EFTA Document EFTA01421855

Subject: Re: Higher rates in Europe - timely [C] From: Stewart Oldfield Date: Wed, 29 Apr 2015 13:52:12 -0400 To: Paul Morris ‹ > Classification: Confidential Twtr down another 6.5pct. Stewart Oldfield, CFA, CAIA Director Deutsche Bank Trust Company Americas Deutsche Asset & Wealth Management 345 Park Avenue, New York, NY 10154 Tel: 212 454-2881 Mobile: 917 209-0686 blackberry Email: Securities offered through Deutsche Bank Securities Inc. From: Paul Morris Sent: Wednesday, April 29, 2015 10:48 AM To: Stewart Oldfield Subject: Fw: Higher rates in Europe - timely [C] Classification: Confidential From: Daniel Sabba Sent: Wednesday, April 29, 2015 08:56 AM To: jeffrey E. <[email protected]> Cc: Paul Morris; Vahe Stepanian; Ariane Dwyer; Richard Kahn Subject: Higher rates in Europe - timely [C] Classification: Confidential This is timely given this morning's moves... EUR swap rates are up dramatically and markets are fluid - the pricing below is as of last night's close. Trade Rationale: Yields in the Eurozone have fallen since the start of 2014, and the commencement of the ECB's 1.1 trillion EUR quantitative easing program EFTA01421855 in March has fueled the decline to a greater degree than anticipated This drop is highlighted in Chart 1, which shows the historical performance of the 10yr and 30 yr EUR Swap rate and ley and 30y German bund yields. The chart also shows the 5 and 15 year average yield for the 30y EUR Swap rate Investors are now questioning if these unprecedented lows are sustainable and how they can position themselves for a rise in European rates To articulate this view, investors can purchase CMS caps on the 30yr EUR swap rate that provides a linear payout on the 30yr EUR Swap rate if it rises above the strike. In this trade, even a small retracement to the historical norm provides a meaningful payout A retracement to 5y historical averages would yield a payout of -6x on ly 1% strike caps, while a retracement to 15y historical average would yield a payout of -12x. In the below table we have included indicative pricing (as of 4/28 close) for 1 and 2yr expiries, and 1.00%, 1.25% and 1.50% strikes. In addition, for the ly CMS cap struck at 1.00%, we have included a terminal payout diagram and a chart showing the strike and breakeven level on the 30yr EUR Swap 1 year chart (Chart 2) Chart 1 (time series of European rates) fcid:[email protected] Indicative Transaction Terms: Client buys: CMS Cap on 30y EUR CMS rate, Single Look at Expiry Terminal Payout: Notional * max (Terminal CMS rate — strike, 0) Currency EUR EUR EUR EUR EFTA01421856 EUR EUR Strike 1.00% 1.00% 1.25% 1.25% 1.50% 1.50% Expiry ly 2y ly 2y ly 2y Tail 30y 30y 30y 30y 30y 30y EFTA01421857 ATMF 0.94% 1.07% 0.94% 1.07% 0.94% 1.07% Offer (mid) bps 26 (23) 46 (40) 16 (14) 34 (30) 10 (8) 25 (21) Break Even 1.26% 1.46% 1.41% 1.59% 1.60% 1.75% Terminal Payout Chart for 1% strike CMS Caps on 30y Icid:[email protected] EFTA01421858 Chart 2 (EUR 30y swap rates and breakeven for the ly CMS cap struck at 1.00%,) {cid:[email protected]} Please note these transaction terms are indicative. Regards, Daniel Daniel Sabba Key Client Partners Deutsche Bank Securities Inc. Tel. Mobile Email EFTA01421859