EFTA01377496.pdf

1"*. r*PP0P7 Tho 6.9 p.--tran Instnensav to rffic hoot P6rtfghp H.311<;pwcPpri Idt‘o Joe Benevento and Joem Wasmund, Globa Ha„tdS of Fixed tnoarnafCash Fixed-income market perspectives Stu Moving back to risk-on? Beware the law of unintended consequences. The first halt of 2015 was a turbulent ono. In the first few therefore leads to lower level of risk appetite and can turn into months, Russia, the Ukraine and Brazil were in the headlines, as lower trading activity and exacerbate price movements — not were commodity prices and the abandonment of the EUR/CHF what was intended. peg. The second quarter was then dominated by the Greek crisis and China. U.S. Treasury and Bund yields hit new lows in April The chart shows the German sovereign-bond VaR since 2000. before increasing significantly and causing negative absolute Note the recent sharp increase in VaR to a multi-decade high. returns. Credit spreads widened. Volatility increased. Rising VaR may have led to a lack of demand for German sovereign bonds in late April and early May, perhaps contributing As we move into the second half of the year, some of those to a sharp rise in Bund yields. As this shows, a decent risk- geopolitical issues seem to be almost miraculously resolved. management approach which considers the possible impact of Greece appears willing to accept the tough conditions required such factors remains highly important. by its creditors. China has halted the sell-off in its equity markets. German sovereien-bondValue at Risk (Vail)* An unexpected bonus has been a sanctions-lifting deal with Iran. This leaves the timing of the first Fed hike as the key source of near-term uncertainty But, with most agreeing that it will be, in September or December and that the pace of hiking will be slow, the possibility for upset appears limited. rs In this environment, we believe that it may be appropriate' to start re-entering into some riskier positions in high-yield O6 (excluding energy), euro investment-grade and emerging-market sovereigns. We are not overly concerned about an immediate sharp sell-off in rates as lower commodity prices should keep ea inflation expectations contained. 02 But any sense of calm could be deceptive. Big differences of opinion between Eurozone member states about the nature of monetary union remain. As their market intervention reminded us, the Chinese authorities also still do not really trust free 1.9 Alp >1. 3 Onit tic markets, which may have implications on foreign investment. Another topic which needs to be closely monitored relates to the In late April and early May German sovereign-bond VaR rose unintended consequences of regulatory restrictions. Note, for to a multi-decade. Rising VaR may have been linked to a lack example. Value-at-Risk (VaR) limits. These have to be followed of demand and a sharp Increase In yields. by trading desks and various institutional investors. Rising VaR ' Mmiit 8o,. as, ;near:icy. Boni Otirtypw lit, total rgurn. 1110Yo Ono-day ti..Ire,1 PAO PPP. PM caolsOeUto Not suitable for all investors. Potential investors should seek Saran. Sc FirlarC4 i. P. Nole14 / . Awl 8, WPoirti k‘rtvcrn..-ce. Invenntot GmtPl. alIf 7f7e.)I professional financial advice before investing. Past performance is not indicative of future returns. No assurance can be given that any forecast, investment objectives and/or expected returns will be achieved. Allocations are subject to change without notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Investments come with risk. The value of an investment can fall as well as rise and your capital may be at risk. You might not get back the amount originally invested at any point in time. 1,7. M* tr.opipt ‘X) Von amtPG:a. E..1:NP I A:LatiF 701 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0074381 CONFIDENTIAL SDNY_GM_00220565 EFTA01377496