EFTA01387360.pdf

Trade Ideas Buy 1y2y USDJPY FVA at 10.50% Current 2y Implied volatility is at 9.95% Rationale • The USDJPY volatility curve has flattened and reduced over the past year: Implied volatility is around 10% for maturities between ly and 7y, is historically low and carries flat. Hence USDJPY provides interesting entry points to buy forward volatility • Volatility of USDJPY long-dated forwards is extremely low, with changes in forward points often having opposite changes in spot (typical of carry trade dynamics). As a consequence, we view back-end volatility as trading at a premium • Medium term vols (3y-5y) may therefore be more optimal points in the curve. Current 1y2y forward implied is at multi- year lows and negative carry has substantially reduced making it an attractive part of the curve • Finally, holding USDJPY volatility would historically been a good diversifier against tail risk Analysis Forward Volatility Forward Starting Window ly 2y 3y 4y Sy ly 1.0/016 10.1% 10.2% 10.2% Underlying Window 2y 10.1% 10.2% 10.3% 10.5% 3y 10.3% 10.4% 10.6% 4y 10.4% 10.8% 11.3% 11.9% Implied Volatility Curve vs past / Spot vol curve / 3m&6m 5y 11.e% 211% realised volatility of the forward Volatility Carry <image02.0.png> Forward Starting Window ly 7y 3y I 4y W 3 ly -0.196 4.1% 4.1% -0.1% 0 -0 5 2y -0.3% -0.2% .0.214 -0.3% 0.4% 3 r 3y -0.4% 0.4% -0.6% •1.0% ..2. t 4y -0.5% -0.8% -1.3% -1.8% 7 D 5y -1.1% 13% ly2y Forward Volatility is at the lows and so is vol carry • image01.1.png> <image012.png> Sources; Deutsche Bank, Bloomberg Finance L.P. Disclaimer: http://olobalmorkets.dbcominew/coment/304.5.html <image001.gif> Martin Zeman Director I Key Client Partners Deutsche Bank Wealth Management DB Securities Inc 154-0004 New York. NY, USA el. Mobile Email CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0089827 CONFIDENTIAL SDNY_GM_00236011 EFTA01387360