EFTA01458272.pdf

1 September 2015 Corporate Credit: Back to school - The edge of nonnality [Figure 7: HY Credit Spreads vs. HY Default Rates - US (left ) and Europe (right) 2,000 20% 2,000 12% 10% 1.500 15% 1.500 8% 1,000 10% 1,000 6% 4% 500 5% 500 2% 0 0% 0 0% 1988 1992 1996 2000 2004 2008 2012 2003 2005 2007 2009 2011 2013 2015 USD HY Spread (bps. LHS) EUR HY Spread (bps, LHS) _US HY Default Rate (RHS) —European HY Default Rate (RHS) Sane Deurtem ant. Marron Anwar Ms. Menoe Grap The good news is that spreads are certainly not tight. Figure 8 shows our often used percentiles chart showing where various rating bands are relative to their own history in the EUR, GBP and USD markets. We also show where we were at the start of 2014 and 2015 for comparison. 'Figure 8: iBoxx Index Current Percentiles vs. YE 2013 and YE 2014 light Spread EUR Nce.fin BBB (16VS) . mffonen• EUR Non-Fn A(17yrs) EUR Non.Fin HY BB (13yri) EUR Non-Fin KY B(13yrs) EUR Non-Fn HY CCC (13yrt) EVA An Son (17yrs) BUR Fin Sub (17yrs) GBP Fin Sen (17M) USD Corp HY B (16y(s) GBP fin Sub (17yrs) USD Fin Son (17yrs1 Y--)orin GBP Non-Fin BBB 0 7Yrs1 USD Non-Fin A(17yrs) USD An Sub (I 7yrs) USD Corp HY BB (16yrs1 GBP Non.An A (17WS) USD Non-Fin BBB 0 7yrs1 GBP Non-An AA (17yrs) 3 USD Non-Fin AA (17yrs) m000sp0000s USD Corp HY CCC (13yrs) fi rrr irrrm EV1 Non-Fin AA (I7yrs) siommos 0% 10% 20% 30% 40% 50% 60% 70% 90% 90% 100% siCuirent Rank • Ronk (31 Dee 2014) Rank 131 Doe 2013) San* Darrel* an. Ma* Gnat Only EUR BBBs have been tighter than current levels for more than half the time through history. All other sub sectors (by rating band) of the three markets have been wider than current levels for at least half the time through history. USD credit spreads are starting to reach levels that we've only exceeded when in a real crisis. Figure 9 shows the percentile spread history of different USD rating and maturity bands with the current level marked as a line. So it basically shows the percentage of time spent at each spread level through time. Deutsche Bank AG/London l'age 5 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0118106 CONFIDENTIAL SDNY_GM_00264290 EFTA01458272