EFTA01362005.pdf

Deutsche Bank Markets Research United States Economics vote Rates 4 September 2015 Credit 0nminic honslarn Research Analyst US Fixed Income Weekly 1+11212 2509753 [email protected] Oe Research Analyst 1+1I 212 250-0376 alelcsandatkockectboom • Markets are fixated on the potential for Fed normalization to start earlier than currently priced and whether China's recent FX adjustment is the LaV,xtine. beginning or the end. Economist • At a superficial level there appears to be conflicting influences on rates. 1+11212 250-7329 The Fed and China may undermine risk asset performance but the [email protected] consensus is that if risk assets find support, fewer FX reserves are likely to pressure rates higher. de.‘ Li Research Analyst • On the contrary, we think the most important thing is that both the Fed 1.11212 250-5483 and China's FX (ongoing?) unwind represent a tightening of global liquidity [email protected] that clearly is negative for risk assets and clearly, at least for the last decade, has been positive for real rates and the curve. 5y5y is well Stuaft. Sp..' correlated with changes in global liquidity and based on recent trends Research Analyst should be closer to 2 percent. 1+11212 250-0332 • This reinforces our view that the Fed is in danger of committing policy stuan.sparksedb.com error. Not because one and done is a non issue but because the market will initially struggle to price "done" after "one". And the Fed's LTheiwi Yaws communication skills hardly lend themselves to over achievement. More Research Analyst likely in our view, is that one in September will lead to a December pricing 1O1212250-1407 and additional hikes in 2016, suggesting 2s could easily trade to 1 14 / [email protected] percent. This may well be an overshoot but it could imply another leg lower for risk assets and a sharp reflattening of the yield curve. Sicwe, zrrnt. CIA. Research Analyst 1+11212 250-9373 'Decline in liquidity implies a lower 5y5y steven.zengeodb.com 30 7.0 I 25 6.0 Economist (+11212 250-0584 120 adilya.bhaveedb.com 5.0 15 4.0 10 Table of Content 3.0 US Overview Page 06 5 US Credit Strategy Page 23 2.0 0 Chart Pack Page 28 1.0 10 0.0 20001 20061 20121 Sans FalandOeutsta Ss* Deutsche Bank Securities Inc. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0051302 CONFIDENTIAL SDNY_GM_00197486 EFTA01362005