Doubleline February 2014 Commentary

333S.GrandAve.,18thFloor||LosAngeles,CA90071||(213)6338200

MonthlyCommentaryFebruary2014

333S.GrandAve.,18thFloor||LosAngeles,CA90071||(213)6338200

2MonthlyCommentary2/28/14

OverviewMarketparticipantswere looking formoredirectionafterarough January that leftmany toquestion thegeneralstateoftheeconomy.Forthepastcoupleofmonths,economicreleasesappearedtobemarredbytheeffectsofhistoricallycoldweatheracrossmuchofthe country. Questions surrounding this issue haveheightened the debate into exactly howmuch slackexists in the labor market among other factors.February provided some answers as job growthappeared more robust than initially anticipated.Nonfarm payrolls surprised many rising by 175,000withnet revisions totaling 25,000 over theprevioustwomonths.Despitetheaddition,theunemploymentrate rose to 6.7% as the number of individualsenteringtheworkforceoutpacedthosehired.

MonthlyCommentaryA second revision of fourth quarterGrossDomesticProduct(GDP)wasalsoafocalpointasgrowthcamein below consensus estimates at 2.4% quarteroverquarter (QoQ).Althoughthis isa lagging indicatorofthe current strength of the economy, PersonalConsumption Expenditures (PCE) and demand forboth goods and services pointed to weakness.Perhaps investors continued to appreciate therelativelystronggrowthseenintheU.S.comparedtothe 0.5% QoQ growth seen in the eurozone. Inaddition,thefiscalsituation inWashingtoncontinuestoimprovewithcumulativefiscalyeardeficitof$378billionbecoming the lowest amount at thispointoftheyearsince2008.Equitymarketsralliedduringthemonth,either shruggingoffany future tighteningbythe Federal Reserve (the Fed), or embracingcorporateprofitsthatcontinuetobeatalltimehighs.The 4.3% return in the S&P 500 Index in Februarymorethanerasedtheuneasy3.6%starttotheyear.Tenyear U.S. Treasury (UST) yields took a quitevolatilepathtoendthemonthlessthanabasispointfromwheretheybeganthemonthat2.65%.

0

50

100

150

200

250

300

350

Mar12 Jun12 Sep12 Dec12 Mar13 Jun13 Sep13 Dec13

Net

PayrollAd

ditio

ns(00

0's)

NonfarmPrivatePayrolls NetChangeBLS

ADP

Source:BureauofLaborStatistics, Bloomberg,ADP

LastBLS=175KLastADP=139K

1,500.00

1,300.00

1,100.00

900.00

700.00

500.00

300.00

100.00

100.00 FiscalYearCumulativeFederalBudgetDeficit

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source:USTreasury, Bloomberg

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

01/65

07/67

01/70

07/72

01/75

07/77

01/80

07/82

01/85

07/87

01/90

07/92

01/95

07/97

01/00

07/02

01/05

07/07

01/10

07/12

UnemploymentversusEarningsYoYEarningsGrowth(LHS)

Source:BureauofLaborStatistics, BloombergLHS=lefthandsideyaxisandRHS=righthandsideyaxis


EmergingMarketsFixedIncomeMarkets rebounded sharply this month, as mixedeconomic data points did not appear to deterinvestors from riskassets following Januarys selloff.Across the Emerging Markets (EM), several centralbanks addressed volatility in their respective localcurrencieswithaggressivepolicy talkand ratehikes.Still,thefundamentalpicture inanumberofweakeremerging markets economies does not appear tohavematerially changed,while sociopoliticalunrestcontinuestoremainaheadlinegrabbingfactor.

In foreignmarkets, theeurozonewitnessedboth itsservicesandmanufacturingsectorsexpandbothatafaster pace than in January and by more thanconsensus estimates. However, the advance CoreConsumer Price Index data showed an increase of1.0% yearoveryear (YoY), which was below theEuropeanCentralBanks(ECBs)2.0%target.TheECBcontinuestoweighthepossibilityofnegativedepositrates. InChina,while the governmentsofficialdatarelease showed the sector expanded at a slightly

faster pace, the privateHSBC/MarkitManufacturingPurchasingManagersIndexshowedcontractionforasecond straight month. The extent of a largescalecreditbubbleremainsaconcernforbothofficialsandinvestors, with China witnessing its first onshoredefault,asolarcellmanufacturer,inearlyMarch.EM nationswhose debt and currencies had soldoffsharply in January saw a reversal of fortune inFebruary: nations such as Argentina and Venezuelawere among the top gainers for local and hardcurrencybonds.Thesegainswererealizeddespitenomaterialchanges in the fundamentalpictureof theireconomies. Venezuela continues to be impacted bywidespread social unrest as protestors take to thestreets against the Chavista policies of PresidentNicolas Maduro. Officials there announced a newforeign currency market, the Sicad II, though therelevant regulationshavenot yetbeenpublished. Itremains to be seen if there will be limitations fordollar purchases or if the exchange will allow themarket to be self regulating. The Venezuelangovernments arrest of an opposition leader alsoappears likely to fuel further protests. Argentina,which had also been troubled by a strong Januaryselloffinitssovereignbonds,sawitsmarketsbouncebackamidoneof the firstmarketfriendlymovesbyPresident Christina Fernandezs Administration insometime:thegovernmentreleasedanew indextomore accurately reflect inflation, after having beencensured by the International Monetary Fund forsystematicallyunderestimatingpriceincreases.Finally,globalheadlineswerecaptivatedbythetensestandoff between Ukraine and Russia following thelate February ouster of Russophile President Viktor

MonthlyCommentary

7.0%

5.0%

3.0%

1.0%

1.0%

3.0%

5.0%

Feb1

3

Mar

13Ap

r13

May

13Jun1

3

Jul1

3

Aug1

3

Sep1

3

Oct

13No

v13

Dec1

3

Jan1

4

Feb1

4

JPMorganEmergingMarketsBondIndexPerformanceLast12Months

EMBICEMBIGBIEM

Source:JPMorgan

Tickers FebruaryReturn

Last3Months

YTM Spread S&PRatings

EMBI JPGCCOMP 3.03% 2.85% 5.69% 320 BBBCEMBI JBCDCOMP 1.70% 2.27% 5.48% 323 BBBGBIEM JGENBDUU 3.16% 0.68% 6.87% N/A A

Source:JPMorgan(Pastperformanceisnoguaranteeoffutureresults.)


Yanukovych after he reportedly ordered securityforces to shoot and kill a number of oppositioneuromaidan protestors. Portions of southern andeasternUkraine remain loyal toRussiaand resistanttothenewUkrainiangovernment.Russiahasactivelymovedmilitaryforces intotheformerRussian/Sovietprovince of Crimea, effectively blockading localUkraine military units. An outbreak of outrightwarfare between the two nations remains apossibility, with much of the West throwing itsdiplomatic support and economic aid to the proEUUkraine. Both Russian andUkrainian hard and localcurrency bonds sold off sharply at the end ofFebruaryandremainextremelyvolatile.

MonthlyCommentary


GlobalDevelopedCreditFebruary represented a primarily a risk onenvironment for corporate credit; however, risksentiment ebbed somewhat going into monthenddue inpart togeopolitical concerns surrounding theescalating situation in Ukraine. The Barclays U.S.Credit Index tightenedby8basispoints (bps)duringthemonthgeneratingatotalreturnof1.09%andanexcessreturnof69bps.TheBarclaysU.S.HighYieldIndex tightened by 41 bps during the monthgenerating a total return of 2.02% and an excessreturn of 1.78%. The Barclays U.S. High Yield LoanIndexreturned18bpsforthemonthofFebruary.

Within the investment grade universe the bestperforming sectors included Media Cable (+4.28%);Sovereigns (+2.15%); Metals (+1.72%); Packaging(+1.17%); and NonCaptive Diversified Finance (+92bps). The worstperforming sectors wereSupermarkets (66 bps); Supranationals (+11 bps);ConsumerProducts(+12bps);Restaurants(+16bps);and Other Industrial (+19 bps). Lower quality (Baarated) and crossover debt outperformed during themonth. All sectors in the Barclays U.S. High YieldIndexwereuponthemonth.Thetopfiveperformers

were Media Cable (+2.94%); Wirelines (+2.88%);Wireless (+2.72%); Pipelines (+2.62%); andPharmaceuticals (+2.51%). The worst performerswere Chemicals (+1.02%);DiversifiedManufacturing(+1.05%); Electric (+1.19%); Construction Machinery(+1.29%); and Gaming (+1.42%). Returns by creditqualitycategorywererelativelyclusteredwithhigherqualityoutperforming slightlyboth in termsof totalandexcessreturn.TheBaratedindexwasup2.25%,theBratedindexproducedareturnof1.85%andtheCaarated index gained 2.03%. The only qualitybucketwith negative returns for February consistedofCaratedandbelowdistressed issuerswhichweredown2.68%onthemonth.

Fixedrate investmentgradesupply forFebruarywasapproximately$94.9billion, slightlyabove the$89.1billion issued in February 2013. The high yieldprimary market was relatively quiet in February,pricing$15.5billioninU.S.Dollardenominatedbondsversus $26.1 billion in February 2013. High yieldmutual funds had net inflows of $1.7 billion inFebruaryaccordingtoLipper,takingtheyeartodate(YTD) number to a $1.4 billion inflow. Loan fund

MonthlyCommentary

4.0%

3.0%

2.0%

1.0%

0.0%

1.0%

2.0%

3.0%

Mar

13

Apr1

3

May

13

Jun1

3

Jul1

3

Aug1

3

Sep1

3

Oct

13

Nov1

3

Dec1

3

Jan1

4

Feb1

4

PerformanceofSelectBarclaysIndicesLast12Months

U.S.HighYieldU.S.CreditU.S.Aggregate

Source:BarclaysLive0

20

40

60

80

100

120

140

160

180

Billion

sofU

.S.D

ollars

TotalFixedRateInvestmentGradeSupply

Source:BarclaysLive


inflows remained strong, with an additional $2.3billionflowing into loanfunds inFebruary,takingthepositive streak to 89 weeks and YTD inflows to animpressive$6.1billion.Thefirsttwomonthsof2014havebeenanythingbutdullforglobalcreditmarkets.TheRussianinvasionofCrimea and the escalating tension between theKremlin and theWesternWorldwill likely be a keymarket driver in the nearterm. Economic datareleases intheU.S.wererathermixedonthemonthand there is some disagreement among marketparticipants as to the extent towhich these resultsweredrivenbytheharshwinterweather inmuchofthecountry.Thisdisappointingeconomicdata,whencombinedwithsubduedinflation,indicatedthatthereis currently less risk of acceleration in the taperingprogramonwhichtheFedhasembarked.Thedegreeto which the UST market moves dominated creditmarket total return was diminished in February ascomparedto January.Thatbeingsaid,thepersistentstrength intheUSTmarketcontinuedtobafflesomecreditmarketparticipants,particularlyasthedeclineinratesduringthe lastweekofthemonthcoincidedwitharallyinthestockmarket.Accordingtoarecentreport written by Credit Suisse, in the investmentgrade space yield buyers have begrudgingly addedexposure in the secondary market but the pace ofbuying is far below last summers levels given thelowerallinyields. Inthehighyieldmarket, investorshave been extending durations as a way to chaseperformance in the long end. In both markets, theopportunity for further spread compression isbecoming more challenging with both investmentgrade and high yield corporate bond spreadsapproachinghistoricallytightlevels.

MonthlyCommentary


AgencyMortgageBackedSecuritiesThemonthofFebruarywas fairlyuneventful for theU.S. Agency MortgageBacked Securities (MBS)market. This sector had a return of 0.34% for themonth of February, according to theMBS sleeve oftheBarclaysU.S.AggregateBond Index. Included inthisreturnwasaminimalpriceappreciationof0.1%.UST interest rateswere relativelyunchanged so thelack of price changes in AgencyMBS came as littlesurprise. Within 30year MBS, higher coupon MBSwent up slightly more than lower couponcounterparts primarily due to a continuation ofslowerprepaymentspeeds.Fixedrate prepayment speeds decreased, for theeighthtime inthepastninemonths,forbothFannieMae (FNMA)andFreddieMac (FHLMC) inFebruary.Ginnie Mae (GNMA) speeds, however, were upslightlyforthemonth.FNMAandFHLMCprepaymentspeeds are very close to the low levels last seen in2008 and 2009, and not far from historic 17yearlows.GNMA prepayment speeds have also declinedto low levelsbuthadreachedthese levelspreviouslyduringonemonthin2011.Asthereisalaggingeffectbetween rate changesandprepayments, the25bpsdrop in mortgage loan rates since December couldallow prepayment speeds to increase slightly in the

comingmonths.Theslowinginprepaymentspeedsoverthepastninemonthshascausedgross issuanceofAgencyMBStodecrease. Last months issuance was $61 billion,whichisthelowestsince2009.Netissuancehasbeendeclining as well with last month producing a netissuancenumberof around$15billion.These lowerissuancenumbersmorethanoffsetwhattheFedhasannounced to date with regard to tapering ofquantitativeeasing (QE). It isexpected that anotherround of tapering will be announced by the FedaroundMarch18.In our opinion, current prepayment speeds andissuancenumbersdonotpaintapictureofarousinghousing market. The housing market is currentlysupported by cash investors and not the traditionalbuyer in which a family unit takes out a loan topurchase a home. Lately almost 50% of homepurchases have been all cash transactions.Historically,thisnumberhasaveragedaround15%.There is no update on the GovernmentSponsoredEnterprise (GSE) reform front for the month. WecontinuetobelievethatRepublicansfavorlittletonogovernment involvement in the housing picture,

MonthlyCommentary

ConditionalPrepaymentRates(CPR)20132014 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan FebFNMA 24.4 24.0 25.1 22.7 20.5 16.2 12.2 11.5 10.4 10.6 8.7 8.0FHLMC 25.9 25.3 25.5 23.4 21.5 17.1 13.1 12.0 10.8 11.1 9.1 8.3GNMA 21.8 23.0 22.2 19.4 18.2 14.9 12.2 12.1 11.2 11.2 9.7 10.0

BarclaysCapitalU.S.MBSIndex 12/31/2013 1/31/2014 2/28/2014 ChangeAverageDollarPrice 102.91 104.26 104.35 0.09Duration 5.62 5.31 5.38 0.07BarclaysCapitalU.S.IndexReturns Dec2013 Jan2014 Feb2014Aggregate 0.57% 1.48% 0.53%MBS 0.47% 1.56% 0.34%Corporate 0.25% 1.68% 1.09%Treasury 0.91% 1.36% 0.27%source:eMBS,BarclaysCapital


while Democrats favor some or more governmentinvolvement. There is not an easily implementablesolution to this matter. On the margin, lessgovernment involvement in the processwill lead tohighermortgage rates and that runs counter to thegovernmentsattemptto lowerthemortgageratetohelpthehousingmarket.Theseconflictingviewsleadus to think thatanygovernmentactionwillbedoneoveraperiodof time.A recent researchpiece fromBarclays titled The FutureofU.S.Housing Financestated it could take as long as 15 years to fullyimplementanagreeduponGSEsolution.NonAgencyMortgageBackedSecuritiesWith fundamentals very much unchanged sinceJanuary,technicalfactorscontinuedtobetheprimarydriverof theyield tightening innonAgencyMBS forFebruary. Demand continued to outpace supply asinterest from a broad buyer base persists in thesector.Thebidlistvolumewasthinnerthanpreviousmonths, aside from the last segment of the INGportfoliobeing liquidated.This list accounted for$2billionofthe$10billionoutforbidduringthemonthof February. The forward supply outlook remainsfairlyunevenwithmanyinvestorsparingportfoliosbyselling a few positions followed by large portfoliosliquidations fromGSEs. In thenear term,weexpectdemandtooutweighsupply.As mentioned, monthovermonth mortgagefundamentals have remained stable: prepaymentrates and delinquencies declined only modestly;liquidations inprimenonAgencyMBSdeclinedwhileAltA and subprime liquidations remained flat; andloan modifications ticked up slightly with a 13%

increaseversusaslowJanuarywiththeaverageratereductionbeing3.34%.Againstthebackdropofstablefundamentals and supply technicals, yields in thesectorremained largelyunchanged.Prime,AltAandsubprimebondswere trading to lossadjustedyieldsof4.00%,4.25%and5.00%,respectively.

MonthlyCommentary

NonAgencyMBSProductVolume($million)

2/28/2014 1/31/2014MoM%Change

ABSCDO 187 136 37%AltA 549 2,375 77%DistressedAltA 804 3,007 73%HELOC 104 60 72%ManufacturedHousing 11 2 503%NADerivative 2936 466 531%POA 1,531 1,773 14%Prime 2,614 1,975 32%Reremic 688 409 68%SecondLien 122 147 17%SmallBalance 63 49 28%Subprime 1,854 2,681 35%SubprimeMezzanine 2,008 1,526 32%Source:MorganStanley;MoM=monthovermonth;HELOC=HomeEquitylineofcredit;POA=paymentoptionARM(adjustableratemortgage)


industrial which posted a 131 bps improvement to9.28%. Mirroring that trend were the followingdelinquency rate data: the lodging delinquency rateimprovedby73bpsto6.62%;theofficedelinquencyratedeclinedby57bps to7.23%; retaildelinquencyfell 36 bps to 5.77%; and multifamily delinquencydeclinedby32bpsto10.35%.Weexpecttocontinueto see declining delinquency rates stemming fromimproving market fundamentals, low interest ratesand increased levels of CMBS special servicer loanliquidations. Similarly, theMoodys/RCACommercialPropertyPrice Indices (CPPI)nationalmajormarketscomposite index increased 0.6% in January 2014while nonmajor markets were up 1.8%. Februaryloan loss severities averaged 46% over $3 billion ofloansliquidatedaccordingtoTreppAnalytics.

MonthlyCommentaryCommercialMortgageBackedSecuritiesTheCommercialMortgageBacked Securities (CMBS)February new issuance calendar consisted of fourdeals, totaling $3 billion of new issuance that wasbrought tomarket for themonth.Of the fourdeals,threewereconduittransactionswiththeremaindera$187 million large loan, singleborrower deal. Thisrepresents $10 billion of new issuance YTD, whichalthough robust is a decline from the 2013 pace of$16billionthroughFebruary2013.Similartoriskmarketsingeneral,FebruarywasariskonrallyforCMBSasadditionalmacroeconomicclarityaswellas favorable results fromamuchanticipatedspecialservicerliquidationappeasedmarketconcernsin terms of better than expected results. Thesecondary market continues to warrant a positivedemandversussupply technical as the moneymanagerbidwasbackinfullforcereachingdownthecapitalstackforadditionalyield.Similartechnicalswereseenonthenewissuancesideas initial offering interest levels for single As andbelowweremultiple timesoversubscribed. For themonth,legacyAAAspreadstightenedby16bpsto96bpsover swapswhileon thenew issuance side, theJPMBB 2014C18 deal AAAs priced at 93 bps overswapswithBBBsat380bps.TheCMBSportionoftheBarclaysU.S.AggregateBond Indexreturned+0.58%inFebruary.TheoverallU.S.CMBSdelinquencyratefellby47bpsto 6.78% in February, according to Trepp Analytics.Thedeclinewasprimarilyattributedtoalargespecialservicer liquidation thathasbeenwidelyanticipatedsince last year. The 30+ day delinquency rate byproperty sector improved across the board, lead by

0.00

25.00

50.00

75.00

100.00

125.00

150.00

175.00

200.00

225.00

12/1/2000

6/1/2001

12/1/2001

6/1/2002

12/1/2002

6/1/2003

12/1/2003

6/1/2004

12/1/2004

6/1/2005

12/1/2005

6/1/2006

12/1/2006

6/1/2007

12/1/2007

6/1/2008

12/1/2008

6/1/2009

12/1/2009

6/1/2010

12/1/2010

6/1/2011

12/1/2011

6/1/2012

12/1/2012

6/1/2013

12/1/2013

Moody's/RCACommercialPropertyPriceIndices12/31/2000 1/31/2014

MajorMarkets(AllProperty)

NonMajorMarkets(AllProperty)

Source:Moody's InvestorService,RealCapitalAnalytics(RCA)


MonthlyCommentaryU.S.GovernmentSecuritiesThe U.S. Treasury market traded sideways inFebruary, consolidating gains from a short coveringrally that occurred during January. The 10yearUSTnote yielded 2.65% at monthend, one basis pointhigherthantheJanuary31yield.Yieldchangeswereconsistentacrosstheyieldcurve,withallbenchmarksending February close to their January 31 yields.Longer issuespostedthebestreturns,withtheedgeinbothincomeandpricereturn.TheBarclaysCapitalU.S. Government Index returned 0.28% for themonth.

TreasuryInflationProtectedSecurities(TIPS)returned0.45%inFebruaryperforminginlinewithcomparableduration conventional UST. The municipal bondmarket returned a more impressive 1.45% for themonth as investor perceptions of credit qualitycontinuedtoimproveandsupplyremainedlight.The structure of the government portfolio wasunchanged throughout the month as the marketcontinuestooperateinanenvironmentof lowrates,low inflation, low volatility, and ongoing Fedpurchases.Thisenvironmentprovided relatively fewtradingopportunityduetothenotablelackofrelativevalue trading opportunities. The return on thegovernmentportfoliowasnearlyflatduringFebruaryand closely in line the Barclays Capital U.S.Government Index in the context of a virtuallyunchangedmarket.

1/31/2014 2/28/2014 Change3month 0.02 0.05 0.036month 0.05 0.07 0.021year 0.09 0.10 0.012year 0.33 0.32 0.013year 0.67 0.67 0.005year 1.49 1.50 0.0110year 2.65 2.65 0.0030year 3.60 3.58 0.02Source:Bloomberg

YieldCurve


MonthlyCommentaryU.S.EquitiesJanuary'sdeclinesintheU.S.equitymarketsreversedin February, with the S&P 500 Index closing themonth in positive territory for 2014, and at an alltime high of 1859, and 11 points above 2013 yearend. Fourth quarter 2013 earnings reports largelysupported the conclusion that corporate revenuesshouldgrowmoderately in2014,as shouldearningsand free cash flow.Similarly, macroeconomic datareports supportedmoderateand sustainablegrowthexpectations.We might soon see pundits overuse the term"Goldilocks",asmacroeconomicgrowthseemsstrongenoughtosupportearningsgrowth,butnotsostrongas to cause the Fed to accelerate its taper. Forpreciselythisreason,wemustbevigilantforsignsofcomplacency in equity markets.Generally, marketsshruggedoffdisappointingeconomicdataasweatherrelated, with expectations of a bounceback asseverewinterconditionsimprove.EquityinvestorsandtradersweregreatlyencouragedbythefirstpubliccommentsofnewFedChairwomanJanetYellen,whoseregularlyscheduledtestimonytoU.S. Congress reinforced the commitment totapering, but also opened the door to possibleadjustments as necessitated by economic weaknessoverthecourseoftheyear.Examiningthemarketatthesectorlevel,returnshadaslightlyprocyclicaltilt.Outperforming sectors were Materials at 6.9%(versus 4.5% in January),ConsumerDiscretionaryat6.2% (5.1%), Healthcare at 6.1% (0.9%), Energy at5.0%(6.3%),andTechnologyat4.6%(2.5%).Underperforming sectors were Telecom at 1.0 (3.1%),Financials at 3.1% (3.6%), and Utilities at 3.3%(3.0%).


ImportantInformationRegardingThisReport

Issueselectionprocessesandtoolsillustratedthroughoutthispresentationaresamplesandmaybemodifiedperiodically.Suchchartsarenottheonlytoolsusedbytheinvestmentteams,areextremelysophisticated,maynotalwaysproducetheintendedresultsandarenotintendedforusebynonprofessionals.

DoubleLinehasnoobligationtoproviderevisedassessmentsintheeventofchangedcircumstances.Whilewehavegatheredthisinformationfromsourcesbelievedtobereliable,DoubleLinecannotguaranteetheaccuracyofthe informationprovided.Securitiesdiscussedarenotrecommendationsandarepresentedasexamplesofissueselectionorportfoliomanagementprocesses.Theyhavebeenpickedforcomparisonorillustrationpurposesonly.Nosecuritypresentedwithiniseitherofferedforsaleorpurchase.DoubleLinereservestherighttochangeitsinvestmentperspectiveandoutlookwithoutnoticeasmarketconditionsdictateorasadditionalinformationbecomes available. Thismaterialmay include statements that constitute forwardlooking statements under theU.S. securities laws. Forwardlooking statementsinclude,amongotherthings,projections,estimates,andinformationaboutpossibleorfutureresultsrelatedtoaclientsaccount,ormarketorregulatorydevelopments.

Ratingsshownforvariousindicesreflecttheaveragefortheindices.SuchratingsandindicesarecreatedindependentlyofDoubleLineandaresubjecttochangewithoutnotice.ImportantInformationRegardingRiskFactors

Investmentstrategiesmaynotachievethedesiredresultsduetoimplementationlag,othertimingfactors,portfoliomanagementdecisionmaking,economicormarketconditionsorotherunanticipatedfactors.Theviewsandforecastsexpressedinthismaterialareasofthedateindicated,aresubjecttochangewithoutnotice,maynotcometopassanddonotrepresentarecommendationorofferofanyparticularsecurity,strategy,orinvestment.Allinvestmentsinvolverisks.PleaserequestacopyofDoubleLinesFormADVPart2AtoreviewthematerialrisksinvolvedinDoubleLinesstrategies.Pastperformance(whetherofDoubleLineoranyindexillustratedinthispresentation)isnoguaranteeoffutureresults.Youcannotinvestinanindex.

ImportantInformationRegardingDoubleLine

Inpreparingtheclientreports(and inmanagingtheportfolios),DoubleLineand itsvendorspriceseparateaccountportfoliosecuritiesusingvarioussources, includingindependentpricingservicesandfairvalueprocessessuchasbenchmarking.

ToreceiveacomplimentarycopyofDoubleLinescurrentFormADV(whichcontainsimportantadditionaldisclosureinformation),acopyoftheDoubleLinesproxyvotingpoliciesandprocedures,ortoobtainadditionalinformationonDoubleLinesproxyvotingdecisions,pleasecontactDoubleLinesInvestorServices.

ImportantInformationRegardingDoubleLinesInvestmentStyle

DoubleLineseekstomaximizeinvestmentresultsconsistentwithourinterpretationofclientguidelinesandinvestmentmandate.WhileDoubleLineseekstomaximizereturnsforourclientsconsistentwithguidelines,DoubleLinecannotguaranteethatDoubleLinewilloutperformaclient'sspecifiedbenchmark.Additionally,thenatureofportfoliodiversificationimpliesthatcertainholdingsandsectorsinaclient'sportfoliomayberisinginpricewhileothersarefalling;or,thatsomeissuesandsectorsareoutperformingwhileothersareunderperforming.Suchoutorunderperformancecanbetheresultofmanyfactors,suchasbutnotlimitedtoduration/interestrateexposure,yieldcurveexposure,bondsectorexposure,ornewsorrumorsspecifictoasinglename.

DoubleLineisanactivemanagerandwilladjustthecompositionofclientsportfoliosconsistentwithourinvestmentteamsjudgmentconcerningmarketconditionsandanyparticularsecurity.TheconstructionofDoubleLineportfoliosmaydiffersubstantiallyfromtheconstructionofanyofavarietyofbondmarket indices.Assuch,aDoubleLineportfoliohasthepotentialtounderperformoroutperformabondmarketindex.Sincemarketscanremaininefficientlypricedforlongperiods,DoubleLinesperformanceisproperlyassessedoverafullmultiyearmarketcycle.

ImportantInformationRegardingClientResponsibilities

Clients are requested to carefully review all portfolio holdings and strategies, including by comparing the custodial statement to any statements received fromDoubleLine.Clients should promptly informDoubleLineofanypotentialorperceivedpolicyorguideline inconsistencies. Inparticular,DoubleLineunderstands thatguidelineenablinglanguageissubjecttointerpretationandDoubleLinestronglyencouragesclientstoexpressanycontrastinginterpretationassoonaspractical.ClientsarealsorequestedtonotifyDoubleLineofanyupdatestoClientsorganization,suchas(butnot limitedto)addingaffiliates(includingbrokerdealeraffiliates), issuingadditionalsecurities,namechanges,mergersorotheralterationstoClientslegalstructure.

DoubleLineisaregisteredtrademarkofDoubleLineCapitalLP.2014DoubleLineCapitalLP

Disclaimer

OverviewMarkets rebounded sharply this month, as mixed economic data points did not appear to deter investors from risk assets following Januarys selloff. Across the Emerging Markets (EM), several central banks addressed volatility in their respective local currencies with aggressive policy talk and rate hikes. Still, the fundamental picture in a number of weaker emerging markets economies does not appear to have materially changed, while socio-political unrest continues to remain a headline-grabbing factor.faster pace, the private HSBC/Markit Manufacturing Purchasing Managers Index showed contraction for a second straight month. The extent of a large-scale credit bubble remains a concern for both officials and investors, with China witnessing its first onshore default, a solar-cell manufacturer, in early March.EM nations whose debt and currencies had sold-off sharply in January saw a reversal of fortune in February: nations such as Argentina and Venezuela were among the top gainers for local and hard currency bonds. These gains were realized despite no material changes in the fundamental picture of their economies. Venezuela continues to be impacted by widespread social unrest as protestors take to the streets against the Chavista policies of President Nicolas Maduro. Officials there announced a new foreign currency market, the Sicad II, though the relevant regulations have not yet been published. It remains to be seen if there will be limitations for dollar purchases or if the exchange will allow the market to be self regulating. The Venezuelan governments arrest of an opposition leader also appears likely to fuel further protests. Argentina, which had also been troubled by a strong January selloff in its sovereign bonds, saw its markets bounce back amid one of the first market-friendly moves by President Christina Fernandezs Administration in some time: the government released a new index to more accurately reflect inflation, after having been censured by the International Monetary Fund for systematically underestimating price increases.Yanukovych after he reportedly ordered security forces to shoot and kill a number of opposition euromaidan protestors. Portions of southern and eastern Ukraine remain loyal to Russia and resistant to the new Ukrainian government. Russia has actively moved military forces into the former Russian/Soviet province of Crimea, effectively blockading local Ukraine military units. An outbreak of outright warfare between the two nations remains a possibility, with much of the West throwing its diplomatic support and economic aid to the pro-EU Ukraine. Both Russian and Ukrainian hard and local currency bonds sold off sharply at the end of February and remain extremely volatile. Global Developed CreditAgency Mortgage-Backed SecuritiesNon-Agency Mortgage-Backed SecuritiesU.S. Government SecuritiesU.S. Equities

/ColorImageDict > /JPEG2000ColorACSImageDict > /JPEG2000ColorImageDict > /AntiAliasGrayImages false /CropGrayImages true /GrayImageMinResolution 300 /GrayImageMinResolutionPolicy /OK /DownsampleGrayImages true /GrayImageDownsampleType /Bicubic /GrayImageResolution 300 /GrayImageDepth -1 /GrayImageMinDownsampleDepth 2 /GrayImageDownsampleThreshold 1.50000 /EncodeGrayImages true /GrayImageFilter /DCTEncode /AutoFilterGrayImages true /GrayImageAutoFilterStrategy /JPEG /GrayACSImageDict > /GrayImageDict > /JPEG2000GrayACSImageDict > /JPEG2000GrayImageDict > /AntiAliasMonoImages false /CropMonoImages true /MonoImageMinResolution 1200 /MonoImageMinResolutionPolicy /OK /DownsampleMonoImages true /MonoImageDownsampleType /Bicubic /MonoImageResolution 1200 /MonoImageDepth -1 /MonoImageDownsampleThreshold 1.50000 /EncodeMonoImages true /MonoImageFilter /CCITTFaxEncode /MonoImageDict > /AllowPSXObjects false /CheckCompliance [ /None ] /PDFX1aCheck false /PDFX3Check false /PDFXCompliantPDFOnly false /PDFXNoTrimBoxError true /PDFXTrimBoxToMediaBoxOffset [ 0.00000 0.00000 0.00000 0.00000 ] /PDFXSetBleedBoxToMediaBox true /PDFXBleedBoxToTrimBoxOffset [ 0.00000 0.00000 0.00000 0.00000 ] /PDFXOutputIntentProfile () /PDFXOutputConditionIdentifier () /PDFXOutputCondition () /PDFXRegistryName () /PDFXTrapped /False

/CreateJDFFile false /Description > /Namespace [ (Adobe) (Common) (1.0) ] /OtherNamespaces [ > /FormElements false /GenerateStructure false /IncludeBookmarks false /IncludeHyperlinks false /IncludeInteractive false /IncludeLayers false /IncludeProfiles false /MultimediaHandling /UseObjectSettings /Namespace [ (Adobe) (CreativeSuite) (2.0) ] /PDFXOutputIntentProfileSelector /DocumentCMYK /PreserveEditing true /UntaggedCMYKHandling /LeaveUntagged /UntaggedRGBHandling /UseDocumentProfile /UseDocumentBleed false >> ]>> setdistillerparams> setpagedevice

Documents

Doubleline February 2014 Commentary