EFTA01386036.pdf

16 October 2017 Special Report: Argentina • Position for the upturn dated forward rates as shown below. The first is simply between 1M LEBAC rate and BADLAR to a recent peak to concatenate the short end LEBACs and longer end of 600bp (chart) before it started to recede. Despite BOTEs. The second is to fit a spline curve first as a convergence during the past month, the current basis parametric representation of the two curves, then (close to 500bp) remain significantly higher than adjust it (effectively shifting up the BOTEs) so that the historical average and we see it likely further converge overlapping data points (at March 2018 tenor) between to 400bp area in the coming months. This dynamics the two curve match. These are inputs to price the should help boost the relative value of the BOCANs vs. floaters. BOTEs - and also vs. BOPOM 20s. A peek into monetary policy path As we delineate in our previous report Argentina Local Markets - The Way of the Bullish (Part la we assess Forward 1M rate — S0irewiill Lebec sand Bates relative valuation of BOCANs vs BOTEs via projecting 27 5% - with LebeicyBOTES • Mc memo Mar- 1 e BADLAR rates using forward rates implied by a — ROTES nominal curve derived from LEBACs and BONTEs. We — 1 hoc then reset the coupons for the BOCANs, calculate the 225% "Fixed rate implied yield" for the BOCANs and contrast it with the yield of comparable fixed rate bonds. 17.5% In this piece, we use two scenarios for forward rates as shown in the chart on the left. While the LEBACs 12 5% provide a better reference for policy in the longer end the BOTEs are the anchor for the projected floating rates in the long-end. Instead of combining these 7.5% segmented curves we use the two as lower and upper 1.0v-17 1-Oct-16 1.0ct-12 1-Oct.20 boundaries for valuation of BOCANs and BOPOMs 20s. Sane earsere ant The chart below shows the results. BOPOM 20s have been a popular choice in positioning BOCANs end BOPOMs under two different scenarios for carry, but BOCANs look superior for those that for forward rate paths, in comparison with ROTES tolerate lower liquidity. In particular, we believe, BOCANs could benefit from a tightening spread yield. % -••.BOTES 2.4X4Is (shifted =eerie) between LEBAC yields and BADLAR. We expect 23%. B2CANt9 •••••••BOCANS iLEBACSSOTES1 higher-for-longer LEBAC rates to attract a larger share 27% -46-90P0M20 ILE9a4S/BOTES of savings while a growing economy will demand more —e—BOPOM 20 (shifted wine/ 26% credit from banks. Altogether these two should translate into higher demand and lower supply of funds, which means higher BADLAR rates vs. LEBACs. BO C 21% t120 15% ROTE t..E:BACSIBADLAR basis is closes to high end of range 6000.422 17% TE 021 Lebac/Sadler basis 60a0M• 20 15% 6.0 13% Sep. i7 Feb-10 Jun-20 0:1-2! Ms-73 'Jett-25 Ar.e.:t 7 7.0 Maturity 60 Sean Dan:MBank derenen 5.0 4.0 In sum, focusing on the short end of the curve, 30 20 • The 18s and 19s look a good (accessible) alternative to LEBACS. 10 • Going a bit longer, BOCAN 20s look more attractive 0.0 26.apr-16 26-Jull6 26-Oci-16 26-Jan-17 26.APi-17 26,110-17 (by up to 200bp) vs. BOPOM 20s and also vs. sour. a_ Bent BOTEs. LEBAC yields have moved first on the tightening of monetary policy, which has driven up the basis See Argentina Local Markets - The Way of the awash (Part 11). 9-March• 2077. Page 4 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0087563 CONFIDENTIAL SDNY_GM_00233747 EFTA01386036