EFTA01386035.pdf

16 October 2017 Special Report: Argentina - Position tor the upturn the Egyptian pound, for instance - the peso is already LEBACs vs. ROFEX: Hovering around the recent highs overvalued according to our estimation (chart below). Therefore, while in Egypt monetary authorities can -.-Lebac yield -**-Imp Rolex Yield 28 7M 9M afford to keep the pound stable for months, Argentina's 3M 5M 27 1M 2M central bank needs to strike a balance between anchoring inflation expectations and preventing 28 excessive overvaluation. 25 1W 24 The ARS moves ahead of fundamentals 23 21X, ARS REEK Ovedlincler Va,.rotco 22 lose Wits Moar., Svonwr ARS! Aug-17 Nov-17 Feb-18 May-18 Aug-18 1RC San* Dandy Oa* eloontep trc 110 Implied yields also seem too low The chart below shows that the 7M point for example offers almost 120 340bp of pick up from a hold to maturity perspective. 100 This wide spread suggest that tactical hedges for the peso's "step-function" behavior are relatively inexpensive - a result that extends to floaters. Mot& Mer-00 14.03 Mar'06 Mw 4n Mar-12 Mr -15 Implied yields: Relatively low bar for tactical hedges Scion Oars,* Sent [ebbe- FX imp!. 7M vs Imp/. 7M:56 vs. bp 26, • 25 This tug-of-war has resulted in USD.A.RS following a "step-function" ascent — with jumps followed by 24 05 • stability - thus boding for tactically managing longs •• • • • as (carry based strategies) 23 • • •4 • 46 • • • • •• %• • The choice of instrument in the short-end is also 2? • to.• • • important given wide dispersion in valuations. LEBACs • 2t are the cleanest instruments to express monetary • • • policy views, but they are also short and the least 20 accessible. Fixed-rate BOTEs and floating BOCANs and BOPOMs are accessible, but bear in mind that they also 19 differ in liquidity and fixings so that comparing these 100 200 300 400 500 600 instruments has obvious limitations. AMP 000101* From a macro standpoint, LEBACs price a small likelihood of further tightening and low supply risk — Fixed or floating rates? A look into valuations thus favoring floaters, as we discuss in more details shoilly. The chart bellows shows that the term- structure is flat, while we see room for further We prefer floaters to fixed rate instruments on our tightening. Also, the LEBACs have been used not only macro view and valuation, although the latter is as a conduit to implement monetary policy but also for clouded by market segmentation. We use LEBACs as a sterilization purposes. Widening CAD and slow building ground for valuation despite its limitations reduction in nominal deficits bode for pent-up supply of because: 1) They are the main instrument to manage LEBACs and thus upside risk for these short-end fixed local liquidity; 2) They ultimately affect the private instruments. floating rate used to fix the BOCANs; and 3) The repo rate used to fix the BOPOM 20s moves in line with the 35-day LEBAC yield Since the LEBAC curve extends to only 9 months we also build on BOTEs in pricing two scenarios for short- Deutsche Bank Securities Inc. Page 3 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0087562 CONFIDENTIAL SDNY_GM_00233746 EFTA01386035