EFTA01447158.pdf

While ll's hard to get excited about 10y BTPs yielding 3.16% (164bp over 10Y German Bunds) I'd still have 5-10mm 10y BTPs in my portfolio both for the duration and spread compression potential. I prefer 10y over 5y because the recent nearly parallel spread compression has left 5s10s steep relative to 0-5s.. 3 reasons i like this trade: i) macro investors view ECB QE as a second bite at the cherry. Everyone I talk to wants European risk assets having seen QE in the US. ii) ECB QE is probably still 3-6mths away which will keep credit bid. This will be a buy the rumour sell the fact trade iii) Credit has been bulletproof during the recent risk selloff because a) ECB QE expectations, b) G3 rate hikes are being pushed into the future while cash has nowhere else to go. This price action is telling - as and when equities recover i think credit continues to tighten Yields of 10Y Ital 10 German and the Yield S read SPREAD SIMILLR't Last 164.78 Mean 234.2757 Off Avg -69.4957 Meetan 214.7206 StDev 122.7506 StDev from mean -0.5661 Percentile 39.0966 High 11/09/11 552.5662 tow 08/10/09 66.9162 2009 j 2010 I 2011 I 2012 I 2013 2014 GOTPGR10 Index (Italy Generic Govt 10Y Yield) Copyright: 7014 Eionmber9 Finance LP. 14-Apr-2014 16:21:57 2) Tactically position for higher EURUSD - 2 week view (fowl BUY EUR5Omm 2week expiry 1.40 strike European Style EURUSD Calls @ 6bp (EUR30,000) This is a low cost contrarian short term tactical call. Most investors myself included are bullish USD in the medium term (see trade 3) but in the very short term I see EURUSD higher because: i) Despite ECB preparing the markets for QE, the price action of EURUSD (broadly unchanged) has been quite bullish compared to what one would expect ii) Speculators don't appear long EURUSD to us. Majority are short or flat. iii) implied volatility is 5.25% (offer for 2week options) which is very very low historically. So this is a penny option, highly convex, pain trade bet against other speculators betting on QE If my view is wrong 6bp is lost. If I'm right I'd plan to exit in a week making 4.6x Scenario Analysis - Premium in bp of EUR notional CONFIDENTIAL — PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0 101702 CONFIDENTIAL SDNY_GM_00247886 EFTA01447158