, with three deals in the $5–
                                       10bn range announced this week. Berkshire Hathaway’s purchase of NV Energy, Valeant’s
                                       acquisition of Bausch & Lomb, and Shuanghui International’s takeover of Smithfield Foods
                                       added another $26bn of deal volume to this year’s activity. However, even after these deals,
                                       M&A volumes remain significantly below their 2006–07 levels. We find this somewhat
                                       surprising, given that conditions for M&A growth are no worse, and in some ways better,


FIGURE 1                                                             FIGURE 2
Weekly Index Changes                                                 Spread and Yield Changes by Rating: May 2–29 (bp)

                                 Wednesday Last Week 4-week             80
                                   Close     Close   Average            70
Credit Index (bp)                   124         123       122           60
CDX.IG.20 (bp)                      77.0        75.8      72.5          50
High Yield Index ($ Price)         105.33      106.04    106.70         40
CDX.HY.20 ($ Price)                105.44      105.75    106.60         30
Leveraged Loan Index ($ Price)     98.45       98.62     98.74          20
LCDX.20 ($ Price)                  104.38      104.38    104.38         10
                                                                         0
                                                                       -10
                                                                                AAA        AA    A      BBB      BB       B      CCC
                                                                                                  OAS           YTW

Source: Barclays Research                                            Source: Barclays Research



2 June 2013                                                                                                                         12
Barclays | Global Portfolio Manager’s Digest


                                     than they were pre-crisis: valuations remain modest, margins seem to offer more room for
                                     large companies to find synergies by acquiring smaller firms, and declines in expectations
                                     for growth should be more than offset by drops in funding costs. In fact, as we discuss in
                                     the Investment Grade section, M&A levels in terms of number of deals rather than dollar
                                     volumes have picked up and are close to all-time peaks.

                                     Away from M&A, Sallie Mae’s announcement that it will split into two entities and Alcoa’s
                                     downgrade to high yield by Moody’s led to significant spread moves in those credits and
                                     highlighted the prevalence of idiosyncratic risks in the market. Sallie Mae was downgraded
                                     to high yield by Fitch after the announced split; as a result, its bonds will enter the High Yield
                                     Index at the end of the month. SLMA CDS widened sharply on the news; however,
                                     fundamental bank analyst Brian Monteleone remains Overweight SLMA senior unsecured
                                     debt (please see his note for details).

                                     Moody’s decision to downgrade Alcoa to below investment grade was prompted in large
                                     part by the recent declines in the price of aluminum and continuing headwinds pressuring
                                     the aluminum industry. We believe that other credits remain vulnerable to continuing
                                     weakness in commodity prices amid lackluster global economic growth. In this week’s
                                     focus section, we take a deep dive into iron ore and met coal producers, which are among
                                     the widest trading groups in the U.S. Credit and High Yield Indices, respectively, but which
                                     are still likely to underperform, in our view. While the prices of iron ore and met coal have
                                     already declined sharply in 2013, we believe that significant new capacity poised to enter
                                     the market between now and the end of 2014 will put even more pressure on iron ore
                                     prices and limit the room for met coal to rally. In our view, this is not yet priced fully into
                                     spreads, and there remains room for broad underperformance across the sectors’ credits.




2 June 2013                                                                                                                         13
Barclays | Global Portfolio Manager’s Digest


EUROPEAN CREDIT STRATEGY

                                       Discounting future expectations
Søren Willemann                        Excerpted from European Credit Alpha, published on May 31, 2013
+44 (0) 20 7773 9983
                                       Volatility persisted this week, as limited market liquidity exacerbated price moves
soren.willemann@barclays.com
                                       across asset classes. European credit was not immune to the sharp rise in treasury yields
                                       or the weakness in equities (particularly in Japan). We expect that spreads will remain
Zoso Davies
                                       sensitive to Fed speakers and US data in the coming weeks, as expectations of Fed
+44 (0)20 7773 5815
                                       tightening are recalibrated. Sentiment appears to be changing with signs of de-risking
zoso.davies@barclays.com
                                       in cash potentially setting us up for some weakness in the short term.

                                       Our economists remain of the view that the Fed will continue to expand its balance sheet at
                                       a rate of $85bn through year end. Assuming that is the case, monetary policy should remain
                                       very supportive for fixed income markets, including European credit. However, the corollary
                                       to this view is that both spreads and yields would suffer if the Fed were to tighten sooner
                                       than our economists forecast. Indeed, this view is probably the consensus among investors
                                       and expectations of a sell-off in response to Fed tapering could be self-fulfilling.

                                       However, if participants believe that tapering of asset purchases will result in a period of
                                       financial market volatility then those expectations should be priced in now. In our view, this
                                       is the driver of recent market weakness. Recalibration of expectations as to when, and how,
                                       the Fed will begin to tighten monetary policy is already underway. JGBs have also sold off as
                                       markets have adjusted their forecasts; inflation expectations appear to be the key driver of
                                       that market. If we are correct, then US data and Fed speakers should have an exaggerated
                                       influence on European markets until there is more confidence in the path of policy. Once
                                       tapering has been “priced in”, the actual announcement of Fed tightening may have only a
                                       muted impact. This would mirror the price action before QE2, and “Operation Twist”.

                                       Focusing on the specific issue of rising rates, this should only be a temporary headwind for
                                       credit spreads, in our view. As discussed in “The shifting relationship of spreads and rates
                                       across the cycle” (European Credit Alpha, 15 February 2013), it is rare for spreads to widen
                                       during periods in which government bond yields are rising. The key exceptions are: when
                                       government bond yields increase due to credit concerns (as happened for the European
                                       periphery); and at the start of tightening cycles. Indeed, we noted that increased uncertainty
                                       at the start of policy tightening by the Fed would likely cause an uptick in volatility and

FIGURE 1                                                              FIGURE 2
Generic 10y US Treasury and JGB yields                                Volatility indices when markets anticipate Fed tightening
Yield (%)                                               Yield (%)     Units
 1.0                                                            2.2   50

 0.9                                                           2.1    45 End of QE1
                                                                        approaching                                   Uncertainty
                                                               2.0    40                                               over QE3
 0.8                                                                                                End of QE2
                                                               1.9    35                           approaching
 0.7
                                                               1.8    30
 0.6
                                                               1.7    25
 0.5                                                           1.6    20

 0.4                                                           1.5    15
   Jan-13        Feb-13     Mar-13   Apr-13    May-13
                                                                      10
                10Y JGB (LA)           US 10Y Treasury (RA)            Dec-09               Dec-10           Dec-11             Dec-12
Source: Barclays Research                                             Source: Bloomberg, Barclays Research


2 June 2013                                                                                                                              14
Barclays | Global Portfolio Manager’s Digest


                                     moderate weakness in risk assets. This appears to be playing out, even if we do not agree
                                     with the markets’ assessment of when tapering is likely to commence.

                                     Another way of thinking about this is to say that if the Fed begins to tighten policy because
                                     of improvements in economic growth, then those fundamental positives should
                                     counterbalance the negative of monetary policy tightening. However, economic data are
                                     reported over a period of months and quarters, meaning that it takes time before markets
                                     are convinced that growth is firmly entrenched. Before that, volatility could rise, which in
                                     itself would weigh on spreads. Indeed, when we look at intraday volatility of iTraxx Main, it
                                     currently appears high relative to spread levels, reflecting a general skittishness in the
                                     market (see the Index Relative Value section for more details).

                                     In terms of positioning, we are seeing tentative signs of de-risking in cash (profit-taking).
                                     While this selling is currently being met by buyers, it could lead to short-term weakness if
                                     the de-risking continues along with heightened intraday CDS index volatility and continued
                                     volatility out of Japan.

                                     If the growth outlook in the US has improved, this may also be matched by developments in
                                     Europe where the focus on austerity has slipped away as quickly as the market pressure on
                                     Spanish and Italian bond yields. This week the European commission granted extensions to
                                     several countries’ deficit reduction targets, albeit in return for increased delivery on
                                     structural reforms. Further, Germany appears to be willing to support programmes aimed at
                                     targeting SME financing and youth unemployment in the periphery. Reducing the pace of
                                     austerity should be positive for the growth outlook in Europe, particularly if coupled with
                                     long-term structural reforms. However, if governments drag their feet on reforms as well as
                                     fiscal tightening, then the risk of the “bond vigilantes” returning to Spain and Italy could
                                     begin to rise again.




2 June 2013                                                                                                                    15
Barclays | Global Portfolio Manager’s Digest


ASIA CREDIT STRATEGY

                                          Stay hunkered down
Krishna Hegde, CFA                        Excerpted from Asia Credit Alpha, published on May 31, 2013
+65 6308 2979
                                          Emerging market risk assets underperformed significantly, with US Treasury yields rising
krishna.hegde@barclays.com
                                          further as a result of a perceived shift in policy by the US Federal Reserve. We expect
                                          markets to remain volatile in coming weeks as participants gauge the Fed’s reaction
Avanti Save
                                          function. The vulnerability of EM assets in general has increased against a backdrop of
+65 6308 3116
                                          negative growth surprises, higher US Treasury yields and crowded positioning in some
avanti.save@barclays.com
                                          segments. That said, the technicals for Asian corporate credit are likely to be better than for
                                          other segments of EM and Asia sovereigns/quasi-sovereigns owing to the different pockets
                                          of in-region demand. For the past two weeks, we have been recommending that investors
                                          move towards a neutral stance. We recommend keeping beta close to benchmark levels,
                                          while having less-than-benchmark exposure to Chinese state owned enterprises.

                                          Some of the EM underperformance this week can be attributed to weak data. Brazil GDP
                                          grew only 0.6% q/q in 1Q13, and our economists now project developed-market-like
                                          growth of 2.5% y/y for 2013. Despite weak growth, the Brazilian central bank hiked the
                                          policy rate by 50bp to address high inflation. South Africa also posted weaker-than-
                                          expected 1Q GDP growth. The Philippines was a spot of strength; GDP growth accelerated
                                          to 7.8% y/y in 1Q13. We recommend using Philippines sovereign CDS as a funding leg for
                                          any shorts and believe any spread widening versus Thailand/Malaysia should be faded.

                                          Within Asian credit markets, long-tenor bonds lagged as investors shunned duration.
                                          Indonesian bonds were also clear underperformers with sovereign/quasi-sovereigns and
                                          corporates – all widening. We note that investor concern over Indonesia’s macro backdrop
                                          has increased in recent days. Outside Indonesia, segments that have seen significant supply
                                          in recent weeks have widened the most – for example, Chinese state-owned enterprises.
                                          Investment grade spreads are now back to their March levels, but the selloff in US
                                          Treasuries pushed YTD total returns into negative territory. The outperformers this week
                                          were short-tenor high yield paper and Indian bank bonds. Most investors we spoke to in
                                          May have been underweight India, and supply from financials has not been excessive. The
                                          relative lack of negative headlines in India and wider-than-benchmark spreads also helped
                                          performance, in our view. For Asian credit, we believe that staying close to benchmarks
                                          remains appropriate as inflows/in-region demand offset the increased risks.

FIGURE 1                                                                FIGURE 2
High Grade Excess Returns by Geography                                  High grade excess returns by tenor (YTD and last week)
  %                   Excess return YTD     Excess return MTD             %
 3.5                                                                                                   YTD    1 wk
                                                                         1.5
 3.0
 2.5                                                                     1.0
 2.0
                                                                         0.5
 1.5
 1.0                                                                     0.0
 0.5
                                                                         -0.5
 0.0
-0.5                                                                     -1.0
-1.0
                                                                         -1.5
-1.5
-2.0                                                                     -2.0
-2.5
                                                                         -2.5
                                                                         -3.0
                                                                                     <5 yr          5-10 yr      10-20 yr    20-30 yr
Source: Barclays Research                                               Source: Barclays Research


2 June 2013                                                                                                                             16
Barclays | Global Portfolio Manager’s Digest


RATES STRATEGY

                                           Regime shift
Rajiv Setia                               Excerpted from Global Rates Weekly, published on May 30, 2013
+1 212 412 5507
                                          We are neutral on duration in developed rates and long US gamma, given our belief that
rajiv.setia@barclays.com
                                          markets are likely to remain volatile and sensitive to US labor metrics over the summer.
                                          We maintain our US 7s30s curve flattener view, given the drop in inflation expectations.
Laurent Fransolet
+44 (0)20 7773 8385                       Global rates endured another week of high volatility. 10y Treasuries sold off 9bp through
laurent.fransolet@barclays.com            Thursday, but this masks the intraday volatility that characterized much of the week, on
                                          little fundamental news. It remains clear that the market believes that US monetary policy
Amrut Nashikkar                           has taken a hawkish turn, while the increase in volatility in the bond and stock markets in
+1 212 412 1848                           Japan has market participants questioning the efficacy of the BoJ’s monetary expansion.
amrut.nashikkar@barclays.com              Meanwhile, inflation expectations in the US have continued to decline through the rate sell-
                                          off, and real rates have to risen to levels not reached since early 2012, even as the incoming
                                          data have remained decidedly mixed (Figure 1).

                                           It is not just the level of real rates that suggests that there has been a policy change in the
                                           market’s mind; a look at carry trades in several other markets corroborates such a belief. By
                                           definition, an investor in a carry trade looks to earn a risk premium with a view that markets
                                           will remain range-bound; ie, forward prices are not realized, but roll to spot prices instead.
                                           The fact that carry-trades across asset classes performed poorly over the past month
                                           suggests that the market perceives such a regime shift.

Carry trades across                       In Figure 2, we have chosen a few carry trades that were popular at the end of April. Some
 asset classes were likely                of these are rates trades, such as receiving 3y1y rates, long the belly of the curve, 7s30s
stopped out in May, suggesting            steepeners, short 1y10y straddles and long 10y JGBs. Others are non-rates trades such as
that a reversal may be slow               long AUD and long agency mortgage REITs. With the exception of the 7s-30s steepener and
in coming.                                selling rates vol, the other trades have given up more than a year’s worth of carry. Clearly,
                                          the past month has been brutal for carry trades; we did not see such broad-based losses in
                                          carry trades across asset classes in the January rate sell-off. Faced with large losses,
                                          leveraged money will likely be hesitant to position for a reversal anytime soon.



FIGURE 1                                                                 FIGURE 2
Sell-off in rates continues to be real yield driven, while               With the exception of 7s30s curve steepeners, popular carry
inflation expectations are falling                                       trades have severely underperformed over the past month
 120
                                                                                               1y expected     Carry/     Months of carry
 100                                                                      Trade               carry , 30-Apr    vol        lost in May

   80                                                                     Receive 3y1y               50 bp      1.05             14
                                                                          Receive 7s                 38 bp      0.91             13
   60
                                                                          7s30s steepener            26 bp      0.64             1.5
   40
                                                                          Short 1y10y
                                                                                                     270         –               5
   20                                                                     straddle (cnts)
                                                                          Long AUD (cnts)             2.6       0.27             32
    0
                                                                          Long agency
                                                                                                     1.73       0.75             12
  -20                                                                     REIT ETFs ($)
         Oct-Dec 10         Oct 11    Mar 12   July-Aug 12   May 13       Buy 10y JGB                15 bp      0.23             25
          Change in real yields, bp     Change in breakevens, bp
Source: Barclays Research                                                Source: Barclays Research


2 June 2013                                                                                                                            17
Barclays | Global Portfolio Manager’s Digest


                                        Adding fuel to the fire, there are emerging signs of instability in Japanese markets, potentially
                                        signalling the constraints of unconventional monetary policy at the zero lower bound. Despite
                                        the BoJ’s stated intention to lower long-term interest rates, 10y JGBs now trade nearly 35bp
                                        higher than they did before the BoJ’s QQE announcement. The Nikkei has been extremely
                                        volatile, already having lost over 2,000 points after rising to a local peak of 15,627. This rise in
                                        volatility, along with the increase in rates, means that financial conditions in Japan have
                                        tightened over the past few days, quite the opposite of the BoJ’s intention.

Volatility in Japanese equity          As our Japanese economists have argued, it will be extremely difficult for the BoJ to meet its
and rates markets means that           stated inflation target of 2% (see Long and winding road to inflation, April 25, 2013). This is
it may be difficult for investors      compounded by the fact that wealth effects, if any, from the rise in the stock market are
to position for a rally                likely to be small, given the low levels of stock ownership in Japan (only 7% in Japan, vs 33%
                                       in the US, Figure 3). Further, Japanese depository institutions hold over JPY300trn of
                                       government bonds, which means that any large rises in interest rates could also lead to
                                       losses on their holdings; capital losses could crimp credit creation, implying an indirect
                                       tightening of policy.

                                        Our Japanese strategists believe that 0.8% on 10y JGBs is an attractive level for the long
                                        term. But it is unclear how the BoJ, which has already announced a massive bond purchase
                                        program, could push rates lower in the face of rising volatility. This leads us to take a
                                        cautious stance on outright duration in Japan.


                                        Volatility is likely to remain elevated
In the US, we are neutral              We are neutral on duration in developed markets. Over the past few years, we have
 on duration, but maintain             consistently viewed every inordinate rate sell-off in the US as an opportunity to “buy the
our long gamma and                     dip.” We are no longer in that camp. Our base view has always been that rates would start
curve flattener views.                 to rise on a sustainable basis, as growth accelerated to above trend, most likely in 2014.
                                       While we still expect this to be the case, our change of stance on duration to neutral last
                                       week (see Unusually uncertain, May 23, 2013) was not driven by a fundamental shift in our
                                       economic outlook. Rather, it was driven purely by our view that the market’s perception of
                                       the Fed’s reaction function has shifted dramatically following mixed messages from Fed
                                       leadership. Specifically, unless Fed speakers clarify what metrics they are looking at to
                                       gauge the appropriate timing of the withdrawal of stimulus, volatility is likely to remain
                                       elevated in the months ahead. In the US Rates Strategy section of this publication, we argue


FIGURE 3                                                                FIGURE 4
Equity ownership by households in Japan is much lower than              The Fed has typically turned dovish whenever
in the US or even Europe                                                the unemployment rate has stalled
 100%                                                                     0.4
                                                                                                                  Dovish
  80%                                                                     0.2

                                                                          0.0
  60%
                                                                         -0.2
  40%
                                                                         -0.4
  20%
                                                                         -0.6
    0%
                                                                         -0.8
                  Japan         United States        Euro Area
                                                                                                                               Hawkish
     Currency & Deposits             Bonds                               -1.0
     Investment Trusts               Shares and equities                    Jan-10    Jul-10    Jan-11   Jul-11   Jan-12   Jul-12   Jan-13
     Insurance andPension Reserves   Others                                                 Change in Unemployment Rate, 6 months
Source: Bank of Japan                                                   Source: Barclays Research


2 June 2013                                                                                                                                  18
Barclays | Global Portfolio Manager’s Digest


                                     that while the Fed has typically tended to overestimate growth, it has underestimated the
                                     drop in the unemployment rate. With the market already pricing in the first hike in mid-
                                     2015, there is probably some more room for expectations to be pulled forward to early
                                     2015 if the unemployment rate continues to drop because of modest job growth and a fall
                                     in the participation rate. Such a scenario would imply 10s trading at 2.25% in the near term.

                                     On the other hand, if the decline in the unemployment rate stalls (Figure 4), the Fed could
                                     turn increasingly dovish. This leads us to be neutral on duration unless the Fed clarifies
                                     otherwise. We are also maintaining our long gamma and 7s30s flattener views going into
                                     payrolls. For a list of trade ideas to implement our views or to position for either a
                                     continuation of the sell-off or for a reversal, please refer to the US Rates Strategy section.

                                     Our European rates strategists believe that rates in core European countries are likely to be
                                     driven largely by US rate moves over the near term. Given the recent stabilization in
                                     European data, in the Euro Rates Strategy section of this publication we suggest that the
                                     recent sell-off in core European rates should not be faded.




2 June 2013                                                                                                                     19
Barclays | Global Portfolio Manager’s Digest


ECONOMIC OUTLOOK

                                             The taper worm
Julian Callow                                Excerpted from Global Economics Weekly, published on May 31, 2013
+44 (0)20 7773 1369
                                             Recent price action demonstrates the skittishness of financial markets in an environment
julian.callow@barclays.com
                                             dominated by Fed and BoJ asset purchases. Our view remains that the sheer scale of this
                                             dominance (with central banks essentially vacuuming up all net issuance of ‘safe’ assets,
                                             forcing substantial portfolio re-balancing by the private sector, which itself still needs trillions of
                                             dollars of ‘safe’ assets) is likely to continue to support valuations, while also leaving markets
                                             sensitive to any perceived shift in the flow of central bank asset purchases. As one example of
                                             this, the US real 5y5y forward rate has risen significantly (Figure 1). In this week’s US Outlook
                                             we explain why we expect the Fed to refrain from tapering its $85bn monthly pace of asset
                                             purchases during the rest of this year, given our view that US GDP expansion will be less than
                                             that expected by the Fed and consensus. Additionally, the latest weak core PCE deflator (1.1%
                                             y/y in April) also offers leeway for the Fed to persist with aggressive QE, even as it refines its
                                             communication around the conditionality of future exit measures.

Anxiety about tapering                       Anxiety about a potential tapering has been amplified by sensitivity to any signs that the
coincides with a reassessment                pace of expansion in emerging economies could be weaker than expected. In this context,
of growth prospects in 2013                  China’s next batch of monthly data, starting with the imminent NBS PMI reports, and
in emerging economies…                       including the next (May) reports for IP, FAI and retail sales (due on June 9th) will be crucial to
forthcoming Chinese data                     determining potential downside risks to GDP growth expectations (at a time when the IMF
will be crucial                              has trimmed its 2013 GDP forecast from 8% to 7 ¾%).

China, and other EM                          The sensitivity of global markets to even small signs of disappointing activity in emerging
economies, accounted for                     economies is attributable to the very strong contribution to global expansion made by this group
nearly half of G20 fixed asset               since the crisis. As an indication, gross fixed capital formation (GFCF) by China and Hong Kong
capital formation (economic                  last year amounted to $3.9trn, outstripping the US ($2.5trn) and EU ($3.0trn). Indeed, this
investment) last year                        measure of ‘economic’ investment was very strong in the remainder of the G20 (which is
                                             dominated by emerging countries), at $3.2trn (Figure 2).

                                             Concerns that the EM economies may report disappointing economic data this year have
                                             recently come into sharper focus with the release of Q1 GDP statistics. For example, Brazil’s
                                             growth slowed further, to 2.2% q/q (saar, 1.8% y/y in Q1 (from 2.6% in Q4, and was below
                                             the consensus/our forecast). Several factors help to explain this, including a sharp drop in
                                             net exports and static consumption. Q1 GDP reports this past week from South Africa

FIGURE 1                                                                      FIGURE 2
Real forward rates have risen despite ongoing “QE3”                           China and other EM countries dominate global investment

  4.0                                                               120        GFCF $bn
                                QE1          QE2      Op.     QE3
  3.5                                                Twist                    4000
                                                                    115                            US
  3.0                                                                         3500
                                                                                                   China (inc HK)
  2.5                                                               110
                                                                              3000
  2.0                                                                                              EU 27
                                                                    105       2500
  1.5                                                                                              Japan
  1.0                                                               100       2000
                                                                                                   Rest of G20
  0.5                                                                         1500
                                                                    95
  0.0                                                                         1000
 -0.5                                                               90
                                                                               500
        07      08       09      10        11     12         13
                     5y5y forward real rate (%)                                   0
                     5y5y forward breakeven (%)                                       70 73 76 79 82 85 88 91 94 97 00 03 06 09 12
                     US dollar TWI (broad index, RHS)
Source: Barclays Research, Haver Analytics                                    Source: CEIC, Haver Analytics GFCF = gross fixed capital formation


2 June 2013                                                                                                                                        20
Barclays | Global Portfolio Manager’s Digest


                                               (0.9% q/q saar), and Thailand (-8.4%) were also significantly weaker than our and the
                                               markets’ expectations. That said, India’s GDP (at factor cost) grew by 4.8% y/y, in line with
                                               forecasts (corresponding to c. 4% saar q/q), while GDP in the Philippines surprised on the
                                               upside (see Emerging Asia Outlook).

China dominates global                        Despite the surge in Chinese investment, it is noteworthy that at the aggregate G20 level,
investment, and excessive                     the ratio of economic investment (GFCF) to GDP has risen only gradually, reaching 23.0% in
investment there may even                     2012 from 22.5% in 2011 and 22% in both 2009 and 2010. The average ratio for the US, EU
be muffling an investment                     and Japan was stuck at a relatively low 17.6% in both 2011 and 2012, however, which we
recovery in the advanced                      calculate to be their lowest levels ever (Figure 3). Hence, growth in global investment
economies                                     continues to be dominated by China and, since the financial crisis, has been soft in the
                                              advanced economies. This has stemmed in part from weakness in the construction sector
                                              and associated de-leveraging but still suggests that an excessive pace of investment in
                                              China may have crowded out potentially profitable investment opportunities elsewhere.

US economy shows signs of                     At the same time, there is evidence of a nascent improvement in US corporate investment,
firming business investment,                  feeding off very strong corporate balance sheets and retained earnings, as well as the ongoing
bank lending and residential                  spending associated with the shale gas revolution. Whereas bank loans account for only a
real estate                                   portion of total financing of the US corporate sector, solid expansion continues in US C&I
                                              (commercial and industrial) loans, which rose by 10% y/y in the first half of May (and by 11%
                                              YTD). The repair of US balance sheets, in conjunction with the Fed’s asset purchases, has
                                              helped improve credit supply (Figure 4), a development also supported by improvement in
                                              residential markets (with April pending home sales and the March Case-Shiller house price
                                              index both up 10% y/y).

Japanese inflation forecast                   We continue to expect Japanese corporate investment to rise in response to the profitability
revised higher                                surge generated by the sharp yen depreciation, even though the initial estimate for Q1 GDP
                                              recorded a further contraction in private sector investment in plant and equipment. This week
                                              we have revised up our Japanese inflation profile following the May data (see Japan Outlook),
                                              suggesting that the BoJ’s new strategy may be having some early impact.

Euro area bank lending                        By contrast, the euro area is likely to continue to suffer, with investment constrained by weak
remains weak                                  profitability and demand, an ongoing contraction in the real estate sector, and shortages in the
                                              supply of bank credit. This downbeat message was reinforced by the latest data for MFI loans
                                              to non-financial corporations, which fell at a new record pace of contraction of 1.9% y/y in
                                              April, with particular (record) weakness apparent in Italy (-4.0%) and Spain (-8.8%). This
                                              implies that, when it comes to the future scope of central banks in advanced economies to
                                              announce new stimulus measures, the ECB is likely to remain uppermost in investors’ minds.


FIGURE 3                                                                    FIGURE 4
Investment/GDP ratios: Is China crowding out the rest?                      US commercial bank balance sheet

       GFCF %                                                                        $trn
50%     GDP
                                                                               4

45%                   China
                      EM G20 ex China                                                        Cash & interbank loans (inc. Fed reserves)
                      G20                                                      3
40%                                                                                          Comm. & industrial loans
                      US-EU-Japan
35%                                                                                          Real estate loans
                                                                               2             Consumer loans
30%

25%                                                                            1
20%

15%                                                                            0
      78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12                    Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Source: Barclays Research, CEIC, Haver Analytics                            Source: Barclays Research, Haver Analytics


2 June 2013                                                                                                                                21
Barclays | Global Portfolio Manager’s Digest


EQUITIES: SUMMARY OF RATING CHANGES
Rating Changes
                                                                                                                    Industry                Old      New
Security                                 Ticker       Analyst                     Industry                            View       Date      Rating   Rating

Basic Industries
SunCoke Energy, Inc.                       SXC        David Gagliano, CFA         North America Metals & Mining       Pos      28-May-13    RS       EW
Consumer
Kikkoman                                 2801.T       Takayuki Hayano             Japan Food, Beverages & Tobacco     Neu      30-May-13    NA       EW
Toyo Suisan Kaisha                       2875.T       Takayuki Hayano             Japan Food, Beverages & Tobacco     Neu      30-May-13    NA       OW
Energy
Cheniere Energy Partners LP                CQP        Christine Cho, CFA          U.S. MLPs                           Neu      30-May-13    EW       OW
Financial Services
GLP J-REIT                               3281.T       Junichi Tazawa              Japan REITs                         Neu      29-May-13    NA       EW
Nippon Prologis REIT, Inc.               3283.T       Junichi Tazawa              Japan REITs                         Neu      29-May-13    NA       EW
Wing Hang Bank Ltd.                     0302.HK       Sharnie Wong, CA            Asia ex-Japan Banks                 Neu      29-May-13    UW       OW
Industrials
Daimler AG                             DAIGn.DE Kristina Church                   European Autos & Auto Parts         Neg      24-May-13    EW       UW
Doosan Heavy Industries &              034020.KS HJ Moon                          Asia ex-Japan Capital Goods         Neu      26-May-13    NA       OW
Construction
Internet & Media
GMO Internet Inc.                        9449.T       Keiichi Yoneshima           Japan Internet                      Pos      31-May-13    EW       OW
Power & Utilities
Sempra Energy                              SRE        Daniel Ford, CFA            North America Utilities             Pos      28-May-13    EW       OW
Retail
SeaWorld Entertainment Inc.               SEAS        Felicia R. Hendrix          U.S. Leisure                        Neu      31-May-13    NA       OW


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




2 June 2013                                                                                                                                               22
Barclays | Global Portfolio Manager’s Digest


EQUITIES: SELECT RATING CHANGES
                    Single-stock     Cheniere Energy Partners LP (CQP; OW/Neu)
                                     Upgrade to Overweight
                                     Sabine Liquefaction has secured $5.9 billion through a $4.4 billion Term Loan A credit
                                     facility and $1.5 billion from Korean financial institutions. The interest rates for the various
                   30 May 2013       credit facilities range between LIBOR + 230 bp and LIBOR + 325 bp, which is lower than
              Christine Cho, CFA     what we were modeling. The company has also been awarded equity credit of $1.4 billion
                   Richard Gross     for Trains 3–4 and has no requirements to raise any more equity for Trains 1–4. With all of
                 Kannan Venkat       the funding in place for Trains 3 and 4, the company issued a full notice to proceed with
                        US MLPs      construction for these trains to Bechtel. CQP also disclosed that it entered into an at-the-
                                     market program whereby the partnership will be able to issue up to $500 million of
                                     common units, which caused some confusion among investors as to whether or not the
                                     MLP would be issuing equity. We believe the company put the program in place as a “nice
                                     to have” option, which may provide them with some flexibility for any future projects, but
                                     we don’t expect them to draw down on it in the near term. While we typically base valuation
                                     on a target yield and a 12-month distribution run rate for all the MLPs in our universe, we
                                     don’t think this method captures the ability and the likelihood that the partnership will do a
                                     large step-up in the distribution by 2018. As a result, we derive our price target of $34 by
                                     capitalizing the 2018 distribution of $3.05 with a 7% yield, which gets us to $43.50, and
                                     discounting it back to the appropriate timeframe. We are upgrading the stock as this implies
                                     approximately 15% potential upside from current levels on top of 5.7% yield for a potential
                                     total return of more than 20%.


                    Single-stock     Sempra Energy (SRE; OW/Pos)
                                     Getting on Board the Train(s): Raising SRE to Overweight, Price Target to $90
                                     We are using the recent pullback in SRE shares as an opportunity to upgrade SRE to
                                     Overweight from Equal Weight. We are increasingly comfortable with the prospect of the
               28 May 2013           Department of Energy issuing a non-free trade agreement export license for the Cameron
             Daniel Ford, CFA        liquefaction project, and believe the growth from this business justifies a long-term OW
     Theodore W. Brooks, CFA         position on the stock. We view this as a binary outcome – without DOE approval and the
       North America Utilities       growth that Cameron represents, SRE is fairly valued at current levels; with DOE approval,
                                     the stock is a good value, with further potential upside to our price target represented by the
                                     probability of an MLP structure following approvals. Consistent with this point of view, we
                                     are raising our price target to $90 from $85, as we have taken away any discount for
                                     probability of obtaining the non-FTA license, and are only discounting for time to full
                                     earnings in 2019.




2 June 2013                                                                                                                       23
Barclays | Global Portfolio Manager’s Digest


CREDIT: SUMMARY OF RATING CHANGES
US High Grade
Sector                                     Issuer                             From                             To                   Date Changed
Electric Utilities        NV Energy, Nevado Power, Sierra Pacific         Market Weight                 Overweight                   30-May-13


US High Yield
Sector                            Issuer                       Security                        From                      To            Date Changed

Retail                           Bon-Ton                        2021s                    Initiating Coverage         Overweight          30-May-13
Healthcare                Valeant Pharmaceutical           2018, 2020, 2021                Market Weight            Underweight          30-May-13
Food                            B&G Foods                    4 5/8% 2021                 Initiating Coverage        Market Weight        29-May-13


Europe
Sector                            Issuer                       Security                        From                      To            Date Changed

TMT                              Sunrise                   8.750% PIK 2019               Initiating Coverage         Overweight          28-May-13
TMT                              Sunrise                 CHF 7.0% sr sec 2017             Market Weight             Underweight          28-May-13
TMT                       Orange/Mattherhorn                9.0% PIK 2019                Initiating Coverage         Overweight          28-May-13


Asia Ex-Japan
Sector                                     Issuer                             From                             To                   Date Changed

India Banks                       Indian Overseas Bank                  Initiating Coverage           Market Weight                  29-May-13
India Banks                          Syndicate Bank                     Initiating Coverage            Overweight                    29-May-13
Chinese Oil & Gas             China Petroleum & Chemical                Initiating Coverage           Market Weight                  29-May-13
Chinese Oil & Gas               China National Petroleum                Initiating Coverage           Market Weight                  29-May-13
Chinese Oil & Gas                          CNOOC                          Market Weight                Overweight                    29-May-13
Diversified Industrials        Fosun International 2016s                  Underweight                 Market Weight                  28-May-13
Diversified Industrials        Fosun International 2020s                    Overweight                Market Weight                  28-May-13
Real Estate                     Central China 6.5% 2018                 Initiating Coverage           Market Weight                  28-May-13


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




2 June 2013                                                                                                                                          24
Barclays | Global Portfolio Manager’s Digest


PRODUCT MANAGEMENT GROUP

Global
Rob Rouse
Head of Global
Product Management
+1 212 526 6156
robert.rouse@barclays.com


Equities
Penn Egbert                     Rex Feng                     Terence Malone
Head of U.S. Equity             U.S. Equity                  U.S. Equity
Product Management              Product Management           Product Management
+1 212 526 0685                 +1 212 526 6114              +1 212 526 7578
penn.egbert@barclays.com        rex.feng@barclays.com        terence.malone@barclays.com
Rob Bate                        Alex Stewart, CFA
Head of European Equity         European Equity
Product Management              Product Management
+44 (0)20 777 33576             +44 (0)20 355 54957
rob.bate@barclays.com           alex.stewart@barclays.com
Marcus Gunn                     Sue Ho
Head of Asia Equity             Asia Equity
Product Management              Product Management
+852 290 34620                  +852 290 34518
marcus.gunn@barclays.com        sue.ho@barclays.com


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


Emerging Markets
Katie Tomlinson
Emerging Markets
Product Management
+ 1 212 412 7934
katie.tomlinson@barclays.com


Macro
Namita Dhariwal                 Sangeet Batra
Macro Research                  Macro Research
Product Management              Product Management
+1 212 526 6841                 +65 6308 3718
namita.dhariwal@barclays.com    sangeet.batra@barclays.com




2 June 2013                                                                                25
Barclays | Global Portfolio Manager’s Digest

ANALYST CERTIFICATION
I, Rob Rouse, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject
securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific
recommendations or views expressed in this research report.
Each research publication excerpted herein was certified under Reg AC by the analyst primarily responsible for such report as follows: I hereby certify that:
1) the views expressed in this research report accurately reflect my personal views about any or all of the subject securities referred to in this publication
and; 2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
IMPORTANT DISCLOSURES: FIXED INCOME RESEARCH
Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually,
“Barclays”). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays
Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barcap.com or call 212-526-1072.
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should
be aware that Barclays may have a conflict of interest that could affect the objectivity of this report. Barclays Capital Inc. and/or one of its affiliates
regularly trades, generally deals as principal and generally provides liquidity (as market maker or otherwise) in the debt securities that are the subject of
this research report (and related derivatives thereof). Barclays trading desks may have either a long and / or short position in such securities, other
financial instruments and / or derivatives, which may pose a conflict with the interests of investing customers. Where permitted and subject to
appropriate information barrier restrictions, Barclays fixed income research analysts regularly interact with its trading desk personnel regarding current
market conditions and prices. Barclays fixed income research analysts receive compensation based on various factors including, but not limited to, the
quality of their work, the overall performance of the firm (including the profitability of the investment banking department), the profitability and revenues
of the Fixed Income, Currencies and Commodities Division and the potential interest of the firm’s investing clients in research with respect to the asset
class covered by the analyst. To the extent that any historical pricing information was obtained from Barclays trading desks, the firm makes no
representation that it is accurate or complete. All levels, prices and spreads are historical and do not represent current market levels, prices or spreads,
some or all of which may have changed since the publication of this document. Barclays produces various types of research including, but not limited to,
fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research may differ from
recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Unless otherwise
indicated, Barclays trade ideas are provided as of the date of this report and are subject to change without notice due to changes in prices. In order to
access       Barclays      Statement         regarding      Research      Dissemination         Policies   and      Procedures,      please       refer     to
https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.
Explanation of the Barclays Research High Grade Sector Weighting System
Overweight: Expected six-month excess return of the sector exceeds the six-month expected excess return of the Barclays U.S. Credit Index, the Pan-
European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.
Market Weight: Expected six-month excess return of the sector is in line with the six-month expected excess return of the Barclays U.S. Credit Index, the
Pan-European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.
Underweight: Expected six-month excess return of the sector is below the six-month expected excess return of the Barclays U.S. Credit Index, the Pan-
European Credit Index, or the EM Asia USD High Grade Credit Index, as applicable.
Explanation of the Barclays Research High Grade Credit Rating System
The High Grade Credit rating system is based on the analyst’s view of the expected excess returns over a six-month period of the issuer’s index-eligible
corporate debt securities relative to the Barclays U.S. Credit Index, the Pan-European Credit Index or the EM Asia USD High Grade Credit Index, as
applicable.
Overweight: The analyst expects the issuer’s index-eligible corporate bonds to provide positive excess returns relative to the Barclays U.S. Credit Index, the
Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Market Weight: The analyst expects the issuer’s index-eligible corporate bonds to provide excess returns in line with the Barclays U.S. Credit Index, the
Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Underweight: The analyst expects the issuer’s index-eligible corporate bonds to provide negative excess returns relative to the Barclays U.S. Credit Index,
the Pan-European Credit Index, or the EM Asia USD High Grade Credit Index over the next six months.
Rating Suspended (RS): The rating has been suspended temporarily due to market events that make coverage impracticable or to comply with applicable
regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking division of Barclays is acting in an
advisory capacity in a merger or strategic transaction involving the company.
Coverage Suspended (CS): Coverage of this issuer has been temporarily suspended.
Not Rated (NR): An issuer which has not been assigned a formal rating.
For Australia issuers, the ratings are relative to the Barclays U.S. Credit Index or Pan-European Credit Index, as applicable.
Explanation of the Barclays Research High Yield Sector Weighting System
Overweight: Expected six-month total return of the sector exceeds the six-month expected total return of the Barclays U.S. High Yield 2% Issuer Capped
Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield Corporate Credit Index,
as applicable.
Market Weight: Expected six-month total return of the sector is in line with the six-month expected total return of the Barclays U.S. High Yield 2% Issuer
Capped Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield Corporate Credit
Index, as applicable.
Underweight: Expected six-month total return of the sector is below the six-month expected total return of the Barclays U.S. High Yield 2% Issuer Capped
Credit Index, the Pan-European High Yield 3% Issuer Capped Credit Index excluding Financials, or the EM Asia USD High Yield Corporate Credit Index,
as applicable.




2 June 2013                                                                                                                                                26
Barclays | Global Portfolio Manager’s Digest

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




2 June 2013                                                                                                                                          27
Barclays | Global Portfolio Manager’s Digest

IMPORTANT DISCLOSURES: EQUITY RESEARCH
Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually,
“Barclays”). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays
Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com or call 212-526-1072.
The analysts responsible for preparing this research report have received compensation based upon various factors including the firm’s total revenues, a
portion of which is generated by investment banking activities.
Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA. These
analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE Rule 472
restrictions on communications with a subject company, public appearances and trading securities held by a research analyst’s account.
Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from accepting payment or
reimbursement by any covered company of their travel expenses for such visits.
In order to access Barclays Statement regarding Research Dissemination Policies                                  and    Procedures,     please    refer   to
https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.
The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamental analysis,
equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from
recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise.
Guide to the Barclays Fundamental Equity Research Rating System:
Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below) relative
to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the “industry coverage universe”).
In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral or Negative
(see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read
the entire research report including the definitions of all ratings and not infer its contents from ratings alone.
Stock Rating
Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month investment
horizon.
Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12-month
investment horizon.
Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month
investment horizon.
Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply
with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Division of Barclays is
acting in an advisory capacity in a merger or strategic transaction involving the company.
Industry View
Positive - industry coverage universe fundamentals/valuations are improving.
Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.
Negative - industry coverage universe fundamentals/valuations are deteriorating.
Distribution of Ratings:
Barclays Equity Research has 2,371 companies under coverage.
43% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 53% of companies
with this rating are investment banking clients of the Firm.
41% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% of companies
with this rating are investment banking clients of the Firm.
14% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 42% of companies
with this rating are investment banking clients of the Firm.
Guide to the Barclays Research Price Target:
Each analyst has a single price target on the stocks that they cover. The price target represents that analyst’s expectation of where the stock will trade in
the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst’s price target over the
same 12-month period.




2 June 2013                                                                                                                                               28
Barclays | Global Portfolio Manager’s Digest

Barclays offices involved in the production of equity research:
London
Barclays Bank PLC (Barclays, London)
New York
Barclays Capital Inc. (BCI, New York)
Tokyo
Barclays Securities Japan Limited (BSJL, Tokyo)
São Paulo
Banco Barclays S.A. (BBSA, São Paulo)
Hong Kong
Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)
Toronto
Barclays Capital Canada Inc. (BCCI, Toronto)
Johannesburg
Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)
Mexico City
Barclays Bank Mexico, S.A. (BBMX, Mexico City)
Taiwan
Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)
Seoul
Barclays Capital Securities Limited (BCSL, Seoul)
Mumbai
Barclays Securities (India) Private Limited (BSIPL, Mumbai)
Singapore
Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)




2 June 2013                                                                  29
DISCLAIMER
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Description: Reassessing risk factors