False trends still false friends - UniCredit

4 February 2011 Economics & FI/FX Research

Curves & Crosses

UniCredit Research page 1 See last pages for disclaimer.

False trends still false friendsFixed Income

■ FI Strategizer: A dovish Bernanke should offer some relief to USTs but

US auctions and discussions on the debt ceiling should act in the

opposite direction, keeping UST yields relatively stable. Given the light

data calendar, focus in the EMU will remain on the political debate ahead

of the Feb 15 Ecofin meeting and the crucial end March EU summit.

■ EU Portfolio Strategy: Given the high uncertainty ahead of important

political decisions, we prefer to stay duration neutral with barbells. We

also increase exposure to Italy and Spain to exploit positive momentum.

■ ECB: Trichet was very careful to avoid stepping up his inflation rhetoric,

emphasizing the distinction between near-term and medium-term price

pressure and the fact that CPI expectations remain firmly anchored. This

was not enough to trigger a significant re-pricing of Euribor futures.

■ MM: Strong demand at this week's MRO was due to technical factors

rather than renewed MM tensions. We expect a big drop at next week's

MRO (EUR 160bn vs. EUR 213); demand at the 1M LTRO may exceed

the EUR 70bn expiring. The EONIA should stabilize around 1%.

■ Trade Idea: Ahead of next week's exchange auction, we suggest

switching from BTP Feb18 into BTP Feb12 in ASW, as they appear

respectively rich and cheap in their segment.

■ Inflation: Inflation accelerated to 2.4% in January, and the recent spike

in oil prices increases chances that this will not be the peak.

■ Supply Corner: Next week, we expect a subdued EUR 6/7bn of gross

supply (all from core). Redemptions will be zero. The favorable

environment keeps the likelihood of a syndicated deal in the EMU high.

Greece and Italy will hold T-bill auctions. The US will sell USD 72bn of

3Y, 10Y & 30Y UST.

Forex

■ FX Strategizer: “False trends” that prove “false friends” still appear to be

the main characteristic of the FX market. Due to geopolitical risk,

switches between risk on and risk off will continue next week amid a light

data calendar, apart from Bernanke’s testimony before the US House.

■ EUR: EUR bulls suffered following Trichet’s press conference and US

labor data: market sentiment should remain EUR positive, but its recent

retreat will lead to less aggressive long positioning in the coming days.

■ JPY: EUR strength and USD weakness proved to be the key drivers

again for USD-JPY and EUR-JPY. We do not expect USD-JPY to break

below 81/80.50 and EUR-JPY should stay in the 110.50/113 band.

■ CHF: USD-CHF is still struggling between 0.93 and 0.95 in the wake of

continuing swings in risk appetite. For the same reason, we still favor

selling EUR-CHF on a rally above 1.30.

■ GBP: We remain positive on cable, but this pair may now take a breather

before the next intermediate key level of 1.65. At the same time, EUR-

GBP should be sold again above the 0.85 area.

■ The three dollars: The Aussie dollar should stay firm above parity, while

the Kiwi dollar should at least hold the line above 0.77. The USD-CAD

“love affair” with parity should not see new signals in either direction.

■ Nordics: As expected, divergences between EUR-SEK and EUR-NOK

have been progressively absorbed. The depreciation path of these two

cross rates should thus remain intact.

More insight in our monitors: Swap Curve – EGB spreads – Money Market –

– FX Monitor – Beta analysis – FX Correlation – FX Hit Parade – Data

Calendar – Forecasts.

MARKET PRICES & FORECASTS

Actual Mar11 Jun11 Sep11 Dec11

US

FedFunds 0.25 0.25 0.25 0.25 0.25

2Y UST 0.74 0.60 0.75 1.00 1.25

10Y UST 3.60 3.15 3.40 3.70 4.00

EUROZONE

Refi 1.00 1.00 1.00 1.00 1.25

2Y Bund 1.41 1.00 1.10 1.40 1.75

10Y Bund 3.24 2.85 3.05 3.35 3.50

UK

Base rate 0.50 0.50 0.50 0.50 0.75

2Y Gilt 1.48 1.10 1.15 1.30 1.65

10Y Gilt 3.80 3.50 3.55 3.65 3.80

(10Y, bp)

US - EU 36 30 35 35 50

US - UK -20 -35 -15 5 20

UK - EU 55 65 50 30 30

Swap Spread (10Y, bp)

US 12 5 5 0 -10

EUROZONE 27 25 30 20 15

UK 16 10 20 30 40

Currencies

EUR-USD 1.36 1.27 1.35 1.38 1.41

USD-JPY 82 82 83 85 87

GBP-USD 1.61 1.52 1.62 1.68 1.75

EUR-CHF 1.30 1.28 1.32 1.34 1.36

INCREASED EONIA VOLATILITY

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10

-400

-300

-200

-100

0

100

200

300

400EONIA (lhs) Excess liquidity smoothed (rhs)

Source: Bloomberg, UniCredit Research

Head of Global FI & FX Research

Michael Rottmann

+49 89 378-15121

[email protected]

Editor

Luca Cazzulani

+39 02 8862-0640

[email protected]

Editorial deadline

Friday, February 04, 2011 15:30

Prices as of Friday, February 04, 2011, 15:00

Bloomberg: UCGR

Internet: www.research.unicreditgroup.eu


Curves & Crosses


The story so far…

Yield 1w ch 1m ch

DE IT US UK DE IT US UK DE IT US UK

2Y 1.41 1.48 0.71 1.48 4 -8 19 22 54 -40 11 28

5Y 2.31 3.18 2.16 2.63 4 -22 32 20 51 -23 23 33

10Y 3.24 4.51 3.60 3.80 10 -17 27 15 38 -18 27 29

30Y 3.70 5.36 4.68 4.51 11 -13 16 7 29 -15 20 19

2/5 90 171 145 115 0 -14 13 -2 -3 17 12 5

5/10 94 133 144 117 5 4 -4 -5 -13 5 4 -4

2/10 184 303 289 232 5 -10 8 -7 -17 22 16 1

10/30 46 85 108 72 1 4 -11 -8 -8 3 -7 -10

2/5/10 -2 19 1 -1 -3 -9 8 1 5 6 4 4

10Y BE 206 190 235 324 7 -1 9 3 7 7 -1 6

ASW 1w ch 1m ch

DE IT US UK DE IT US UK DE IT US UK

2Y -55 7 -18 -49 0 -10 5 4 16 -52 7 4

5Y -46 73 -23 -38 -1 -24 1 -4 9 -65 -2 -3

10Y -26 97 -11 -5 0 -23 -2 -2 5 -47 -3 -3

30Y -4 152 21 24 3 -18 -6 -1 -1 -39 -7 0

2/5 9 66 -5 12 -1 -14 -4 -8 -7 -13 -9 -8

5/10 20 24 12 32 1 1 -3 3 -4 18 -1 0

10/30 22 55 32 30 2 6 -4 0 -5 8 -5 3

Swap curves EMU 10Y benchmarks

EU US BP SZ JP Yield ASW Spreadvs. DE

1w ch 1m ch

EONIA 0.53 0.24 0.56 0.06 0.10 GE10Y 3.24 -26 - - -

1M 0.91 0.26 0.60 0.14 0.13 NL10Y 3.42 -4 18 1 -4

3M 1.09 0.31 0.79 0.17 0.19 FI10Y 3.44 0 20 0 -4

6M 1.34 0.46 1.10 0.24 0.35 FR10Y 3.53 9 28 -2 -11

12M 1.68 0.79 1.56 0.52 0.57 AT10Y 3.58 12 33 -4 -12

2Y 2.03 0.95 1.91 0.67 0.44 BE10Y 4.01 51 77 -24 -49

5Y 2.85 2.47 3.13 1.53 0.71 IT10Y 4.51 97 127 -27 -56

10Y 3.51 3.71 3.96 2.26 1.35 SP10Y 4.89 134 164 -44 -91

30Y 3.72 4.46 4.23 2.52 2.09 PT10Y 6.87 303 362 -18 -59

2/5 82 152 122 86 27 IE10Y 8.68 426 544 -37 -77

5/10 66 124 83 73 64 GR10Y 10.77 589 753 -65 -221

10/30 21 76 28 26 74

Forex EUR USD

Last 1w ch 1m ch 3m ch 6m ch Last 1w ch 1m ch 3m ch 6m ch

EUR-USD 1.3590 -0.2% 2.1% -4.3% 3.3% EUR-USD 1.3590 -0.2% 2.1% -4.3% 3.3%

EUR-JPY 111.08 -0.5% -0.4% 1.2% -5.3% USD-JPY 81.74 -0.5% -0.4% 1.2% -5.3%

EUR-GBP 0.8452 1.4% 0.7% -0.4% -9.3% GBP-USD 1.6079 1.4% 0.7% -0.4% -9.3%

EUR-SEK 8.8317 1.4% 3.2% -1.2% 1.2% USD-SEK 6.5002 1.4% 3.2% -1.2% 1.2%

EUR-NOK 7.8252 2.4% 1.3% 0.3% 11.1% USD-NOK 5.7586 2.4% 1.3% 0.3% 11.1%

EUR-CHF 1.2976 -0.3% 0.7% -2.9% 5.0% USD-CHF 0.9550 -0.3% 0.7% -2.9% 5.0%

EUR-AUD 1.3349 -1.7% -1.4% -1.7% -3.3% AUD-USD 1.0180 -1.7% -1.4% -1.7% -3.3%

EUR-NZD 1.7611 -0.6% 1.7% -3.2% -2.2% NZD-USD 0.7716 -0.6% 1.7% -3.2% -2.2%

EUR-CAD 1.3381 1.2% 2.8% -4.7% -6.4% USD-CAD 0.9847 1.2% 2.8% -4.7% -6.4%

Equity Commodities

Last 1w ch 1m ch 3m ch 6m ch Last 1w ch 1m ch 3m ch 6m ch

S&P 1307.1 0.6% 2.9% 7.0% 16.0% OIL 91.02 2% 2% 5% 10%

Eurostoxx 3001.6 1.6% 5.5% 4.1% 6.2% Gold 1350.73 1% -2% -3% 13%

DAX 7203.1 1.4% 3.3% 7.0% 13.8% CRB 557.91 2% 7% 13% 27%

FTSE 6003.7 2.1% -0.2% 2.4% 11.5% iTraxx 408.00 -11 -6 -27 -52

Nikkei 10543.5 1.8% 1.4% 12.7% 11.1%

Shanghai 2799.0 4.5% -0.3% -8.1% 4.7%


Curves & Crosses


Favorite Trends & Medium-Term Strategies

Fixed Income

EU US UK

Change Actual Expected trend Change Actual Expected trend Change Actual Expected trend

-3M -1M 1M 3M -3M -1M 1M 3M -3M -1M 1M 3M

Key policyrates

1.00 1.00 1.00 0.25 0.25 0.25 0.50 0.50 0.50

Libor rates 1.05 1.00 1.09 0.29 0.30 0.31 0.74 0.76 0.79

10Y 2.40 2.89 3.24 2.49 3.33 3.60 2.95 3.46 3.80

2/10Y 147 207 184 216 271 286 245 270 232

2/5/10Y -10 -6 11 -38 3 6 -26 -5 -1

10Y SwSp 31 30 27 14 7 12 15 14 16

Portfolio strategy

With sentiment remaining very shaky ahead of important political decisions, we prefer to keep our

duration neutral, preferring barbells. Country-wise, we rebalance our exposure to periphery by

increasing our allocation to Italy and Spain and reducing Greece after the recent pronounced rally.

Supply

February will be one of the less liquid months of the year, in line with last year. Redemptions will total

EUR 24bn, while coupons will amount to EUR 12bn. We expect gross supply to be in the EUR 70/78bn

area, with risks to the upside. Net supply should be EUR 45/53bn, higher than in January. Activity will

remain lively at the 10Y, with 26% of the supply to be issued at this tenor. We expect 23% to go to the

2/3Y and 24% to 5Y maturities. We should observe a pick-up in activity at the extra long end, with 11%

of total issuance at the 15Y and 6% at the 30Y.

FX

Change Actual Expectedtrend



W M W M W M

EUR-USD -4% 2% 1.36 EUR-JPY -3% 2% 111 EUR-NOK -4% 0% 7.82

USD-JPY 1% 0% 82 EUR-CHF -5% 2% 1.29 AUD-USD 0% 1% 1.02

USD-CHF -1% 0% 0.95 EUR-GBP -3% -1% 0.85 NZD-USD -3% 1% 0.77

GBP-USD -1% 3% 1.61 EUR-SEK -5% -2% 8.80 USD-CAD -1% -1% 0.99

EUR-USD

The main driver for the euro this year will remain EU periphery tensions. The recent rally up to 1.37 may

have created a floor, but a partial retreat is still possible as markets remain fragile and volatile. In any case,

abating EMU jitters in 2H11, the start of the ECB tightening cycle in 4Q11 and increasing focus on US

issues should offer the euro a boost above 1.40 and probably towards 1.45.

JPY

As expected, S&P’s country downgrade did not have a dramatic impact on the yen and we are still penciling

in a muted USD-JPY trajectory for 2011 between the 82-87 trading band, also taking into account that

Beijing is unlikely to allow a sharp CNY revaluation this year as well. EUR-JPY upside potential, mostly in

2H11, when market tensions are expected to soften, should remain contained, not exceeding the 120 area.

CHF

Despite the 1.30 level having been re-tested, selling EUR-CHF on a rally is favored, at least during 1H11,

when new record lows should be the theme. The room for a EUR-CHF recovery in 2H11, in the wake of less

nervous market conditions, should be limited, too, and would hardly exceed the 1.35 area. USD-CHF should

remain under pressure in the 1.00-0.95 band for most of 2011.

GBPThe BoE will not follow the Fed on QE and will gradually start hiking rates in 4Q11 and continue in 2012.

Cable should return back above 1.70 on a 12M horizon, while EUR-GBP should slide below 0.85 over time.

Pacific Rim &the CAD

The three dollars should stay firm against the USD, but the Aussie dollar might outperform its New Zealand

cousin due to a slightly better economic picture at home, despite the negative impact of floods in the near

term. We also see a mild USD-CAD rise in 1H11, followed by a return towards parity again, as the BoC will

increase rates further in 2H11.

Nordic Block

We expect EUR-SEK and EUR-NOK to fall further this year, but their slide should occur at a slower pace

than in 2010 due to a less aggressive tightening pace. We target EUR-SEK and EUR-NOK at the 8.80 and

7.70 level, respectively, by 4Q11.


Curves & Crosses


Favorite Trades

FI Trades

Type Trade Rationale Entry date Entrylevel

Act. Stop Target P&L(bp.)

Curvetrades

Buy UST 30Y SellUST 2Y

The UST 2/30Y spread is very steep and currently trades athistorical highs. We see scope for a tightening of the spread inthe short term.

21-Jan-11 398 398 450 300 0.4

Buy DBR Jan16 vs.OBL Oct13 andDBR Jan20

The 2/5/10Y barbell on the German curve has cheapened tointeresting levels. The 5Y has been under pressure recently andwe expect it to outperform the wings in the near term.

21-Jan-11 0 -4 20 -40 4.4

Sell BOX 2/10Y USvs. EU

TAKE PROFIT 21-Jan-11 93 105 105 125 11.7

CDS- cashtrades

Sell protection onBelgium and buy5Y BGB, Buyprotection Italy andsell 5Y BTP

The Belgian 5Y CDS trades flat vs. Italy, while on the cashmarket Italy trades wider. We set up a trade on CDS and on thecash to exploit such a misalignment, expecting the two marketsto realign.

21-Jan-11 -10 -6 -50 75 3.7

EMU crosscountry

Sell PGB Jun20Buy IRISH Oct20

If Portugal is forced to tap the EFSF (which we expect), its yieldcurve will rise relative to other countries which have alreadyasked for financing.

21-Jan-11 193 180 250 100 13.0

MoneyMarket

Buy Libor Dec11 As we do not expect the Fed to hike rates in 2011, we think Liborcontracts price in a too high level for rates.

21-Jan-11 0.74 0.78 1.00 0.30 -3.5

Buy Euribor Sep11 The recent remarks on inflation by the ECB have put the shortterm rates under pressure. As we expect the first hike in 4Q weregard the Sep contract as attractive.

21-Jan-11 1.585 1.650 1.85 0.75 -6.5

Receive EONIApay OIS 1M

Falling excess liquidity has put upward pressure on moneymarket rates taking the EONIA well above 1%, we expectliquidity conditions to normalize and this should speak for anEONIA index not far from 1%. Hence, we consider the 3M OIS at0.85% as relatively low.

28-Jan-11 18.50 12 0.00 40 11.6

SUMMARY TABLE

FI Open Trades 23

FI Closed Trades 12

FI Total Trades 35

Update 4-Feb-11


Curves & Crosses


FX Trades

SHORT-TERM SPOT TRADES

Cross Position Start EntryLevel

Target CurrentSpot

Stop 3M Carry % Return P/L netEUR

Rationale / Status

EUR-CHF short 14-Jan-11 1.2950 1.2200 1.2910 1.3300 -0.0025 0.31% 2.711 Ongoing EMU sovereign crisisand USD weakness to furthersupport CHF safe-haven-status

Cable long 21-Jan-11 1.5880 1.6500 1.6172 1.5560 0.0014 1.84% 21.556 We take profit at current levels,as we expect the upward trendto be interrupted next week

P/L Open Trades 2.711

P/L Closed Trades 21.556

Update 4-Feb-11 09:30hCET

P/L Total Trades 24.267

Note: P/L Net EUR also includes carry cost calculations and refers to a notional amount (1mn EUR or USD). Source: Bloomberg, UniCredit Research

MEDIUM-TERM OPTION STRATEGIES

Strategy Direction Start Maturity Strike CurrentSpot

EntryLevel

Actual % Return P/L netEUR

Rationale / Status

EUR-GBPstrangle

short 14-Jan-11 18-Jan-12 0.89-0.79 0.8435 4.40% 3.85% 0.55% 5.500 We take profit at current as weexpect increasing volatility inthe run-up to both BoE ratedecision and Inflation Report

EUR-NOKbarrier put

longup & out

21-Jan-11 25-Jul-11 7.85KO 8.15

7.8170 1.25% 1.68% 0.43% 4.300 We take profit at current levelswith the trade now well in-the-money

EUR-USD

call spread

long 28-Jan-11 01-Aug-11 1.40-1.50 1.3643 1.73% 1.60% -0.13% -1.300 Political efforts to overcome thedebt crisis have beenintensified in recent days

EUR-SEK

barrier put

long

up & out

28-Jan-11 01-Aug-11 8.80

KO 9.40

8.798 1.53% 1.75% 0.22% 2.200 Riksbank not overly concernedabout SEK appreciation

EUR-JPY

barrier call

long

down & out

28-Jan-11 01-Aug-11 120

KO 105

113 1.30% 0.85% -0.45% -4.500 EUR-JPY to broadly traceEUR-USD

USD-CAD

strangle

short 04-Feb-11 07-Feb-12 1.05-0.95 0.9890 4.40% 4.40% 0.00% 0.000 We expect the cross to keepon flirting with parity

USD-CHF

strangle

short 04-Feb-11 08-Feb-12 1.01-0.89 0.9465 4.60% 4.60% 0.00% 0.000 Safe-haven status of the francremains intact, but most of itsway already gone

P/L OpenTrades

-0.36% -3.600

P/L ClosedTrades

0.53% 5.300

Update 4-Feb-11 09:30hCET

P/L TotalTrades

0.17% 1.700

Note: entry/actual levels are calculated as cost/income as a percentage of the notional amount (EUR 1mn or USD). Source: Bloomberg, UniCredit Research

SUMMARY TABLE

FX Open Trades -0.889

FX Closed Trades 26.856

FX Total Trades 25.967

Update 4-Feb-11


Curves & Crosses


Macroeconomic Focus

Walking a thin lineMarco Valli

(UniCredit Bank Milan)+39 02 8862 [email protected]

Listening to yesterday’s press conference, we were left with the clear feeling that Trichet was

walking a very thin line. On the one hand, even a modest further toughening of the inflation rhetoric

would have probably been taken by the market as a sign that the ECB is getting ready to hike

interest rates soon.

Given that debt jitters in peripheral countries still pose systemic risks for both the

banking sector and the real economy of the whole eurozone, this was not the direction the

ECB wanted to take.

On the other hand, some back-pedaling on the inflation wording used at the January

meeting risked undermining the effectiveness of the strategy that the ECB is adopting to

counter commodity-driven price pressures, i.e. sounding hawkish now to keep price expectations

from drifting higher and avoid falling behind the curve.

A cautious Trichet on inflation…

At the end of the day, the ECB decided to do nothing, and we think this was the correct

strategy. Trichet was extremely careful to avoid stepping up further his inflation rhetoric,

stressing that mid-term price risks remain broadly balanced (although they could move to the

upside) and inflation expectations are still firmly anchored.

The ECB continues to monitor CPI developments “very closely”, like last month. There was

no mention of words like “vigilance”, which in the past tightening cycle was used by the ECB

to signal the intention to increase the refi rate at the following meeting. Interestingly, yesterday

Trichet put even more emphasis than usual on the distinction between price pressures in the

near term (on the rise, largely due to commodities) and the medium term (in line with

price stability). We think he is already preparing the market for next month’s upward

revision of the ECB inflation projections.

In March, besides the 2011 call, it will most likely also have to raise the 2012 forecast, but

given that it is starting from a very low 1.5%, there is a lot of room for revision without putting

medium-term price stability at risk.

... and on growth

Trichet also confirmed that the ECB continues to see slight downside risks to the growth

outlook, although we think that this assessment is a bit outdated and doesn’t reflect the strength

of incoming data – like, for example, the January PMIs.

We expect that the ECB will change its assessment in March, when a small upward revision

to the 2011 GDP forecast seems likely

Oil price hit the USD 100 mark again Solid composite PMI in early 2011

0

20

40

60

80

100

120

140

160

Aug-99 Apr-01 Nov-02 Jul-04 Mar-06 Oct-07 Jun-09 Jan-11

Brent $

37

40

43

46

49

52

55

58

61

64

Jul-98 Aug-00 Sep-02 Oct-04 Nov-06 Dec-08 Jan-11

Critical level



Curves & Crosses


FI Strategizer

A pause for reflection for markets next weekLuca Cazzulani(UniCredit Bank Milan)+39 02 8862 [email protected]

Chiara Cremonesi(UniCredit Bank London)+44 207 826 [email protected]

FI View for next week

US: Bernanke should err on the dovish side next week offering some relief to bonds.

Discussion on the debt ceiling and US supply should act in opposite directions possibly

keeping USTs relatively unchanged at the end of the week.

EMU: In the EMU, the light calendar should favor range trading in the bond market. Further

hints that a solution to the EMU crisis can be reached might lead to a further tightening of

periphery spreads.

A brief recap:Yield continued to rise in the US…

…and have been volatile in the EMU

US: Yields in the US climbed to new records. The 2Y climbed above 0.70% (almost the

highest levels in the last two months) and the 10Y broke above 3.50% (highest level since

May-2010). NFP gave a further boost to yields, pushing the 2Y above 0.75% and the 10Y

temporarily above 3.60%. As the report was not as positive as the immediate market reaction

might indicate, we expect rates to correct slightly over the next few days.

EMU: In the EMU, the 2Y Bund yield increased during most of the week on further ECB

repricing reaching 1.50%. After the ECB press conference where, as expected, Trichet was

extremely careful, the 2Y fell back a bit to 1.35%. The 10Y Bund yield has shown a similar

pattern, rising to 3.25% before easing back to 3.2%. The EUR gained vs. USD most of the

week but then fell back after the ECB press conference.

Tension in the Middle East did not affected bonds too much but left a more evident effect

on oil prices.

One of the key features in the EMU has been the sharp tightening of periphery spreads. Here

the market is getting more and more positive about a possible deal to solve the eurozone

crisis. The well-received Portuguese T-bills and the Spanish bond auction this week

reinforced the prevailing optimism.After the 1W MRO, EONIA cameback to 0.70%

This week has been hectic on money markets: banks bid EUR 231bn at the 1W MRO,

almost EUR 50bn more than the expiring liquidity. The reason behind the increase is entirely

technical: the reserve period has been short and banks have accumulated a large amount of

"red numbers" so they were in need of borrowing. The EONIA spiked temporarily to 1.30%

and then eased back to 0.70% after the MRO. Volatility is likely to remain in the market as we

enter the new reserve period (Feb9). This is because banks will likely try to front-load their

liquidity needs in the next reserve period. Euribor futures contracts still remain at levels that

we regard as attractive (Dec11: 1.80%) despite a more dovish Trichet.

Next week, the calendar in the USwill be pretty light, eyes onBernanke

Next week, the calendar in the US will be very light, with only the December trade balance

and the U-Mich confidence for February due for release. Some pressure may come from the

UST auctions (USD 32bn of 3Y, USD 24bp of 10Y, USD 16bn of 30Y, in total USD 72bn, in

line with last month), giving some more tailwind to the current trend of rising yields.

Volatile EONIA 10Y yields cheaper than last two years average

0.0

0.5

1.0

1.5

2.0

2.5

Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

Refi 1M OIS EONIA Depo 3M

2.0

2.5

3.0

3.5

4.0

4.5

Jan-09 Apr-09 Jul-09 Oct-09 Feb-10 May-10 Aug-10 Dec-10

10Y Bund 10Y Gilt 10Y UST

Long term averages



Curves & Crosses


Bernanke will testify before the House on Wednesday. On the economic outlook the

Chairman will likely restate that the recovery is somewhat stronger but not strong enough to

bring unemployment down to a level that is acceptable for the Fed. Overall we expect a

dovish Bernanke, in line with the recent FOMC minutes and his previous statements.

On QE2, Bernanke will likely reiterate the need to continue with the program while it is still

early to expect hints of a possible extension after June.

Finally, the Chairman may reiterate the necessity to raise the debt ceiling and not to use it as

“the bargaining chip in the discussion for spending cuts”. This is likely to bring the debate

back to the public finance issue, especially as the White House prepares to unveil its budget

proposal for 2012 on 14 February.

Next week, USTs should be moderately supported by Bernanke testimony. On the other

hand, US supply an the debate on fiscal policy might put some pressure on bonds. Overall,

the net effect should be neutral, with yields level likely unchanged at the end of the week.

Also in the EMU the data calendardoes not offer much inspiration…

In the EMU, the data calendar will be also rather light next week. Germany will release

factory orders and industrial production for December. We expect this data to confirm that

growth remains strong although this should not be much of a mover given that the strength of

the German economy is no longer a surprise.

…neither does primary marketactivity…

In the primary market, there is light activity scheduled for next week (EUR 6/7bn) and

mostly coming from core countries (the Netherlands and Germany). Italy and Greece will sell

T-bills and we expect them to register good results in line with the recent trend.…so investors may startconcentrating on the Ecofin andEurogroup meetings the followingweek

Given the lack of major market movers next week in the EMU, investors will start focusing on

the Ecofin meeting scheduled for 14 February. There are mounting expectations of what

European policymakers will decide on as a solution to the eurozone crisis and there is a clear

risk of disappointment. Markets are not expecting the decision on a solution before the end of

March, but any hints of progress towards a possible solution might spark further optimism and

lead to a further tightening of periphery spreads.

Investors will closely watch the BoEmeeting

In UK, we do not expect the BoE meeting to bring relevant surprises.

As a matter of fact, the vote split in January (another MPC member joined the hawkish camp)

showed that discontent about the current level of inflation is rising within the MPC. However,

the very disappointing GDP reading was not known at the time of the January meeting.

Although probably affected by unfavourable weather conditions, the loss of momentum was

quite abrupt. Against this backdrop, the BoE is unlikely to take the decision to increase the

repo rate any time soon and we still expect the first hike not earlier than in 4Q this year.

Little reason to expect a correctionto the Gilt yield rise over the last fewmonths

A strong IP number in the UK next week could fuel further speculation that the BoE may

embark on a hiking cycle sooner rather than later. We see little reason in this scenario for

rates to correct the sell-off over the last few months. Gilts should thus remain under

pressure next week as well.

Back to front page


Curves & Crosses


Real Money Section: Euroland Portfolio Strategy

Make it or break itMichael Rottmann (UniCredit Bank)

+49 89 378-15121

[email protected]

Sentiment remains extremelyshaky ahead of a political decision

Fuzzy logic & bail-out are still the buzzwords in the eurozone. The pace at which new

solutions for the credibility crisis are being formulated on an almost daily basis is breathtaking.

While the idea mentioned two weeks ago of a private and, therefore, implicitly voluntary

restructuring by purchasing government bonds at depressed levels using subsidized credit aid

was interesting, this week the dam broke. Ultimately it was clear that the private restructuring

had a blemish: this approach would probably reduce government debt by no more than 10-

20%. An idea proposed last weekend, where the fallen angels are provided with credit lines

for 30 years, went one step further. An even newer idea within the framework of the EFSF is

to focus not only on the secondary market but also to acquire bonds directly on the primary

market. This idea also has a certain charm. It is no longer necessary to “corner“ the

secondary market for years to come (thin it out by purchasing government bonds): instead,

rising market capitalization in the stressed countries is avoided from the outset. At any rate,

the discussion now goes well beyond the "provocateur" E-bonds. Ultimately, the question with

the E-bond variant was whether 40% of the government debt (Juncker/Tremonti proposal) or

no less than 60% (Bruegel, a Belgian think-thank) should be refinanced with Blue Bonds. But

irrespective of 40% or 60%, this variant had a serious weakness. While it would have lowered

the borrowing costs at least for all non Triple-A countries, private purchasers would, in

contrast, have been very difficult to find because of the potential ”kin liability“ as a result of

CoC clauses, and based on this premise a pass-through from the EFSF to the ESM appeared

inevitable. In the interim, progress has been made on the above mentioned discussion.

Ultimately, the solutions being discussed constitute perpetual support with no volume limit.

Since refinancing is in all probability via EFSF bonds (and their successors), the refinancing

costs of the aggregated eurozone will decline. This operation is successful in theory until a)

Germany and/or France lose their AAA rating, b) a massive credibility premium emerges in

both countries even without negative rating drift, c) Germany’s constitutional court terminates

German participation or d) the population of both countries votes in an “Anti Euro” party that

still has to be created. Even though this extremely aggressive discussion is currently having a

positive impact on spreads in the periphery, one thing is clear. The potential for

disappointment has skyrocketed in the last three weeks.

EGB RETURNS, VOLATILITY AND CROSS ASSET CORRELATIONS

5-dayreturn

20-dayreturn

YTDreturn

20-dayreturn

volatility

YTDreturn

volatility

60-day return/20-dayreturn correlation

EGBs

> 1Y

EGB

HICP-ILB

1-10Y

iBoxx EUR

Corp. BBB

Euro-

Stoxx

DJ AIG

Commodity

Oil

price

3M Euribor 0.01 0.06 0.07 0.04 0.04 EGBs >1 1 0.86 0.70 0.06 0.04 -0.04

EGBs >1Y 0.66 -0.09 -0.41 3.18 3.34 EGB HICP-ILB 1-10Y 0.67 1 0.68 0.02 0.06 0.02

EGBs 1-3Y 0.29 0.14 0.03 1.18 1.19 iBoxx EUR Corp. BBB 0.62 0.46 1 -0.12 0.02 -0.10

EGBs 3-5Y 0.61 -0.13 -0.41 2.34 2.36 EuroStoxx -0.10 -0.15 -0.34 1 0.40 0.11

EGBs 5-7Y 0.73 -0.01 -0.31 2.94 3.04 DJ AIG Commodity 0.20 0.12 -0.27 0.30 1 0.76

EGBs 7-10Y 0.83 0.19 -0.02 3.78 4.01 Oil price 0.25 0.22 -0.08 -0.18 0.80 1

EGBs >10Y 0.92 -0.49 -1.18 6.98 7.29

EGB HICP-ILB 1-10Y 0.81 -0.02 0.17 3.12 3.27


The “Hail Mary pass” will have to come on 24/25 March at the latest. Merely expanding the

EFSF to the EUR 440bn originally planned by the eurozone members or even beyond that

amount would trigger a brutal sell-off. At the very least, policymakers must deliver on the

possibility to purchase government bonds within the framework of the EFSF on the secondary

market. It remains to be seen to what extent there is already political commitment to this.

Currently, policymakers seem to be trying to avoid two meltdown scenarios: 1) the

disintegration of the eurozone and 2) a forced restructuring that constitutes an official credit

event. The motivation behind both options is clear. A break-up of the eurozone or splitting it in

two parts would be a disaster in economic terms alone. The last turmoil in this respect

happened in 1992, when speculation drove the GBP out of the currency snake and the Italian


Curves & Crosses


lira transitioned to the free float. In the years thereafter, Germany was not only the export

champion it is today but also generated clear current account deficits not least because of the

exchange rate distortions (left graph), while Italy generated sustained surpluses (right graph).

Not even core countries are interested in a repetition of this scenario. And it does not take

much imagination to estimate an appreciation of a new "old" D-Mark of at least 15% versus

the average of the current members of the eurozone.

Script of a break-up or division into two parts of the Euro: Massiveappreciation of a new "old" German Mark …

… with corresponding consequences for current account balances etc.

-50

-40

-30

-20

-10

0

10

20

30

Jan-9

0

Jan-9

1

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

German Mark/Austrian Schilling

Italian Lira

-1.1-0.8

4.2

5.7

-2.5

-1.4

2.4

3.4

1 1.2 1

-2.8-4

-3

-2

-1

0

1

2

3

4

5

6

7

1992-96 1997-2001 2002-2006 2007-2011

Germany

Austria

Italy


The second meltdown scenario is being avoided, at least at the moment. An official

restructuring that triggers a credit event would primarily not sit well with banks. The latest BIS

publication reveals that the foreign exposure to the current problem children increased again

slightly in 3Q10 to close to USD 3,350bn (left graph). Thus, there can be no talk of drastic

deleveraging. Furthermore, the cross-country connections above all on the Iberian Peninsula

and also between France and Belgium are so high that the potential of even only one

restructuring triggering a massive contagion effect could have a disastrous effect (right

graph).

Cross-border deleveraging has stalled Exposure of selected countries to the current "problem children" inUSD bn

0 200 400 600 800 1000 1200

Spain

Germany

France

UK

Switzerland

Sweden Greece Ireland Portugal Spain Italy Belgium

Source: BIS, UniCredit Research

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Mar-

05

Mar-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Greece Ireland Portugal Spain Italy Belgium


Curves & Crosses


Given the extreme uncertainty, wewould prefer barbells but shy awayfrom directional duration exposure

Given the crucial importance of political commitment, the outlook for EGBs remains highly

uncertain. However, it remains to be seen whether there will be a political breakthrough

tonight which leads to increasing confidence in periphery bond markets (and puts pressure on

the aggregated EGB universe, especially at the belly of the curve) or if another

disappointment takes place (fueling moderate price gains across the EGB universe due to

another round of safe-haven bids in core countries). Being slightly in favor of the former

option, we would still prefer barbells but shy away from a directional duration positioning.

EGBS: EXPECTED RETURNS AND PORTFOLIO RECOMMENDATION

Modified Duration in Years Effas Benchmark weighting Recommended UniCredit weighting

3M Euribor 0.25 0

EGBs 1-3Y 1.83 26.39 32

EGBs 3-5Y 3.64 18.50 15

EGBs 5-7Y 5.15 11.62 11

EGBs 7-10Y 6.90 18.19 14

EGBs >10Y 11.86 25.29 28

EGB HICP-ILB 1-10Y 5.03 0

Average Duration 6.01 5.99



Curves & Crosses


Real Money Section: Euroland Country StrategyElia Lattuga(UniCredit Bank Milan)+39 02 [email protected]

Last week EMU bonds delivered an aggregated 0.41% return, while our portfolio allocation

posted a slightly lower (0.24%) performance. Peripheral countries outperformed the core

group with Greece standing up as best performer. YTD our portfolio allocation reports a

cumulative return of -0.32% (vs. EFFAS -0.12%).

The strong rally of the periphery has taken momentum, during the last few weeks an

improved market sentiment has led to significant spread tightening vs. core. The Greek yield

curve has moved south and since the beginning of the year GGBs have posted an

astonishing 6% return. Core countries delivered negative returns of about 0.5/1.5%.

While in the medium term we still prefer overweighing core countries, we think that the

recent performance of periphery might continue in the short term. Hence, we decide to

increase our exposure vs. Italy and Spain. Given its sound 1.21% YTD return and its lower

volatility compared to other peripheral countries: we increase our exposure vs. Italy by 3%.

We also increase our exposure on Spain by 2%, closing the gap with the benchmark.

After the recent outstanding performance and given a relatively low weigh on the index, we

decided to reduce our exposure on Greece. Its very high volatility implies the risk of profit

taking in the coming week. Therefore, we would cut our exposure to Greece by 1.5%.

We also trim our exposure on Germany and Austria (-2.5% and -1% respectively), but we

remain overweigh on these countries.

UCGR and EFFAS weightings Weekly performance by country

0%

5%

10%

15%

20%

25%

30%

IT DE FR AT ES NL GR BE FI IE PT

Our weighting EFFAS weighting

weekly performance

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

GR IE ES BE IT PT AT FI FR NL DE

EGB COUNTRY RECOMMENDATION

>1Y YTM Duration YTD return Last week return EFFAS weighting Our weighting Ch. since last week Over / Underweight

Austria 3.38 6.30 -1.12% 0.09% 4.1% 8.0% -1.0% 3.9%

Belgium 3.83 5.62 -0.32% 0.85% 6.0% 3.0% -3.0%

Germany 3.07 6.06 -1.67% -0.28% 20.9% 24.0% -2.5% 3.1%

Spain 4.95 5.70 2.23% 1.58% 9.7% 7.0% 2.0% -2.7%

Finland 2.97 5.12 -1.54% -0.11% 1.3% 1.5% 0.2%

France 3.41 6.53 -1.38% -0.23% 21.3% 23.0% 1.7%

Greece 10.98 4.34 6.21% 2.35% 3.7% 2.0% -1.5% -1.7%

Ireland 8.45 4.88 1.06% 1.65% 1.8% 0.0% -1.8%

Italy 4.57 6.08 1.21% 0.82% 23.7% 26.0% 3% 2.3%

Netherlands 3.17 6.20 -1.60% -0.26% 5.3% 5.5% 0.2%

Portugal 6.50 5.22 -0.91% 0.75% 2.2% 0.0% -2.2%

Eurozone 4.12 6.01 -0.12%

SUMMARY

Yield 4.12 4.01

Duration 6.01 6.08

YTD return -0.12% -0.32%

Tot. Ret. Last week 0.41% 0.24%



Curves & Crosses


Total Return MonitorTOTAL RETURN YTD OF FIXED INCOME ASSETS

-0.2

-0.6

0.0

-1.5

-0.3

-0.4

0.0

-0.6

0.0

-1.5

-0.3

-0.4

0.0

-2.3

-1.6

0.1

-2.6

-0.8

-1.2

-2.9

-5

-4

-3

-2

-1

0

1

Euro 7-10 Euro 1-3 US 7-10 US 1-3 UK 7-10 UK 1-3 JP 7-10 JP 1-3

Tota

lre

turn

(%)

Asset return Hedged EUR Eur return

TOTAL RETURN YTD OF CURRENCIES AND EQUITIES

-0.6

1.1

-0.6

0.0

-1.5

-0.3

-0.4

0.0

-1.6

0.1

-2.9 -2

.6

2.9

-1.4

-2.3

-1.2

-4

-3

-2

-1

0

1

2

3

4

Core7-10

Core1-3

Perip7-10

Perip1-3

7-10 1-3 7-10 1-3 7-10 1-3

EMU US UK JP

Tota

lre

turn

(%)

Asset return Eur return

TOTAL RETURN BY COUNTRY AND MATURITY BUCKET

Euro7-10

Euro1-3

US 7-10

US 1-3 UK 7-10

UK 1-3

JP 7-10

JP 1-3

1W 0.59 0.26 -1.56 -0.26 -0.86 -0.21 -0.29 -0.02

1M 0.19 0.15 -1.12 -0.03 -1.64 -0.23 -0.23 -0.03

TOTAL RETURN BY ASSET CLASS EUROZONE (2010 YTD)

5.3

9.6

5.7

-0.9

1.6

4.5

-0.4

-0.8

3.4

3.3

1.8

3.8

6.7

4.1

0.9

-0.2

2.5

2.2

1.9

3.6 4

.1

1.0

4.3

-1.5

0.8

7.6

9.5

3.5

-0.1

3.5 3.9

6.9

1.5

-0.4

9.8

2.0

-4

-2

0

2

4

6

8

10

12

2003 2004 2005 2006 2007 2008 2009 2010 2011

YT

Dto

talr

etu

rn(%

).

Euro 7-10 Euro 1-3 CCT ILB

TOTAL RETURN BY COUNTRY AND MATURITY BUCKET

USD GBP JPY CHF S&P DAX Nikkei

FTSE

Gold CRB

1W -0.10 1.54 0.47 -0.85 2.41 1.57 1.77 2.25 0.88 1.32

1M -5.3 -1.8 -3.6 -3.4 2.8 3.8 0.0 0.5 -1.5 6.9

TOTAL RETURN BY ASSET CLASS US (2010 YTD)

3.3

4.9

2.8

2.5

10.1

-5.2

9.2

-0.6

2.4

1.0

3.8

7.3

6.4

0.9 2

.2

0.0

7.9

7.5

2.3

1.4

11.3

-2.6

5.0

0.0

17.2

1.8

12.0

-10

-5

0

5

10

15

20

2003 2004 2005 2006 2007 2008 2009 2010 2011

YT

Dto

talr

etu

rn(%

).

US 7-10 US 1-3 ILB

TOTAL RETURN YTD BY COUNTRY AND MATURITY BUCKET

Maturity bucket DE FR AT FI NL BE ES PT IT GR IE EU

1 -3 -0.74% -0.66% -0.81% -0.89% -0.70% 0.25% 1.24% 0.07% 0.53% 3.33% 0.45% 0.06%

3 -5 -1.49% -1.17% -1.11% -1.40% -1.44% 0.20% 1.81% -0.66% 0.50% 5.01% - -0.33%

5 - 7 -1.77% -1.40% -1.20% -1.78% -1.66% 0.03% 2.33% -0.65% 0.74% 9.58% 0.02% -0.26%

7 - 10 -2.01% -1.58% -1.20% -1.87% -1.74% -0.17% 2.80% -1.28% 0.91% 10.58% 1.52% -0.09%

>1 -1.81% -1.58% -1.31% -1.62% -1.72% -0.31% 1.79% -0.59% 0.54% 6.95% 0.84% -0.38%

SPREAD TO DE

1 -3 - 0.08% -0.07% -0.15% 0.04% 0.99% 1.98% 0.81% 1.27% 4.07% 1.19% 0.80%

3 -5 - 0.32% 0.38% 0.09% 0.05% 1.69% 3.30% 0.83% 1.99% 6.50% - 1.16%

5 - 7 - 0.37% 0.57% -0.01% 0.11% 1.80% 4.10% 1.12% 2.51% 11.35% 1.80% 1.51%

7 - 10 - 0.43% 0.81% 0.14% 0.27% 1.84% 4.81% 0.73% 2.92% 12.59% 3.53% 1.92%

>1 - 0.23% 0.50% 0.19% 0.09% 1.51% 3.61% 1.23% 2.35% 8.76% 2.66% 1.43%

Total return for the following combinations of bucket & countries are calculated using EFFAS indices of total return: EUR 7-10, EUR 1-3, US 7-10, US 1-3, UK 7-10,UK 1-3, JP 7-10, JP 1-3. CCTs total return is calculated using MTS index

Source: Bloomberg, EFFAS, UniCredit Research (all tables and charts in this page)

Back to front page


Curves & Crosses


Money Market Monitor

EONIA experiencing a roller-coaster rideLuca Cazzulani(UniCredit Bank Milan)+39 02 8862 [email protected]

The ECB press conference on Thursday was moderately dovish but, as anticipated, did

not lead to a significant re-pricing of monetary policy expectations. The December

Euribor contract still trades above 1.80%, a level we regard as attractive. The 2Y Bund yield

initially fell to 1.35% but the rally soon lost steam.

Strong demand at the 1W MRO isrelated to technical factors …

We expected strong demand at the 1W MRO, but the increase in the number of bidders

was even larger than anticipated: 310 banks bid EUR 213bn in liquidity, EUR 48bn more

than the amount expiring. The increase in demand is mainly related to technical reasons

and does not signal a return of tensions in the money market: due to a short

maintenance period, banks have not been able to smooth their borrowing and they did not

accumulate black numbers in the first part of the maintenance period. Demand for liquidity

should also remain elevated in the first part of the new reserve period (which will begin on 9

Feb) as banks will likely front-load their liquidity needs.Need for liquidity also evident inthe liquidity draining operation

That banks are short liquidity is also evident in the ECB liquidity-draining operation.

Not only did banks bid an amount lower than that offered by the ECB (EUR 68bn vs. EUR

76.5bn) but rates at which banks are willing to deposit at the ECB also rose.

Oddly enough, banks deposited EUR 25bn with the ECB, even if they were short liquidity.

Excess liquidity and EONIA on aroller coaster

Excess liquidity has experienced a roller-coaster ride. At the beginning of the week it was

as low as EUR 12bn while it increased to almost EUR 100bn at the end of the week.

The EONIA reflected the strong liquidity demand in the interbank market, rising to

above 1% for a few days during the week. In the latter part of the week, it has dropped

towards 0.80%.

The Euribor 3M has also been under pressure, rising to 1.09, while the 6M reached

1.34%.

Next week, we expect a moderationin demand for liquidity

Next week, we expect a moderation in demand for liquidity, given that a new reserve period

will start. EUR 70.5bn will expire from the last 1M LTRO. Investors will probably roll over a

larger amount of liquidity, particularly after they were relatively short liquidity in the last

reserve period. Demand at the 1W MRO, on the contrary, should ease considerably after last

week's spike. We expect demand of about EUR 150bn at the 1W MRO and around EUR 80bn

at the 1M LTRO.

As a result, ECB outstanding facilities should fall to EUR 490bn (about EUR 465bn net of the

amount deposited at the ECB) and excess liquidity should decline to the EUR 45bn area.

KEY CHARTS

Excess liquidity on a rollercoaster Euribor futures change since January 13 ECB meeting

-100

-50

0

50

100

150

200

250

300

350

400

Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11

0.50

0.75

1.00

1.25

1.50

1.75

2.00

Jan-09 Jul-09 Feb-10 Aug-10 Mar-11 Sep-11 Apr-12

3M EU Strip now

Strip @ 13-Jan-11 3M (e)

key rate


Curves & Crosses


EUROSYSTEM: LIQUIDITY CONDITIONS AT A GLANCE (EUR BN)

Liquidity demand Liquidity supply Excess liquidity Use of excess

Res. requirement Autonomous fact. Total ECB overnight Exc. Reserves

1W ch. 0.0 -17.9 -17.9 56 74 3 71

1M ch. 1.7 -7.1 -5.4 -11 -6 -49 42

01-Dec-10 212 225 437 535 98 30 68

24-Nov-10 212 243 455 479 24 27 -3

26-Oct-10 211 232 442 547 105 79 26

ECB LIQUIDITY CALENDAR

Expiry schedule Upcoming auction calendar

1w 1m 3m 6m 12m total 1W 1M 3M

09-Feb-11 214 70 284.1 8-Feb-11 8-Feb-11 23-Feb-11

24-Feb-11 38 38.2 15-Feb-11 8-Mar-11 30-Mar-11

31-Mar-11 149 149.5 22-Feb-11

28-Apr-11 71 71.1 1-Mar-11

8-Mar-11

15-Mar-11

22-Mar-11

29-Mar-11

Auction calendar report the auction dates (settlement is t+1). Figures in EUR bn - Source: ECB, UniCredit Research


Curves & Crosses


Euribor rates: historical movements and expectations

3M EURIBOR STRIP (RATES, %)***

0.9

1.1

1.3

1.5

1.7

1.9

2.1

Current 1st (Mar11 ) 2nd (Jun11 ) 3rd (Sep11 ) 4th (Dec11 )

Strip now Strip @ 07-Jan-11 3M (e) keyrate (e)

3M USD LIBOR STRIP (RATES, %)***

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0



3M GBP LIBOR STRIP (RATES, %)***

0.1

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9



3M 6M BASIS SWAP

-20

-15

-10

-5

0

5

10

15

20

25

30

35

Oct-02 Apr-04 Oct-05 Apr-07 Oct-08 Apr-10

3M 6M EUR

***. Triangles are the difference between the Euribor future with maturity are the indicated date and the 3M forward on the OIS curve, starting from the expirationdate of the future. For example, the Mar09 triangles is the difference between the Euribor future expiring in Mar09 and the 3M forward on the OIS curve starting onthe expiration date.

MONEY MARKET RATES RECENT CHANGES

Refi EONIA Euribor OIS Euribor / OIS

1M 3M 6M 12M 1M 3M 6M 12M 1M 3M 6M 12M

Last M 1.00 0.75 0.82 1.04 1.28 1.59 0.72 0.75 0.84 1.02 10 28 44 57

Last 3M 1.00 0.61 0.82 1.03 1.26 1.55 0.66 0.71 0.79 0.92 16 32 48 63

Last week 1.00 0.90 0.91 1.08 1.33 1.67 0.81 0.84 0.95 1.17 10 24 38 50

1W ch. 0.0 -51.4 3.5 2.5 3.4 5.7 -6.3 0.2 3.5 4.3 9.8 2.3 -0.1 1.4

1M ch. 0.0 13.7 15.8 9.3 11.9 17.6 22.7 21.7 26.6 36.0 -6.9 -12.4 -14.7 -18.4

3M ch. 0.0 -33.3 8.2 5.6 8.8 16.1 -0.6 3.0 8.4 20.8 8.8 2.6 0.4 -4.7

1Y ch. 0.0 -11.6 49.1 42.7 37.5 45.5 41.5 45.9 48.8 48.4 7.6 -3.2 -11.3 -2.9

The first three rows of the above table show average values computed on monthly, quarterly and weekly horizons. Row five to eight display the bp rate changes vs.the values recorded 1 week, month, quarter and year ago.

Back to front page


Curves & Crosses


Swap Monitor

SWAP CURVE: PAST, SPOT, 6M FRA

2.5

3.4

3.7

4.1

8.28.3

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0 5 10 15 20 25 30

Maturity (years)

04-Feb-11 3 months ago Forward 6M

Numbers denote the 1w change in yields (bp)

ROLLDOWN &CARRY (6M HORIZON)

0

5

10

15

20

25

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

maturity (years)

bp

Today

2 & 5 YEAR SWAP RATE: WHAT FORWARDS TELL US

Cu

rren

t:8

2

3m

:76

6m

:7

1

9m

:6

6

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Dec-06 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

2Y swap rate (%) 5Y swap rate (%) Forward rates

Numbers denotethe spread in bp

10 & 30 YEAR SWAP RATE: WHAT FORWARDS TELL US

9m

:5

6m

:1

0

3m

:15

Curr

ent:

21

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5


10Y swap rate (%) 30Y swap rate (%) Forward rates

Numbers denotethe spread in bp

10&30 AND 2&30 SPREADS: HISTORY AND FORWARD

17

0

3m

6m

9m

-100

-50

0

50

100

150

200

250


10/30Y spread (bp)

2/30Y spread (bp)

2/10Y spread (bp)

Forward spread

SWAP RATES AT A GLANCE

Average Cheap / rich

Last Short term(last 6M)

Long term(Jan99)

Short term(last 6M)

Long term(Jan99)

2Y 2.02 1.56 3.34 CCCC EEE

5Y 2.83 2.23 3.86 CCCC EEE

10Y 3.50 2.93 4.37 CCCC EEE

15Y 3.82 3.25 4.63 CCCC EEE

30Y 3.72 3.17 4.74 CCCC EEEE

Cheap and rich indicators are base on distribution percentiles. EEEE=Veryexpensive, E= Expensive, CCCC=Very cheap, C=cheap. Valuations arefrom the investor’s perspective.

5Y SWAP-OPTION VOLA AT 5Y TENOR

19.3

13.8

16.3

8

10

12

14

16

18

20

22

24

26

28

Jan-99 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12

Swaption vola (5Y) average since 1999 average since Aug07

SWAP CURVE AT A GLANCE

Average Cheap / rich

Last Short term(last 6M)

Long term(Jan99)

Short term(last 6M)

Long term(Jan99)

2/5 82 67 50 CC CC

5/10 67 70 50 E C

10/15 32 32 25 E CC

15/30 -10 -9 10 E EEEE

2/5/10 7 -1 0 CCC CCC

10/15/30 21 20 7 - CCCC


Back to front page


Curves & Crosses


Relative Value Monitor

Italian exchange auction to offer relative value opportunitiesElia Lattuga (UniCredit Bank Milan)+39 02 8862 [email protected]

Last week EMU peripheral bonds over-performed the swap curve, posting a strong

richening, especially at the 5Y and 10Y maturity. A similar trend was registered at the 30Y,

although at the extra long end the movement was less sizable. At the 5Y and 10Y, Greece (-

40/45bp), Spain (-30/35bp), Italy (-20/30bp) and Belgium (-20/25bp) were the best performers

as the positive mood on periphery did not lose steam. Greece has recently displayed very

large moves on rumors that European institutions are discussing changes to the crisis

resolution measures currently in place, which would be beneficial for Athens. Core countries

were relative stable vs. swap over the last week, although some richening at the long and

extra long end was displayed by Germany, the Netherlands and France.

1-WEEK ASW CHANGE (BP) 5Y MATURITY ASW SPREAD VS. GERMANY (BP)

-40

-35

-30

-25

-20

-15

-10

-5

0

5

GR SP BE IT PT AT FR NL GE

9 16 3084

116158

338

844

0

100

200

300

400

500

600

700

800

900

1000

NL FR AT BE IT SP PT GR

10Y MATURITY

-35

-30

-25

-20

-15

-10

-5

0

5

10

GR SP IT BE PT AT FR GE NL

22 35 3676

121158

328

615

0

100

200

300

400

500

600

700

NL FR AT BE IT SP PT GR

30Y MATURITY

-15

-10

-5

0

5

10

SP IT GR BE PT AT NL FR GE

8

3042

88

156

182198

311

0

50

100

150

200

250

300

350

NL AT FR BE IT SP PT GR

Source: Bloomberg, UniCredit Research (all tables and charts in this page)


Curves & Crosses


Trade IdeasElia Lattuga (UniCredit Bank Milan)+39 02 8862 [email protected]

During the last 20 days, all peripheral countries have richened vs. swap. Accordingly,

Spain, Belgium and Italy are reported as the richest in the EMU by our Z-score. Germany, the

Netherlands and Finland are signaled as cheap, especially Schatz and Obls. The short end of

the German curve started recovering after the ECB meeting, core countries displayed a

similar although more moderate move.

During the last month, the Netherlands has tightened in ASW vs. Germany at the 30Y

tenor and the ASW spread between DSL Jan42 on Bund Jul42 has reached 7bp and we

expect the ASW spread to widen on upcoming DSL supply.

Next week, the Italian Treasury will carry out an exchange auction, selling BTPs with

maturity 2018/2020 and buying BTPs and/or CCTs with maturity 2012/2013. This might put

under pressure the 7-10Y area vs. the 2-3Y segment. Thus, we suggest switching from

BTP Feb18 into BTP Feb12 in ASW, as they appear respectively rich and cheap in their

segment.

20-DAY Z-SCORE LEVELS LARGEST 20-DAY ASW CHANGE FOR EACH ISSUER

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

SP

G

BG

B

BT

P

GG

B

IRI

PG

B

RA

G

BT

N

OA

T

RF

G

DS

L

BK

O

OB

L

DB

R

AA AA+ A+ BB+

*-

A-

*-

A-

*-

AAA AAA AAA AAA AAA AAA AAA AAA

SP BE IT GR IE PT AT FR FI NL GE

-32-35

-47

-31

-14

62

-1

6 5 5 3 1

-59

-70

-60

-50

-40

-30

-20

-10

0

10

2Y

2Y

2Y

10Y

2Y

15Y

2Y

2Y

10Y

2Y

2Y

2Y

5Y

30Y

+

SPG BGB BTP GGB IRI PGB RAG BTN OAT RFG DSL BKO OBL DBR

SP BE IT GR IE PT AT FR FI NL GE

The chart on the left shows the 20-trading-day Z-score levels for each EMU country with all the tenors considered. The y-axis variable is weighted by the outstanding. Moreover, rather than justlooking at the benchmark, several bonds are considered and weighted based on how close their maturity is vs. the reference tenor. In both charts, levels above (below) zero indicatecheapening (richening).

OFF 20-DAY ASW AVERAGE (BP, WEIGHED)

GE FR NL FI AT BE IT SP PT IE GR

AAA AAA AAA AAA AAA AAA AAA AAA AA+ A+ AA A- AA- BB+

BKO OBL DBR BTN OAT DSL RFG RAG BGB BTP SPG PGB IRI GGB

2Y 4.8 2.4 4.6 5.7 5.8 -32.2 -34.6 -58.5 -11.2 -31.0 -46.7

5Y 3.4 -0.8 1.4 0.9 -1.9 -29.6 -31.7 -48.5 -11.4 -11.5 -42.9

10Y 0.8 -1.3 0.5 0.7 -4.4 -24.7 -25.7 -44.6 -12.3 -16.8 -47.3

15Y 1.1 -0.6 0.8 0.6 -2.0 -16.4 -24.1 -31.8 -14.3 -16.5 -38.4

30Y+ 1.3 -0.4 0.4 -11.9 -18.4 -20.7 -24.7

The chart on the left shows the 20-trading-day Z-score levels for each EMU country with all the tenors considered. The chart on the right plots the difference between current ASW levels andthe average for the last 20 days focusing on the tenor displaying the largest change. In both graphs the y-axis variable is weighted by the outstanding. Moreover, rather than just looking at thebenchmark, several bonds are considered and weighted based on how close their maturity is vs. the reference tenor. In both charts, levels above (below) zero indicate cheapening (richening).

-20

-10

0

10

20

Oct-10 Nov-10 Dec-10 Jan-11

0

4

8

12

16

ASW spread DSL 3.75 Jan42 Bund 3.25 Jul42

Asset swap spread

0

25

50

75

100

125

150

175


0

15

30

45

60

75

90

105ASW spread BTP 4.5 Feb18 BTP 5 Feb12

Asset swap spread

Source: Bloomberg, UniCredit Research (all tables and charts on this page)


Curves & Crosses


EGB spread monitor: yield spreads vs. Germany (bp)Country Bond 10Y yield Spread vs. DE 1W ch. (bp) 1M ch. (bp) All-time high All-time low

DE DBR 2.5 Jan-21 3.23 -

NL NETHER 3.5 Jul-20 3.41 18 1 -4 87 17-Feb-09 -9.4 20-May-05

FI RFGB 3.375 Apr-20 3.43 20 0 -4 89 21-Jan-09 -9.2 25-Nov-05

FR FRTR 2.5 Oct-20 3.59 36 -2 -10 63 9-Mar-09 -1.4 11-Jul-03

AT RAGB 3.5 Sep-21 3.67 44 -4 -17 137 18-Feb-09 -7 21-Apr-06

BE BGB 4.25 Sep-21 4.15 91 -23 -35 138 22-Jan-09 -3.5 27-Jan-05

IT BTPS 3.75 Mar-21 4.58 135 -28 -58 200 30-Nov-10 3.5 2-Jul-03

ES SPGB 5.5 Apr-21 5.11 188 -43 -76 283 30-Nov-10 -5.9 25-Nov-04

PT PGB 4.8 Jun-20 6.94 371 -21 -52 460 11-Nov-10 -3.2 7-Mar-05

IE IRISH 5 Oct-20 8.86 562 -39 -58 669 30-Nov-10 -6.9 14-Jan-04

GR GGB 6.25 Jun-20 10.90 767 -64 -207 974 7-Jan-11 8.1 18-Feb-05

AAA GROUP NOT AAA GROUP

5Y MATURITY

-20

0

20

40

60

80

100

120

140

160

Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10

5Y FR-DE 5Y AT-DE 5Y NL-DE

5Y MATURITY

0

200

400

600

800

1000

1200

1400


5Y IT-DE 5Y GR-DE 5Y PT-DE

5Y BE-DE 5Y ES-DE

10Y MATURITY

0

20

40

60

80

100

120

140

160



10Y MATURITY

0

100

200

300

400

500

600

700

800

900

1000



10Y BE-DE 10Y ES-DE

30Y MATURITY

0

20

40

60

80

100

120



30Y MATURITY

0

100

200

300

400

500

600

700



30Y BE-DE 30Y ES-DE

Note: We use Bloomberg generics for all issuers across maturities Source Bloomberg, UniCredit Research (for all charts in this page)

Back to front page


Curves & Crosses


Inflation Monitor

The 2.4% January reading may not be the peak

Marco Valli(UniCredit Bank Milan)+39 02 8862 [email protected]

■ According to the flash estimate, eurozone inflation in January accelerated to 2.4% yoy, the

highest level since October 2008. It is slightly higher than we had expected, however, we

wouldn’t rule out a 0.1pp downward revision when the final reading will be published at the

end of the month.

■ The reading would be consistent with a 2.3% reading in the ex-tobacco index.

■ No details are yet available, but we think that the upward pressure on the yearly rate was

driven mostly by food. Energy inflation probably did not record a meaningful acceleration,

due to a favorable base effect – energy prices rose by a strong 2.1% mom in January

2010. Core inflation – ex food, energy, alcohol and tobacco – should have remained at

1.1%, but with upside risks due mainly to hikes in administered prices.

■ Today, Italy released its preliminary CPI numbers for January. The figures where a tad

higher than expected, and we have revised our FOI projections accordingly.

■ The most recent spike in oil prices forced us to revise up by 0.1pp our eurozone projection

for 2011, and increases the probability that 2.4% will not be the inflation peak for this year.

At the time of writing, February looks a very close call, with headline inflation hovering

between 2.4% and 2.5% yoy.

■ Barring a further strong increase in oil prices, eurozone inflation should fall back in March,

due to a favorable base effect on energy.

US INFLATION-LINKED MARKET

0.0

0.5

1.0

1.5

2.0

2.5

3.0

BE 30Y BE 10Y BE 5Y 5Y5Y FFWD Inflation

L-T 1Y 6M Last

EU INFLATION-LINKED MARKET

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

BE 30Y BE 10Y BE 5Y 5Y5Y FFWD Inflation

L-T 1Y 6M Last

REAL YIELD CURVE (%)

BT

P2.5

5S

ep4

1

BT

P2.3

5S

ep35

BT

P2.6

Sep

23

BT

P2.1

Se

p21

BT

P2.3

5S

ep19

BT

P2.1

Sep17

BT

P2.1

Sep16

BT

P2.1

5S

ep

14

BT

P1.8

5S

ep12

OA

T€i1

.8Jul4

0

OA

T€

i3.1

5Jul3

2

OA

T€i1

,1Jul2

2

OA

T€i2

.25

Ju

l20

OA

T€

i1.6

Ju

l15

OA

T€i3

Jul1

2

Bu

nd

1.7

5A

pr2

0

Bun

d1.5

Ap

r16

Bu

nd

2.2

5A

pr1

3

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Mar-10 Feb-15 Feb-20 Feb-25 Feb-30 Feb-35 Feb-40

Real Swap rate

BREAKEVEN CURVE (BP)

BT

P2

.1S

ep

21

BT

P2

.35

Se

p1

9

BT

P2

.1S

ep

17

BT

P2

.1S

ep

16

BT

P2

.15

Sep

14

BT

P1

.85

Se

p1

2

BT

P2

.6S

ep2

3

BT

P2

.35

Se

p3

5

BT

P2

.55

Se

p41

OA

T€

i3Ju

l12

OA

T€i1

.6Ju

l15

OA

T€i2

.25

Jul2

0

OA

T€

i1,1

Ju

l22

OA

T€

i3.1

5Ju

l32

OA

T€

i1.8

Jul4

0

Bu

nd

2.2

5A

pr1

3

Bu

nd

1.5

Apr1

6

Bu

nd

1.7

5A

pr2

0

gg

b2

.9Ju

l25

gg

b2

.3Ju

l30

100

125

150

175

200

225

250

275

Mar-10 Mar-15 Mar-20 Mar-25 Mar-30 Feb-35 Feb-40

Swap Inflation



Curves & Crosses


10Y REAL YIELDS – EU, JP, UK, US (%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

US UK EU

10Y BE – EU, UK, US (BP)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

US UK EU

EUROZONE ILBS AT A GLANCE

Real Yield BreakEven

Current 1w ch. 1m ch. 3m ch. Current 1w ch. 1m ch. 3m ch.

BTP 1.85 Sep12 0.16 -15 -38.5 -20 210 -10 1 23

BTP 2.15 Sep14 1.44 -24 -21 23 175 -2 11 19

BTP 2.1 Sep16 1.98 -24 - - 165 -5 - -

BTP 2.1 Sep17 2.17 -19 -17 27 177 -7 1 23

BTP 2.35 Sep19 2.45 -19 -19 26 182 -4 4 22

BTP 2.1 Sep21 2.66 -19 -14 31 181 -2 2 18

BTP 2.6 Sep23 2.78 -20 -21 32 197 2 10 11

BTP 2.35 Sep35 2.72 -15 -19 38 255 0 10 5

BTP 2.55 Sep41 2.96 -16 -20 30 239 2 12 15

OAT€i 3 Jul12 -0.98 -3 23 -14 214 4 23 31

OAT€i 1.6 Jul15 0.48 -8 16 30 189 4 22 35

OAT€i 2.25 Jul20 1.37 1 11 47 195 2 13 27

OAT€i 1,1 Jul22 1.55 1 7 47 204 5 18 26

OAT€i 3.15 Jul32 1.72 9 4 54 232 -1 12 20

OAT€i 1.8 Jul40 1.70 11 5 53 235 -3 11 22

Bund 2.25 Apr13 -0.22 0 29 6 157 1 21 33

Bund 1.5 Apr16 0.56 -4 25 39 181 5 16 36

Bund 1.75 Apr20 1.13 3 15 47 197 4 14 34

OATi 1.6 Jul11 -2.32 -26 -64 -141 325 27 92 142

OATi 2.5 Jul13 -0.44 -13 16 -13 202 9 29 55

OATi 0.45 Jul16 0.59 -5 - -! 209 2 - -

OATi 1 Jul17 0.83 -2 17 39 210 1 8 34

US 5Y -0.18 15 -15 41 196 11 23 42

US 10Y 1.22 15 19 78 233 8 5 22

UK5Y 0.10 10 -5 35 283 6 31 53

UK10Y 0.77 7 1 31 325 4 16 40


Back to front page


Curves & Crosses


Supply Corner

Another quiet week for supply, with risks of surprises

Weekly recap

Chiara Cremonesi(UniCredit Bank London)+44 207 826 [email protected]

It has been a quiet week in the primary market, with only EUR 13.65bn issued and no

surprises in terms of new benchmarks via syndication. Market sentiment remained positive on

periphery, with the Portuguese T-bill and the Spanish bond auctions both well received. This

further reinforced the prevailing optimism.

Austria Austria re-opening the RAGB Feb17 and Mar37 was well received, as expected.

Belgium T-bill auction Belgium attracted decent demand at the T-bill auction, selling EUR 3.7bn of 105-day and

161-day T-bills, the entire amount announced, and registering decent bid-to-covers (1.88x

and 1.93x, respectively). However, Belgium registered a rise in funding cost at both

maturities.

Portugal T-bill auction On Wednesday, Portugal sold EUR 455mn of BT Jul11 and EUR 800mn of BT Jan12, out

of an announced range of EUR 1.0-1.255bn. Demand was good. As expected, Portugal

registered a decrease in the cost of funding (70bp at the 6M and 32bp at the 12M): the 6M

was sold at 2.98% vs. 3.68%, while the 12M was sold at 3.71% vs. 4.029% at the last auction.

The auction went well, especially when considering that this was the first T-bill auction since

November when Portugal re-opened two lines. Moreover, the amount issued was higher than

the average at the recent Portuguese bill auctions.

However, despite the decrease in funding costs, yields were very high.

Spain bond auction… Yesterday, Spain sold EUR 1.9bn of Bono Oct13 and EUR 1.6bn of Obl Jan16, overall EUR

3.5bn, in the middle of the announced range (EUR 3/4bn). The auction was decently

received, with Spain registering a sharp drop in cost of funding (45bp at the 3Y and 50bp at

the 5Y). The sharp drop in the cost of funding was mostly due to the rally of Spanish bonds

over the last week.

With this auction, the Bono Oct13, the 3Y benchmark, has reached its outstanding target. As

indicated in the funding plan, Spain should issue a new 3Y benchmark in the next few

months.

…and France France issued EUR 8.5bn of 10 & 15Y OAT, attracting good demand.

Next week's preview

Another very quiet week in the EMUprimary market…nevertheless,beware of surprises!

Next week should be even quieter than this week in the primary market, with only EUR

6/7bn of supply scheduled, coming only from core countries. With no scheduled bond

supply from peripheral countries, we regard it as likely that some countries might announce

syndicated deals. We see Finland, Portugal and Spain as three possible candidates to issue

new benchmarks. As mentioned last week, we expect Finland to issue a new 10Y, Spain a

new 15Yand Portugal a new 10Y.

Slovakia Slovakia will re-open SLOVGB 4.35% Oct25, which was issued in October last year.

Trading at SW+114bp, the bond trades in line with the BTP Mar25 and a few bp cheaper

than the BT Mar26.The Netherlands On Tuesday, the Netherlands will re-open DSL 3.75% Jan42 by EUR 1/2bn. The DSL

Jan42 looks interesting vs. DBR Jul42. Indeed, at the long and extra long end of the curve,

the Netherlands trade in line with Germany (see DSL Jan28 and DSL Jan37), with the only

exception of the DSL Jan42, which trades almost 8bp cheaper in ASW than DBR Jul42, with

a slightly shorter maturity.Germany Germany will sell EUR 5bn of Obl Feb16. This will be the first re-opening of this bond, after

having been issued in January. At issuance, this bond did not attract stellar demand (1.3x

bid-to-cover). Since then, the 5Y benchmark has performed poorly, in line with the German

5Y area, with its yield climbing from below 2% to 2.40%, the highest level since August 2009.

The 5Y area on the German curve also looks attractive vs. the 2Y and the 10Y, as it has

sharply cheapened since September 2010. The 2/5/10Y barbell on the German curve

currently trades in the 10bp area, the cheap historical range. Given the relatively attractive


Curves & Crosses


level of the bond, demand should be healthy. However, the current optimistic market mood,

spurring the return of risk appetite, as well as the good growth outlook for the German

economy could be two elements weighing on investor demand for German paper.The T-bill market: Greece and Italy will be the active players in the T-Bill market next week.Greece… Greece will sell EUR 300mn of 26W T-bills. At the last auction in January, Greece sold

EUR 1.5bn of 26W T-bills at 4.9%, registering a 3.4x cover ratio. Currently, the 6M is trading

in the 5.3% area, although with extremely large bid/ask spreads. We anticipate a good result

at the T-bill auction, in line with the trend at the Greek T-bill auctions.…and Italy We expect Italy to issue EUR 7.7bn of 12M BOT, in line with the amount expiring. Given

the rather comfortable cash position of Italy, we do not expect it to issue a 3M BOT. At the

last auction, the 12M BOT was sold at 2.067%, or EONIA +126bp. Following the rise in

money market rates and the good performance of Italian paper, the 12M BOT area now

trades at 1.75%, or EONIA +60bp.Italian exchange auction Italy announced that it will hold an exchange auction next week, buying back BTPs and

CCTs expiring in 2012 and 2013 and issuing BTPs expiring between 2018 and 2020. We

expect Italy to hold exchange auctions for debt expiring in 2012 rather regularly this year, as

its redemption profile shows a peak in 2012, with bond redemptions amounting to EUR

185bn.

Spain announced that it will issue SPGB Oct20 and SPGB Mar37 on 17 February and that it

will issue a new 5Y benchmark on 3 March. We think Spain will announce a syndicated deal

soon, possibly a new 15Y.A quick glance at the US Treasury In the US, the Treasury will sell USD 72bn of 3Y, 10Y & 30Y, the same amount sold last

month (8 Feb, 3Y, USD 32bn; 9 Feb, 10Y, USD 24bn; 10 Feb, 30Y, USD 16bn).

NEXT TWO WEEKS' SUPPLY (GROSS SUPPLY FIGURES ARE EX BOTS, CCTS AND CTZS)

Date Country Bond in issue Min Max Bucket Date Country Bond in issue Min Max Bucket

7-Feb SK Bond 4.35% Oct 25 0.2 / 0.4 15Y 14-Feb IT BTP BTP 3% Nov15 &5% Sep40

5.0 / 6.0 5Y & 30Y

8-Feb NL DSL 3.75% Jan42 1.5 / 2.0 30Y 15-Feb GR T-bills

26W T-bills 0.9 MM

8-Feb GR T-bills

13W T-bills 0.3 MM 16-Feb GE Bund 2.5% Jan21 4.0 10Y

8-Feb IT Exchange auction - - - - 16-Feb PT T-bills New 12M T-bill 0.8 / 1.3 MM

9-Feb GE Obl 2% Feb16 5.0 5Y 16-Feb SP T-bills 12M & 18M T-bills 3.5 / 4.5 MM

10-Feb IT BOT 12M BOT 7.7 MM 17-Feb FR Btan 3Y & 5Y Btan 8.0 / 9.0 3Y & 5Y

17-Feb FR ILB OATei, OATi, Btaniauction

1.3 / 1.5 ILB

17-Feb SP SPGB Oct20 &Jan37

3.0 / 4.0 10Y & 30Y

20-Jan FR ILB OATei, OATi auction 1.5 / 2.0 ILB 28-Jan IT CCT CCTeu Oct17 2.0 CCTeuGross supply(ex BOTs,CCTs, CTZs)

6.7 / 7.4 Gross supply(ex BOTs,CCTs, CTZs)

21.3 / 24.5

Redemptions 0.0 Redemptions 5.7

Coupons 0.0 Coupons 1

Net supply 6.7 / 7.4 Net supply 15.6 / 18.8

NEXT FOUR WEEKS’ REDEMPTIONS IN DETAIL NEXT FOUR WEEKS’ COUPONS IN DETAIL

05-Feb/12-Feb 12-Feb/19-Feb 19-Feb/26-Feb 26-Feb/05-Mar 05-Feb/12-Feb 12-Feb/19-Feb 19-Feb/26-Feb 26-Feb/05-Mar

BE 0.3 2/5Y 0.0 0.6 1.7 0.4

FIRFGB 5 3/4

02/23/115.7 6/8Y - 0.2 1.1

-

Total 0.0 5.7 0.0 0.3 10Y - - 1.2 0.0

15/30Y 0.0 - 1.1 -

Total 0.0 0.8 5.1 0.4

Redemptions are inserted in the indicated weeks as if they were paid three days in advance with respect to the actual date at which the bond is redeemed. This isdone to allow for the exact matching of redemption flows with the auction settlement date (T+3). Source: ministries of finance, UniCredit Research


Curves & Crosses


Supply recap

YTD SUPPLY BY MATURITY: 2010 & 2011 YTD SUPPLY BY COUNTRY: 2010 & 2011

35

34

48

6

11

7 6

24

12

3

7

4

31

36

0

10

20

30

40

50

60

3y 5y 10y 15y 30y + IL Floater

EU

Rbn

2010 2011YTD Supply 2010: €148 bn 2011 : €116 bn

4

32

30

7

38

1 2 1

13

3

6

1 2

13

1

12

5

2

20

2

6

0 0

31

0

34

0

10

20

30

40

50

AT BE FI FR GE GR IE IT NL PT SL SK SP

EU

Rb

n

2010 2011


PROGRESS OF FUNDING BY MATURITY & BY COUNTRY

Country AT BE FI FR GE GR IE IT NL PT SL SK SP TOT

YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp YTD Exp

Maturity

3y 0 - 0 6 0 - 4 33 6 72 0 - 0 - 14 69 4 15 1 3 0 - 0 - 2 19 31 217

5y 1 4 0 9 2 3 6 55 6 51 0 - 0 - 3 43 2 14 0 5 0 - 0 1 5 18 24 203

10y 4 5 3 15 0 6 9 46 5 54 0 - 0 - 7 43 0 13 1 9 2 2 0 2 6 29 36 223

15y 0 3 0 - 0 4 8 16 0 - 0 - 0 - 3 16 0 4 0 2 0 2 0 2 0 13 12 60

30y + 1 4 0 4 0 - 0 16 2 8 0 - 0 - 0 11 0 4 0 - 0 - 0 - 0 6.5 3 53

IL 0 - 0 - 0 - 3 18 1 12 0 - 0 - 3 14 0 - 0 - 0 - 0 - 0 - 7 44

Floater 0 - 0 - 0 - 0 - 0 - 0 - 0 - 4 30 0 - 0 - 0 - 0 2 0 6 4 37

Total ‘11 6 16 3 34 2 12 31 184 20 197 0 0 0 0 34 226 6 50 1 18 2 3 0 6 13 91 116 837

Red. ‘11 8 24 6 96 147 28 4 155 28 10 0 2 45 553

Net supply‘11

8 10 6 88 50 -28 -4 71 22 8 3 4 46 284

Total ‘10 20 41 14 210 206 20 20 265 52 21 3 7 94 0 972

Red. ‘10 9 26 5 83 134 17 1 172 23 6 1 2 34 513

Net supply‘10

11 15 9 127 72 3 19 93 29 15 2 5 60 459

Portugal gross bond supply for 2011 has been lowered to EUR 18bn, as we expect Portugal to cover at least EUR 2bnof funding needs via private placements. Source: Bloomberg, UniCredit Research

PROGRESS OF SUPPLY BY MATURITY (%) PROGRESS OF SUPPLY BY COUNTRIES (%)

€4

bn

€7b

n

€3

bn

€12b

n

€36

bn

€2

4b

n

€3

1b

n

€5

0b

n

€3

3b

n

€1

86

bn

€1

79

bn

€1

86

bn

€4

8b

n

€3

7b

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

3y 5y 10y 15y 30y + IL Floater

YTD Still to do

€0b

n€6

bn

€1

bn

€2

bn

€31

bn

€34

bn

€1

3b

n

€2b

n

€6

bn

€2

0b

n

€3

bn

€6b

n

€1

7b

n

€2

bn

€1

0b

n

€15

3b

n

€19

2b

n

€78

bn

€1

1b

n

€4

4b

n

€1

77

bn

€31

bn

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

SL AT FR IT SP FI NL GE BE PT SK

YTD Still to do

Source: Bloomberg, UniCredit Research (all tables and charts in this and the previous page)


Curves & Crosses


Eurozone Debt Structure

DEBT MATURING IN THE NEXT 12 M (AS % OF TOT DEBT)

28 46 396

149 203

23 9 629 1

5

0

54

89 4194

85138

43 17 8

8

0

4

9

0%

5%

10%

15%

20%

25%

30%

35%

NL SP SK FR GE IT BE PT FI GR SL IE AT

M/L MM

Numbers denote the amount in EUR bn

S&P RATING VS. SWAP SPREAD

SKSLAT

FI

FRNL

BE

SP

PT

GE

IT

IE

GR

BB

B-

BB

B

BB

B+A-A

A+

AA

-

AA

AA

+

AA

A

BB

+

y = 67.98x - 99.571

R2

= 0.8544

-100

0

100

200

300

400

500

600

700

800

1 3 5 7 9 11

The chart takes into account the rating & the outlook

MARKETABLE DEBT REDEMPTIONS PROFILE

EUR bn AT BE FI FR GE GR IE IT NL PT SP SK SL EU

Next 30Days (M/L) 0 0 6 0 0 0 0 0 0 0 0 0 0 6

Next 12M (M/L) 0 23 6 96 149 29 5 203 28 9 46 3 1 595

2011 0 23 6 78 124 29 5 136 14 9 45 2 0 469

2012 10 30 6 119 157 31 6 193 30 9 46 3 1 636

2013 12 27 6 104 79 26 6 129 30 9 59 3 0 488

2014 22 24 7 85 85 32 12 90 18 14 41 1 2 429

2015 12 27 5 106 96 20 0 123 28 10 32 2 1 459

2016 10 22 6 59 57 8 10 45 13 6 23 1 1 259

2017 13 20 6 66 39 22 0 81 15 6 28 1 0 296

2018 11 10 0 43 41 8 9 42 13 7 16 0 0 201

2019 11 10 5 64 48 25 14 83 13 8 27 1 1 308

2020 13 18 7 68 60 5 20 66 15 9 28 2 2 307

2021 13 3 0 31 11 0 0 58 0 8 6 0 2 129

>2021 28 46 6 234 152 60 8 293 44 14 96 3 2 982

Total M/L 156 261 58 1058 949 265 90 1340 232 107 447 19 11 4994

MM 9 43 8 194 85 8 4 138 54 17 89 4 0 654

Other instruments in EUR 2 1 0 0 0 15 0 29 0 0 0 5 1 54

Foreign debt 13 5 4 0 3 5 0 35 0 3 8 0 0 76

Total debt (includingforeign and MM)

180 311 71 1251 1037 293 94 1542 287 127 544 28 13 5778

EUROZONE COUNTRIES BIRD'S EYE

GDP Deficit/GDP Debt/GDP Rating (S&P) Debt (bn of EUR) Swap Spread Yieldcurrent

5Yavg

2010e 2011e 5Yavg

2010e 2011e 5Yavg

2010e 2011e Rating Outlook MM(EUR bn)

M/L(EUR bn)

Avglife

5Yavg

Act. Act.

AT 2.4 1.9 2.0 -1.5 -3.5 -2.6 63 69 69 AAA stable 9 156 7.8 -4 17 3.67

BE 1.1 2 1.8 -2.0 -4.8 -4.6 90 99 101 AA+ negative 43 261 6.0 2 63 4.14

FI 1.1 2.9 2.9 2.7 -3.1 -1.6 39 49 51 AAA stable 8 58 4.9 -13 -7 3.44

FR 0.8 1.5 1.4 -3.7 -7.7 -6.3 68 83 87 AAA stable 194 1220 7.3 -13 9 3.60

GE 0.7 3.5 2.5 -1.5 -3.5 -2.6 68 85 86 AAA stable 85 991 6.3 -31 -27 3.24

GR 2.0 -4.2 -3.0 -8.4 -9.4 -7.4 110 143 153 BB+ negative 8 265 7.0 120 740 10.90

IE 2.7 -0.3 1.5 -3.4 -32.0 -9.5 37 99 104 A- negative 4 90 6.5 45 536 8.86

IT -0.4 1.0 1.1 -3.4 -5.0 -4.3 108 119 119 A+ stable 138 1340 6.9 31 108 4.58

NL 1.5 1.7 1.5 -0.9 -5.8 -3.9 53 65 67 AAA stable 54 232 5.9 -12 -9 3.42

PT 0.4 1.3 -1.0 -5.0 -7.3 -4.6 66 84 87 A- negative 17 107 6.1 33 345 6.95

SP 1.7 -0.2 0.5 -2.1 -9.3 -6.0 42 64 71 AA negative 89 454 6.7 13 160 5.11

SL 2.6 1.1 1.9 -1.1 -4.0 -3.8 25 41 45 AA stable 0 11 6.5 - 63 4.14

SK 5.3 4.1 3.0 -3.4 -6.0 -5.5 31 39 43 A+ stable 4 19 5.9 - 72 4.23

(*) Figures include over 20pp in banking sector related costs Source: Bloomberg, EC, UniCredit Research (all tables and charts in this page)

Back to front page


Curves & Crosses


Eurozone Money Market Monitor

STOCK OF MONEY MARKET INSTRUMENTS (CURRENT, AT 31ST DECEMBER 2009, 2010 & 2011 (ESTIMATES)) & FUTURE

REDEMPTIONS (1 & 3M)

Outstanding Net Change Redemptions

Dec-09 Dec-10 Dec-11 (e) Current (current/end 2010) (end 2011 (e) /end 2010) Next 1M Next 3M

AT 6 4 4 9 5 0 2 6

BE 38 40 40 43 3 0 6 19

FI 12 11 9 8 -3 -2 0 1

FR 214 200 199 194 -6 -1 45 106

GE 104 87 81 85 -2 -6 11 33

GR 8 9 10 8 -1 1 0 5

IE 8 6 7 4 -2 1 1 4

IT 140 130 130 138 8 0 17 52

NL 60 67 67 54 -13 0 8 33

PT 17 18 18 17 -1 0 4 7

SP 85 88 88 89 1 0 8 25

Total 693 660 653 650 -10 -7 103 292

Source: Ministry of Finance of different eurozone countries, Bloomberg, UniCredit Research

EUROZONE MONEY MARKET YIELDS1

3M & 6M YIELDS AND SPREAD VS. EONIA 3M & 6M YIELDS IN EACH COUNTRY

3MSpread vs.Eonia (bp)

6MSpread vs.Eonia (bp)

AT 0.75 -6.7 0.99 5.1

BE 0.86 4.0 0.97 3.3

FI 0.63 -18.7 0.69 -24.9

FR 0.62 -20.2 0.76 -18.3

GE 0.58 -23.9 0.68 -26.2

GR 4.84 401.9 5.22 427.7

IE 2.63 181.7 - -

IT 0.93 10.9 1.21 27.5

NL 0.65 -16.5 0.73 -21.1

PT - - 2.68 173.8

SP 1.05 23.0 1.60 66.4

EONIA 0.818 0.938

EURIBOR 1.088 1.341

0.7

5

0.6

2

0.5

8

4.8

4

2.6

3

0.9

3

0.6

5

0.0

0

1.0

5

0.9

9

0.9

7

0.6

9

0.7

6

0.6

8

5.2

2

0.0

0

1.2

1

0.7

3

2.6

8

1.6

0

0.6

3

0.8

6

0.00

1.00

2.00

3.00

4.00

5.00

6.00

AT

BE FI

FR

GE

GR IE IT NL

PT

SP

3M 6M


MONEY MARKET REDEMPTIONS

…IN THE NEXT MONTH …AND IN THE NEXT 3 MONTHS

0

20

40

60

80

100

120

IT GR PT BE SP IE NL AT FI FR DE EU

Eu

rb

n

0

50

100

150

200

250

300

350

IT GR PT BE SP IE NL AT FI FR DE EU

Eu

rb

n

Source: Bloomberg, UniCredit Research (all tables and charts in this page)

Back to front page

1We computed the yield as a weighted average of the yields at each of the maturity considered (3&6M). We used the outstanding amounts of each T-bill as weighs.


Curves & Crosses


FX Strategizer

Euro bulls impressed but not banishedArmin Mekelburg(UniCredit Bank)+49 89 [email protected]

Roberto Mialich(UniCredit Bank Milan)+39 02 [email protected]

EXPECTED TRENDS

NextWeek

NextMonth

Cross

EUR-USD

USD-JPY

USD-CHF

GBP-USD

EUR-JPY

EUR-CHF

EUR-GBP

AUD-USD

NZD-USD

USD-CAD

EUR-SEK

EUR-NOK

EUR-USD: …will have a hardtime approaching the highs ofthis week again

View: The global risk picture, primarily reflected by strong equity demand, proved its

dominating role on currency markets once again, with the dollar being its most prominent

casualty. Hence, dollar weakness across the board has been the outstanding issue

over the last couple of days.

Even some encouraging US economic data failed to support the US currency but

contributed to the underlying sentiment and thus fueled global risk appetite. The negative

impact of the turmoil in Egypt lasted only a single day, while some moments of relief

were a justification for additional selling of dollars.

Not far behind dollar bears, euro bulls also managed to enlarge their territory

throughout the first half of the week, still betting on both a mega-hawkish, inflation-

fighting Trichet and further progress in enhancing the effectiveness of the EFSF package at

today's EU energy summit.

This species however, was forced to change its behavior in the second half of the

week following Trichet's hawkish, but not extremely hawkish remarks at his monthly press

conference, which were fully in line with our expectations mentioned last week and

dampened the exaggerated rate-hike fantasy (left chart below). Euro bulls may even be

forced to retreat a bit further, since we are rather skeptical in regard to a final agreement

on the EFSF issue taking place today. What we heard from German officials made us

believe that what they are really trying to do is buy time.

With respect to the dollar bears we are less pessimistic, as global risk taking appears

almost resilient due to constantly improving global data releases. The only problem is that

the turmoil in Egypt might lead to a long lasting civil war, which would indeed grab

the attention of financial markets to a far greater extent than it has this week,

especially as the region has about 40% of all oil supplies worldwide and 60% of all routes of

oil transport pass through it.

Initially, EUR-USD strongly benefited from the double-leverage, consisting of global risk-

taking propensity and euro demand from increasing ECB rate hike fantasy and confidence

that EU leaders will make significant progress in the controversially discussed EFSF matter.

After numerous abortive attempts, EUR-USD did break the 1.3784 barrier following the very

convincing ISM manufacturing report, but had to suffer from investor disappointment

after Trichet's press conference. We think global risk taking propensity will remain broadly

intact, but the painful experience of the last two days will very likely lead to less

aggressive long positioning. EUR-USD should be able to keep its elevated levels, but will

have a hard time approaching the levels it experienced at the start of this week.

CHARTS OF THE WEEK

ECB rate-hike fantasy measured by Euribor futures BoE rate-hike fantasy measured by SONIA futures

1.25

1.50

1.75

2.00

2.25

27-Oct 26-Nov 26-Dec 25-Jan

90

92

94

96

98

Euribor-Future Dec11

EUR index (effective), RS

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40


78.00

78.40

78.80

79.20

79.60

80.00

80.40

80.80

81.20

81.60

82.00

Generic12

GBP index (effective), RS



Curves & Crosses


JPY: The JPY will very likely lackany self-driven dynamics nextweek too

The yen experienced another week without any self-driven dynamics. Euro strength and

dollar weakness proved to be again the determining factors for both USD-JPY and EUR-

JPY. We expect this trading pattern to continue next week with the exception that we rule out

any strong decline in USD-JPY given the BoJ's willingness to physically intervene if needed.

Even with continued USD weakness we do not expect the strong support zone between 80.50

and 81.00 to be broken. EUR-JPY should stay in the 110.50/113 band.

CHF: Frankly, not a frenetic franc Trading on the Swiss franc has proved relatively choppy also so far this week, but on balance

the Swiss unit continued to fluctuate in the “land of nowhere” against the greenback

and the euro. In a sense, the reason behind this is not obscure: as long as USD dynamics are

again the pivot of overall FX market dynamics, continuing switches between risk on (USD

negative) and risk off (risk positive) are immediately reflected in an increase or

decrease in the value of CHF in terms of a safe-haven currency. However, although there

is evidence of improving global market sentiment, local sources of volatility with creeping

geopolitical risk are still lurking, preventing, as expected, the creation of a well-defined

and sustained trend. USD-CHF is still being forced to struggle again mostly between

0.93 and 0.95. Likewise, attempts to restore a “false trend” on EUR-CHF above 1.30

again proved to be “false friends”: and “beware of false friends” will be safe advice not only

in the coming days, when the CHF outlook should not deviate too much from the current one.

GBP: Weather for sterling lessfoggy but not yet sunny and bright

Having digested the shocking UK GDP data for 4Q10, sterling rose like a phoenix from the

ashes, being strongly helped by clearly improved British PMI survey results and by some new

hawkish remarks from BoE’s Bean and Sentence, which sparked more rate hike fantasy.

Admittedly, cable got a boost by EUR-USD as well, but even EUR-GBP managed to generate

significant leeway to the downside. Cable finally breaking the 1.60 threshold should

reinforce our medium-term outlook in favor of a 1.75 or even above target for 4Q11, but

some pause should likely take place before the next intermediate key level of 1.65

appears on the radar. Despite an increasing propensity for an earlier rate hike within the

MPC, as reported in the recent minutes, it is very unlikely that, with the BoE Inflation Report

appearing on February 16, more hawks will join Sentence and Weal already when making next

week's rate decision. For this reason, profit-taking on already established long cable

positions at around 1.62 may be safe. In addition, EUR-GBP proved unable to hold gains

well above 0.85, as we expected: closing any short strangle strategy with some profit is

tempting, or at the latest investors may keep it open for another week, as neither the BoE

meeting or UK data (trade balance and industrial production) should generate a big spike in

volatility next week

The three dollars (AUD, NZD &CAD): Remaining steadily on bid

The “feel good factor” that is currently backing the three dollars continues, driven by still

prevailing risk appetite and higher oil & other commodity prices. In turn, this overshadowed

other issues that might instead hurt these pairs, such as creeping geopolitical risks and

caution from their respective central banks. As feared, the RBA also confirmed a still

pragmatic approach, not just keeping the OCR at the current 4.75%, but stating that their

monetary policy is appropriate and it is now time to gauge the impact of recent flooding

(luckily, the recent cyclone did not result in a lot of damage or a lot of victims), as well of the

related new levy. Nonetheless, the Aussie dollar should continue to stay firm above

parity, with 1.02-1.03 the new targets and downside potential not below the 0.99-0.98

area. Likewise, the kiwi dollar shrugged off the jump of the NZ jobless rate to 6.8% in 4Q11 as

well as Treasury Swan’s idea to cut spending to weaken the currency. Holding the line above

0.77 is still a precondition for NZD-USD for an assault on 0.80 over time. Lastly, remarks

by both the BoC and the Canadian Government did not impress the loonie dollar. The USD-

CAD “love affair” with parity should remain intact, with no great signals of a clear

improvement.

Nordics: Back to the future and onan appreciation path

As expected, divergences between EUR-NOK and EUR-SEK dynamics, which were

sparked by Norges Bank’s remarks on the NOK and were behind the sharp NOK-SEK crash

below 11.00, were rapidly absorbed. NOK-SEK pulled back close to 1.13 and both EUR-

SEK and EUR-NOK simply resumed their depreciation path towards our medium-term

targets of 8.70 and 7.70. We simply keep open our established put strategies for both.

Back to front page


Curves & Crosses


FX Monitor: G-10 Weekly Change

Charts below show weekly changes among the G-10 currencies. In particular, positive percentage changes indicate a gain of

the currency indicated in the title against the others, while negative percentage changes indicate a loss.

USD WEEKLY PERFORMANCE EUR WEEKLY PERFORMANCE

-0.18%

-0.67%

0.54%

-1.87%

-2.45%

0.00%

-1.20% -1.14%-1.42%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

EUR JPY CHF GBP AUD NZD CAD SEK NOK

Weekly spot gains / losses of the USD vs. the other G-10 units

0.18%

-0.51%

0.71%

-1.71%

-2.29%

0.17%

-1.03% -0.99%-1.25%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

USD JPY CHF GBP AUD NZD CAD SEK NOK

Weekly spot gains / losses of the EUR vs. the other G-10 units

JPY WEEKLY PERFORMANCE CHF WEEKLY PERFORMANCE

0.70%0.52%

-1.20%

-0.52%-0.74%

1.24%

-1.78%

-0.46%

0.70%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

USD EUR CHF GBP AUD NZD CAD SEK NOK

Weekly spot gains / losses of the JPY vs. the other G-10 units

-0.53%-0.71%

-1.22%

-2.41%

-1.74% -1.67%-1.96%

-2.97%

-0.55%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

USD EUR JPY GBP AUD NZD CAD SEK NOK

Weekly spot gains / losses of the CHF vs. the other G-10 units

GBP WEEKLY PERFORMANCE NORDICS WEEKLY PERFORMANCE

1.91%1.73%

2.44%

0.69% 0.73%0.47%

-0.59%

1.21%

1.91%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

USD EUR JPY CHF AUD NZD CAD SEK NOK

Weekly spot gains / losses of the GBP vs. the others G.10 units

1.16%0.98%

1.71%

-0.72%

1.16%

-0.07%-0.30%

1.45%1.27%

0.75%

1.99%

-0.46%

-1.04%

1.44%

0.23% 0.28%0.47%

-1.30%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

USD EUR JPY CHF GBP AUD NZD CAD NOK

Weekly spot gains / losses of the SEK vs. the other G-10 units

Weekly spot gains / losses of the NOK vs. the other G-10 units

Update: February 04, 2011, 09.30 CET Source: Bloomberg, UniCredit Research (all charts in this page)


Curves & Crosses


FX Monitor: G-10 Implied Volatility Curves

Charts below show the term structure of implied volatility for FX majors at different maturities (today, last week and last month)

EUR-USD USD-JPY

12.22

13.0612.7012.00

10.0

11.0

12.0

13.0

14.0

15.0

16.0

1M 3M 6M 12M

TodayLast weekLast month

EUR-USD

10.11

10.65

11.62

12.73

9.0

10.0

11.0

12.0

13.0

14.0

15.0

1M 3M 6M 12M


USD-JPY

USD-CHF GBP-USD

11.8111.90

11.7011.82

10.0

11.0

12.0

13.0

14.0

1M 3M 6M 12M


USD-CHF

10.10

11.41

9.78

10.72

8.0

9.0

10.0

11.0

12.0

13.0

14.0

1M 3M 6M 12M


GBP-USD

EUR-JPY EUR-GBP

12.44

14.77

11.76

13.59

10.0

12.0

14.0

16.0

18.0

1M 3M 6M 12M


EUR-JPY

10.69

9.42

10.31

9.61

8.0

9.0

10.0

11.0

12.0

13.0

1M 3M 6M 12M

Today

Last week

Last month

EUR-GBP



Curves & Crosses


FX Monitor: Risk Reversal

The risk reversal (RR) consists of a pair of options (a call and a put) on the same exchange rate with an identical expiration date

(here 3M) and the same delta (usually 25 delta). They can be seen as proxies of investors’ bets on the exchange rate direction

and of the underlying market positioning. A positive RR means that calls are preferred to puts and that investors are betting on

an upward move in the underlying exchange rate, while a negative RR hints at puts being preferred to calls and at investors

betting on a downward move in the underlying currency pair. When at “extreme values”, Risk Reversals also work as contrarian

indicators: a large positive RR implies an “overbought market” while a large negative RR implies an “oversold market”.

EUR-USD USD-JPY

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65EUR-USD 3M RR (LS)

EUR-USD (RS)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0


80

85

90

95

100

105

110

115USD-JPY 3M RR (LS)

USD-JPY (RS)

GBP-USD USD-CHF

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5


1.30

1.40

1.50

1.60

1.70

1.80

1.90

2.00

2.10GBP-USD 3M RR (LS)

GBP-USD (RS)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0


0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

USD-CHF3M RR (LS)

USD-CHF (RS)

AUD-USD USD-CAD

-9.0

-7.0

-5.0

-3.0

-1.0

1.0

3.0


0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

AUD-USD 3M RR (LS)

AUD-USD (RS)

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35USD-CAD 3M RR (LS)

USD-CAD (RS)



Curves & Crosses


FX Monitor: IMM Non-Commercial Commitments

The Commodity Futures Trading Commission (CFTC) reports the long and short positions that are opened on a weekly basis at

the Chicago IMM when a trader is not using future contracts in a particular currency for hedging purposes. These positions refer

to individual investors, hedge funds and other large financial institutions engaged in trading currencies for speculative purposes.

Data below are reported as net long positions and are viewed as a proxy of the speculative attitude of the entire FX market.

IMM NON-COMMERCIAL COMMITMENTS

Currency Last Week Previous Week Net Change Market Positioning vs. Previous Week

EUR-USD 22,901 4,109 18,792 more long

USD-JPY -32,218 -20,529 -11,689 more short

USD-CHF -6,594 -6,992 398 less short

GBP-USD 7,888 5,794 2,094 more long

AUD-USD 45,458 53,508 -8,050 less long

NZD-USD 8,627 11,247 -2,620 less long

USD-CAD -31,719 -44,055 12,336 less short


EUR-USD: NET LONG USD-JPY: NET LONG

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65EUR-USD (RS)

Net EUR-USD Long (LS)

-75,000

-50,000

-25,000

0

25,000

50,000

75,000


80

85

90

95

100

105

110

115

USD-JPY (RS)

Net USD-JPY Long (LS)

GBP-USD: NET LONG AUD-USD: NET LONG

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000


1.30

1.40

1.50

1.60

1.70

1.80

1.90

2.00

2.10

2.20

Net GBP-USD Long (LS)

GBP-USD (RS)

-20,000

0

20,000

40,000

60,000

80,000

100,000


0.50

0.60

0.70

0.80

0.90

1.00

1.10

Net AUD-USD long (LS)

AUD-USD (RS)



Curves & Crosses


FX Monitor: Spot Exchange Rates and Two-year Swap Differentials

The charts below display the co-movement between spot exchange rates and two-year interest rate swap differentials for

selected G10 currencies. In particular, changes in two-year swap differentials tend to anticipate spot exchange rate fluctuations.

In each graph we report as well the 30-day rolling correlation between daily changes in the swap rate differential and daily

changes in the exchange rate for each currency pair. Please note that our use of first differences of both, exchange rates and

swap rate differentials, adds to the intuition of our correlation analysis, although it clearly results in lower correlations as such.

EUR-USD & 2Y SWAP DIFFERENTIAL USD-JPY & 2Y SWAP DIFFERENTIAL

-0.25

0.25

0.75

1.25

1.75

2.25

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60EU2Y-US2Y (LS)

EUR-USD (RS)30-day correlation of deltas: 0.5

0.00

0.25

0.50

0.75

1.00

1.25

1.50


80

85

90

95

100

105

110

US2Y-JN2Y (LS)

USD-JPY (RS)

30-day correlation of deltas: 0.6

GBP-USD & 2Y SWAP DIFFERENTIAL USD-CHF & 2Y SWAP DIFFERENTIAL

0.00

0.25

0.50

0.75

1.00

1.25


1.30

1.40

1.50

1.60

1.70

1.80

1.90

UK2Y-US2Y (LS)

GBP-USD (RS)


-0.25

0.00

0.25

0.50

0.75

1.00

1.25


0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

US2Y-SZ2Y (LS)

USD-CHF (RS)


AUD-USD & 2Y SWAP DIFFERENTIAL USD-CAD & 2Y SWAP DIFFERENTIAL

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00


0.60

0.70

0.80

0.90

1.00

1.10

1.20AU2Y-US2Y (LS)

AUD-USD (RS)


-1.25

-1.00

-0.75

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00


0.80

0.90

1.00

1.10

1.20

1.30

1.40

US2Y-CA2Y (LS)

USD-CAD (RS)




Curves & Crosses


FX Monitor: Purchasing Power Parities (PPP)

Purchasing Power Parities (PPP) calculate the exchange rate at which one country’s price level equals another country’s price

levels and are generally used to calculate “fair values” of exchange rates and determine whether spot rates are “overvalued”,

“undervalued” or “fairly valued” with respect to their long-run theoretical values. We define sharp under- or overvaluation as a

more than 10% deviation of a currency pair from PPP, while fair valuation refers to pairs trading inside a 5% band around PPP.

Here, PPP values are calculated using CPI data and are reported along with spot rates and the resulting respective percentage

deviations. However, note that spot rates may significantly diverge from PPP in the near term.

SPOT RATES, PPP AND PERCENTAGE DEVIATIONS

vs. USD Current PPP % Deviation Status vs. EUR Current PPP % Deviation Status

EUR-USD 1.36 1.12 21.33% EUR sharply overvalued EUR-USD 1.36 1.12 21.33% EUR sharply overvalued

USD-JPY 82 94 -12.95% JPY sharply overvalued EUR-JPY 111 105 9.00% JPY undervalued

USD-CHF 0.95 1.26 -24.83% CHF sharply overvalued EUR-CHF 1.29 1.42 -8.80% CHF overvalued

GBP-USD 1.62 1.45 11.50% GBP sharply overvalued EUR-GBP 0.84 0.78 8.81% GBP undervalued

AUD-USD 1.02 0.69 47.27% AUD sharply overvalued EUR-AUD 1.34 1.62 -17.61% AUD sharply overvalued

NZD-USD 0.77 0.57 36.15% NZD sharply overvalued EUR-NZD 1.76 1.98 -10.89% NZD sharply overvalued

USD-CAD 0.99 1.20 -17.56% CAD sharply overvalued EUR-CAD 1.35 1.35 0.03% CAD fairly valued

USD-SEK 6.45 6.44 0.23% SEK fairly valued EUR-SEK 8.80 7.24 21.60% SEK sharply undervalued

USD-NOK 5.74 6.79 -15.52% NOK sharply overvalued EUR-NOK 7.82 7.63 2.50% NOK fairly valued

Red and black color represent tendency of under- and overvaluation, respectively Source: Bloomberg, UniCredit Research

EUR-USD: SPOT RATE % DEVIATION FROM PPP USD-JPY: SPOT RATE % DEVIATION FROM PPP

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Deviation from PPP: EUR-USD

-30%

-20%

-10%

0%

10%

20%

30%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Deviation from PPP: USD-JPY

USD-CHF: SPOT RATE % DEVIATION FROM PPP GBP-USD: SPOT RATE % DEVIATION FROM PPP

-30%

-20%

-10%

0%

10%

20%

30%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Deviation from PPP: USD-CHF

-20%

-10%

0%

10%

20%

30%

40%

50%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Deviation from PPP: GBP-USD


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Curves & Crosses


FX Monitor: The Betas G10 Parade

We define the FX beta as the beta resulting from the following regression:

y(t) = α + β*x(t)+ε

where y(t) is the daily percentage change in an exchange rate and x(t) is the daily percentage change in a synthetic index. The regression is performed over a 10D

horizon and the coefficients in the table represent the value of the Beta over the last 10 days. Beta measures the reaction of the dependent variables (y(t)) to a

marginal movement in the independent variable (x(t)). In this monitor, the dependent variables are all the G10 crosses, while the independent variables are the USD

TWI, the EUR TWI, the US stocks (as proxied by the S&P 500 index) and oil prices. As for the stock-market betas, we can identify high beta exchange rates (with |β|

>1) and low beta exchange rate (with |β|<1), depending on whether they tend to overreact or underreact to changes of the independent variable. More precisely and

in line with the betas in the standard CAPM theory, a beta coefficient>1 indicates that a variable return moves in the same direction of the reference index with a

multiplying effect, while a beta coefficient <-1 means that a variable return moves in the opposite direction of the reference index with still a multiplying effect (we call

them "aggressive" pairs). On the other hand, a beta coefficient below 1 in absolute value indicates a variable return may move in the same or opposite direction of

the reference index, but underperforming the latter (we thus can call them "defensive pairs"). Taxonomy of possible outcome is reported in the table below:

TAXONOMY OF BETA OUTCOMES

Sign Type Description

>1 Aggressive Pair (same direction of the X variable) Changes of variable Y tend to outperform changes in variable X (in the same direction)

Defensive Pair (same direction of the X variable) Changes of variable Y tend to under perform changes in variable X (in the same direction)

Defensive Pair (opposite direction of the X variable)Changes of variable Y tend to under perform changes in variable X (in the oppositedirection)

Aggressive Pair (opposite direction of the X variable) Changes of variable Y tend to outperform changes in variable X (in the opposite direction)

For each of the independent variables, we calculate the beta coefficients with all the G10 crosses and each of the following tables picks up the five highest and five

lowest FX betas.

BETA COEFFICIENTS WITH USD TWI BETA COEFFICIENTS WITH EUR TWI

1.63

1.03

-1.11-1.24

-1.41

0.680.73

-0.82 -0.96

0.61

-2

-1

0

1

2

USDSEK

USDN

OK

USDC

AD

USDC

HF

NO

KSEK

GBPU

SD

EURN

ZD

EURAU

D

EURJP

Y

EURU

SD

AGGRESSIVE BETA

AGGRESSIVE BETA 1.53 1.49

-0.80-0.82

-1.43

-0.78-0.68

0.981.19

1.39

-2

-1

0

1

2

EURJP

Y

EURAU

D

EURU

SD

EURN

ZD

EURG

BP

USDC

HF

USDN

OK

AUDC

HF

JPYC

HF

USDSEK

AGGRESSIVE BETA

AGGRESSIVE BETA

BETA COEFFICIENTS WITH US STOCKS BETA COEFFICIENTS WITH OIL PRICES

-0.32

-0.84

-0.38-0.46-0.45

0.470.530.61 0.41 0.39

-2

-1

0

1

2

EURJP

Y

EURU

SD

GBPJP

Y

GBPU

SD

AUDJP

Y

EURSEK

NO

KSEK

USDC

AD

USDN

OK

USDSEK

AGGRESSIVE BETA

AGGRESSIVE BETA

0.16 0.13 0.13

-0.10 -0.10 -0.17 -0.17 -0.19

0.160.17

-2

-1

0

1

2

GBPC

AD

JPYC

HF

GBPN

ZD

GBPC

HF

USDSEK

AUDJP

Y

USDJP

Y

EURG

BP

NZD

JPY

EURJP

Y

AGGRESSIVE BETA

AGGRESSIVE BETA

Source: Bloomberg, UniCredit Research for all charts and tables in this page

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Curves & Crosses


FX Monitor: a world of correlations

THE BEST 20 DAYS & 80 DAYS CORRELATIONS2

3 MOST POSITIVE 3 MOST NEGATIVE

20dd 80dd 20dd 80dd 20dd 80dd 20dd 80dd 20dd 80dd 20dd 80dd

1st Future GBPCHF EURGBP CADAUD SEKNZD NOKSEK SEKJPY

(spread change) 71.2% 33.0% 63.1% 32.6% 56.9% 29.7% -46.8% 17.4% -27.1% -10.9% -15.0% 22.4%

10Y yields EURGBP GBPJPY CADJPY NOKCHF NZDJPY NZDCHF

(spread change) 75.5% 34.7% 65.4% 52.5% 58.5% 49.4% -35.4% -18.7% -32.9% 0.6% -29.3% -12.1%

Oil price JPYCHF GBPCAD GBPUSD EURGBP CADJPY EURNOK

(return) 50.8% -18.7% 47.9% -16.6% 29.5% 30.8% -39.8% 1.1% -35.9% 28.6% -34.5% -29.6%

Gold price AUDUSD JPYCHF NOKSEK EURJPY EURNOK EURAUD

(return) 53.1% 61.7% 45.9% -5.9% 40.2% 16.3% -65.2% -20.1% -62.6% -37.0% -62.1% -51.1%

Copper price GBPUSD GBPJPY AUDJPY USDCAD USDNOK EURGBP

(return) 66.4% 42.8% 47.4% 31.8% 41.9% 48.6% -43.9% -45.5% -43.7% -42.7% -35.0% -3.4%

S&P 500 NOKJPY SEKJPY SEKCHF USDCAD USDSEK USDNOK

(return) 72.8% 65.4% 64.2% 60.8% 57.1% 32.9% -69.5% -71.2% -61.1% -55.9% -54.7% -57.0%

Vix Index USDCAD EURSEK USDSEK CADJPY NOKJPY SEKJPY

66.6% 56.8% 45.9% 20.3% 43.9% 43.7% -65.8% -50.6% -63.6% -58.7% -57.3% -52.8%

G10 FX RETURNS VS. CHANGE IN MM FUTURES SPREAD3

G10 FX RETURNS VS. CHANGE IN 10Y YIELDS SPREAD

JPY GBP CHF AUD CAD NZD NOK SEK USD JPY GBP CHF AUD CAD NZD NOK SEK USD

EUR 47% 63% 55% 55% 54% 35% 42% 30% 37% EUR 57%* 75%* 48% 26% 34% 16% 17% -16% 55%*

JPY -41% 11% -31% -35% -32% 0% 15% -19% JPY -65%* 5% -32% -58%* 33% -13% -34% -53%

GBP 71%* 47% 29% 53% 50% 18% 44% GBP 51% 22% 10% 25% 25% 26% 19%

CHF -29% -29% -28% -9% 15% -17% CHF -14% -40% 29% 35% 18% -52%

AUD -57% -37% -35% -23% 53% AUD -38% -7% -18% -19% 31%

CAD 29% -12% 4% -46% CAD 23% -12% -6% 5%

NZD 11% 47% 39% NZD 17% -1% 20%

NOK -27% 6% NOK 13% -10%

SEK 2% SEK -13%

LOOKING BACK – 20 DAYS ROLLING CORRELATIONS OVER THE LAST MONTHS

GBP-USD & COPPER PRICES EUR-JPY & GOLD

-40%

-20%

0%

20%

40%

60%

80%

100%

Jun-10 Jul-10 Sep-10 Oct-10 Dec-10 Feb-11

20dd correlation Last 6M average

average +/- 1.5*st.dev.

20

dd

co

rre

lati

on

be

twe

en

GB

PU

SD

an

dc

op

pe

r

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jun-10 Jul-10 Sep-10 Oct-10 Dec-10 Feb-11

20dd rolling correlation Last 6M average

average +/- 1.5*st.dev.20

dd

co

rre

lati

on

be

twe

en

EU

RJ

PY

an

dg

old


1We compute the rolling correlation over the last 20 trading days between the daily return of each G10 cross and each of the variables specified on the left. For the

FI variables, we considered the daily change of the spread of the variables in the two countries to which the cross refers to. More specifically, we considered thespread of the 1st generic money market future and the spread of the 10Y yields. For commodities, we considered the daily return. Finally, we used the daily returnon the Standard & Poor 500 as a proxy for the equity market performance and the Vix index as an indicator of volatility. The table displays the 3 crosses showing thehighest positive (on the left hand side) and the 3 highest negative (on the right hand side) correlations with the variables on the left. On the right hand side of each20dd correlation, we report the rolling correlation over the last 80 trading days.3

The tables report the 20dd rolling correlation between the daily return of each of the G10 crosses and the corresponding daily change in the spread between 1stgeneric money market future contracts (left table) and 10Y yields (right table) in the two countries the cross refers to. In each cell the correlation refers to the crossobtained by taking the currencies on the same row and the one on the same column. For example cell(2,2) refers to EUR-JPY. We highlight in grey the correlation ifits absolute value is greater than the mean+1.5*standard deviation over the all sample.


Curves & Crosses


FX Monitor: The Over & Undervaluation G-10 ParadeG10 FX OVER/UNDERVALUATION TABLE

Key G10 exchange rates The other most over/undervalued crosses

EURUSD GBPUSD USDJPY USDCHF GBPNZD GBPAUD GBPCHF GBPCAD USDSEK EURSEK

Constant 1.3128 1.5617 84.7684 1.0270 2.1749 1.7092 1.6034 1.6336 7.2345 9.4804

Slope 0.0018 0.0010 -0.1108 -0.0031 -0.0050 -0.0059 -0.0038 -0.0022 -0.0255 -0.0207

Fair Value 1.3612 1.5890 81.7778 0.9434 2.04 1.55 1.50 1.57 6.55 8.92

Actual Value 1.3632 1.6119 81.6600 0.9479 2.09 1.58 1.53 1.60 6.45 8.80

Over/Undervaluation 0.1% 1.4% -0.1% 0.5% 2.3% 2.2% 1.9% 1.4% -1.4% -1.4%

The table shows the results of coefficient estimates for the regression: X(t) = a+b*t+e, in which t is a linear trend and X represents an exchange rate in the G-10universe. The regression is performed on a 6M horizon and on a sample of weekly data. The over/undervaluation coefficient is the percentage difference betweenthe traded value of the exchange rate considered and its “fair value” as implied by its linear trend. A positive (negative) number in the over/undervaluation coefficientmeans that the indicated exchanged rate is overvalued (undervalued) with respect to its last 6M trend. The table reports on the left side results for EUR-USD, GBP-USD, USD-JPY and USD-CHF and on the right hand side the other six most over/undervalued exchange rates in the G10 world.

EUR-USD: OVER/UNDERVALUATION OVER TIME GBP-USD: OVER/UNDERVALUATION OVER TIME

-8.0

-4.0

0.0

4.0

8.0

12.0

Jan-08 Jul-08 Feb-09 Aug-09 Mar-10 Sep-10

%

Exchange rate is overvalued

Exchange rate is undervalued

Last 6M average

Last 12M average

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

Jan-08 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10

%

Exchange rate is overvalued

Exchange rate is undervalued

Last 6M average

Las t 12M average

The left chart above shows the dynamics of the weekly over/undervaluation coefficient of EUR-USD since January 2008. At any point in time, a coefficient greaterthan 0 signals that EUR-USD is overvalued on that specific week with respect to its last 6M trend, while a coefficient below zero indicates that EUR-USD isundervalued with respect to its linear trend. The charts also display the average of the over/under valuation coefficient over the last 6 and 12 months. The secondchart shows the dynamics of the weekly over/undervaluation coefficient of another G10 cross selected among the most over/undervalued G10 crosses reported inthe two charts below.

THE TOP TEN MOST OVERVALUED G-10 CROSSES THE TOP TEN MOST UNDERVALUED G-10 CROSSES

2.3% 2.2% 1.9%1.4% 1.4% 1.3% 0.9% 0.8% 0.6% 0.5%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

GBPNZD

GBPAU

D

GBPCH

F

GBPUSD

GBPCAD

GBPJP

Y

EURNZD

EURAU

D

JPYC

HF

EURCH

F

-0.3% -0.5% -0.7% -0.7% -0.9% -1.1% -1.2% -1.3% -1.4% -1.4%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

NOKSEK

AUDU

SD

NZDU

SD

AUDJP

Y

NZDJP

Y

EURN

OK

USDN

OK

EURGBP

EURSEK

USD

SEK

The two charts above show the top ten most overvalued/undervalued currencies within the G-10 universe over the last week with respect to their last 6M trend.

Source: Bloomberg, UniCredit Research for all charts in this page

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Curves & Crosses


G-10 Top Data Releases & EventsMACRO DATA

Date Time(CET)

Country Data/Events Period UniCreditForecast

Cons. Previous Marketimpact

07-Feb-11 00.50 JN FX Reserves Jan - - 1.1T *

07-Feb-11 01.30 AU Retail Sales (mom) Dec - 0.5% 0.3% *

07-Feb-11 06.00 JN Leading Diffusion Index Dec P - 101.4 100.6 **

07-Feb-11 10.00 NO Industrial Production (mom) Dec - 0.4% 0.9% **

07-Feb-11 12.00 GE Factory Orders (mom) Dec -2.5% -1.8% 5.2% ***

07-Feb-11 14.30 CA Building Permits Dec - - -11.2% *

07-Feb-11 15.30 EU ECB Bond Purchases Statistics Wkly - - - **

07-Feb-11 21.00 US Consumer Credit Dec - 2.4B 1.3B *

08-Feb-11 00.50 JN Trade Balance & Current Account – bop basis Dec - 789B/1.55T 260B/1.15T **

08-Feb-11 01.01 UK BRC Retail Sales & RICS House Price Balance Jan - - - *

08-Feb-11 11.15 EU ECB 7D & 1M Tenders allotment - - - - **

08-Feb-11 12.00 GE Industrial Production (mom) Dec 0.5% 0.2% -0.7% ***

08-Feb-11 13.00 EU ECB 7Day Term Deposit Allotment - - - - **

08-Feb-11 14.15 CA Housing Starts Jan - - 168K *

09-Feb-11 - NZ MoF Swan speaks at Selected Committee - - - - **

09-Feb-11 09.30 AU Westpac Consumer Confidence Feb - - 104.6 **

09-Feb-11 08.00 GE Trade Balance & Current Account Dec - - 12.9/12.0B *

09-Feb-11 10.30 UK Non EU & Total Trade Balance Dec - - -4.1/5.0B **

10-Feb-11 00.50 JN Machinery Orders (mom) Dec - - -3.0% *

10-Feb-11 01.30 AU Unemployment rate Jan - 5.0% 5.0% **

10-Feb-11 03.00 CH Trade Balance Jan - 10.20B 13.0B **

10-Feb-11 08.45 FR Industrial Production (mom) Dec - - 2.3% **

10-Feb-11 09.15 SZ CPI (yoy) Jan - 0.4% 0.5% **

10-Feb-11 09.30 SW Industrial Production (mom) Dec - - 1.1% **

10-Feb-11 10.00 NO CPI & Core CPI (yoy) Jan - 2.5/1.0% 2.8/1.0% **

10-Feb-11 10.00 IT Industrial Production (mom) Dec 0.5% 0.3% 1.1% **

10-Feb-11 10.30 UK Industrial Production (mom) Dec 0.7% 0.5% 0.4% ***

10-Feb-11 13.00 UK BoE Meeting Outcome Dec 0.50% 0.50% 0.50% ***

10-Feb-11 - UK NIESR GDP estimate (yoy) Jan - - 0.5% *

10-Feb-11 14.30 US Initial Claims Wkly - 410K 415K **

10-Feb-11 16.00 US Wholesale inventories Dec - 0.8% -0.2% *

10-Feb-11 20.00 US Monthly Budget Statement Jan - -59.0B -79.9B *

11-Feb-11 08.00 GE CPI (yoy) Jan F 5 1.9% 1.7% *

11-Feb-11 09.00 SP GDP (yoy) 4Q P - - 0.2% **

11-Feb-11 10.30 UK PPI Input & Output (sa, yoy) Jan - 12.5/3.0% 12.5/4.2% **

11-Feb-11 14.30 CA Merchandise Trade Dec - -0.5B -0.1B *

11-Feb-11 14.30 US Trade Balance Dec - -40.4B -38.3B **

11-Feb-11 15.55 US Michigan Sentiment Feb P - 74.5 74.2 ***

13-Feb-11 22.45 NZ Retail Sales (mom) Dec - - 1.5% **

CENTRAL BANK & POLITICAL EVENTS

Date Time(CET)

Country/ CB

Event Impact Date Time(CET)

Country /CB

Event Impact

07-Feb-11 15.00 EU ECB Weber speaks ** 10-Feb-11 10.00 EU ECB Monthly Report ***

07-Feb-11 18.15 EU ECB Mersch speaks ** 10-Feb-11 11.30 EU ECB Bini Smaghi speaks **

08-Feb-11 19.00 US Fed Lockhart speaks ** 10-Feb-11 18.45 US Fed Lockhard speaks **

08-Feb-11 19.30 US Fed Lockhart & Fisher speak ** 10-Feb-11 19.15 CA BoC Murray speaks **

09-Feb-11 16.00 US Fed Bernanke testifies bef House *** 10-Feb-11 23.30 AU RBA Stevens testifies ***

09-Feb-11 23.45 US Fed Sack speaks ** 10-Feb-11 18.30 EU ECB Trichet speaks ***

4Q10 EARNING RELEASES

Date Time(CET)

Country Company EPS Date Time(CET)

Country Company EPS

08-Feb-11 06.45 SZ UBS AG 1.833 10-Feb-11 13.00 US Pepsi 1.039

09-Feb-11 Bef Mkt US Coca Cola 0.715 10-Feb-11 22.00 US Kraft 0.463

10-Feb-11 06.30 SZ Credit Suisse 4.331 10-Feb-11 - US Philip Morris 0.961

Note: * = low impact; ** = medium impact; ***= strong impact Source: Bloomberg, UniCredit Research

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Curves & Crosses

UniCredit Research page 40

UniCredit Global Forecasts

EU US

Current Mar-11 Jun-11 Sep-11 Dec-11 Current Mar-11 Jun-11 Sep-11 Dec-11

Key rate 1.00 1.00 1.00 1.00 1.25 Key rate 0.25 0.25 0.25 0.25 0.25

3M 1.09 1.05 1.10 1.20 1.55 3M 0.31 0.35 0.35 0.35 0.45

2Y 1.41 1.00 1.10 1.40 1.75 2Y 0.74 0.60 0.75 1.00 1.25

5Y 2.43 1.86 2.03 2.38 2.68 5Y 2.23 1.93 2.10 2.40 2.68

10Y 3.24 2.85 3.05 3.35 3.50 10Y 3.60 3.15 3.40 3.70 4.00

30Y 3.67 3.35 3.55 3.70 3.80 30Y 4.70 4.35 4.45 4.55 4.75

2/10 184 185 195 195 175 2/10 286 255 265 270 275

2/5/10 11 -7 -5 0 5 2/5/10 6 5 2 5 5

10/30 43 50 50 35 30 10/30 110 120 105 85 75

2Y SwSp 63 70 60 45 35 2Y SwSp 22 15 15 10 0

10Y SwSp 27 25 30 20 15 10Y SwSp 12 5 5 0 -10

UK SZ


Key rate 0.50 0.50 0.50 0.50 0.75 Key rate 0.25 0.50 0.75 1.00 1.25

3M 0.79 0.75 0.75 0.90 1.05 3M 0.17 0.50 0.75 1.00 1.25

2Y 1.48 1.10 1.15 1.30 1.65 2Y 0.58 1.00 1.25 1.50 1.75

5Y 2.63 2.20 2.25 2.43 2.73 5Y 1.22 1.35 1.68 1.90 2.13

10Y 3.80 3.50 3.55 3.65 3.80 10Y 1.90 1.90 2.10 2.30 2.50

30Y 4.51 4.35 4.35 4.40 4.45 30Y 2.12 2.05 2.25 2.40 2.60

2/10 232 240 240 235 215 2/10 131 90 85 80 75

2/5/10 -1 -10 -10 -5 0 2/5/10 -2 -5 0 0 0

10/30 71 85 80 75 65 10/30 22 15 15 10 10

10Y SwSp 16 10 20 30 40 10Y SwSp 38 40 40 40 40

JN CA


Key rate 0.10 0.10 0.10 0.10 0.10 Key rate 1.00 1.00 1.25 1.50 1.50

3M 0.19 0.20 0.20 0.25 0.25 3M 1.21 1.30 1.50 1.75 1.75

NO SW


Key rate 2.00 2.00 2.25 2.50 2.75 Key rate 1.25 1.50 1.75 2.00 2.25

3M 2.58 3.00 3.25 3.50 3.75 3M 2.11 1.90 2.15 2.40 2.60

AU NZ


Key rate 4.75 5.00 5.25 5.50 5.50 Key rate 3.00 3.25 3.50 3.75 4.00

3M 4.95 5.25 5.50 5.75 5.75 3M 3.22 3.40 4.00 4.25 4.40

FXForecasts

vs. EUR Current Mar-11 Jun-11 Sep-11 Dec-11 vs. USD Current Mar-11 Jun-11 Sep-11 Dec-11

EUR-USD 1.37 1.27 1.35 1.38 1.41 EUR-USD 1.37 1.27 1.35 1.38 1.41

EUR-JPY 113 104 112 117 123 USD-JPY 82 82 83 85 87

EUR-GBP 0.86 0.84 0.83 0.82 0.81 GBP-USD 1.59 1.52 1.62 1.68 1.75

EUR-SEK 8.86 9.10 9.05 9.00 8.95 USD-SEK 6.45 7.17 6.70 6.52 6.35

EUR-NOK 7.94 7.95 7.90 7.85 7.80 USD-NOK 5.78 6.26 5.85 5.69 5.53

EUR-CHF 1.30 1.28 1.32 1.34 1.36 USD-CHF 0.94 1.01 0.98 0.97 0.96

EUR-AUD 1.38 1.34 1.39 1.39 1.38 AUD-USD 1.00 0.95 0.97 0.99 1.02

EUR-NZD 1.77 1.76 1.85 1.86 1.86 NZD-USD 0.77 0.72 0.73 0.74 0.76

EUR-CAD 1.37 1.33 1.39 1.41 1.41 USD-CAD 0.99 1.05 1.03 1.02 1.00



Curves & Crosses


GLOBAL FORECASTS

GROSS DOMESTIC PRODUCT

% yoy ACTUAL UniCredit CONSENSUS (Jan-10)

2007 2008 2009 2010 2011 2012 2010 2011 2012

UNITED STATES 1.9 0.0 -2.6 2.9 3.3 2.7 2.9 3.2 3.3

JAPAN 2.3 -1.2 -6.3 4.3 1.5 2.0 4.3 1.2 2.0

EURO ZONE 2.8 0.3 -4.0 1.7 1.4 1.6 1.7 1.5 1.6

GERMANY 2.8 0.7 -4.7 3.5 2.5 1.8 3.6 2.5 1.8

ITALY 1.4 -1.3 -5.1 1.0 1.1 1.2 1.0 0.9 1.1

FRANCE 2.3 0.1 -2.5 1.5 1.4 1.9 1.6 1.6 1.7

SPAIN 3.6 0.9 -3.7 -0.2 0.5 1.4 -0.2 0.6 1.2

AUSTRIA 3.5 2.0 -3.9 1.9 2.0 1.8 1.8 1.7 1.9

SWEDEN 3.4 -0.8 -5.3 5.2 3.5 2.5 5.2 3.5 2.8

NORWAY (mainland) 5.4 1.6 -1.2 2.0 3.1 2.9 1.9 2.9 2.9

UNITED KINGDOM 2.7 -0.1 -4.9 1.4 1.6 2.1 1.7 2.1 2.1

SWITZERLAND 3.6 1.9 -1.9 2.8 1.8 2.3 2.7 1.9 2.1

CONSUMER PRICE INDEX

% yoy ACTUAL UniCredit CONSENSUS (Jan-10)

2007 2008 2009 2010 2011 2012 2010 2011 2012

UNITED STATES 2.9 3.8 -0.3 1.6 2.0 2.2 1.6 1.7 1.8

UNITED STATES (Core CPI) 2.3 2.3 1.7 1.0 1.1 1.7 -- -- -

JAPAN 0.0 1.4 -1.4 -1.0 -0.3 0.4 -0.8 -0.3 0.0

EURO ZONE 2.1 3.3 0.3 1.6 2.2 2.0 1.6 1.8 1.7

GERMANY 2.3 2.6 0.3 1.1 2.1 1.8 1.1 1.7 1.7

ITALY 1.8 3.3 0.8 1.5 2.1 2.0 1.5 1.7 1.8

FRANCE 1.5 2.8 0.1 1.5 1.6 1.8 1.5 1.6 1.7

SPAIN 2.8 4.1 -0.2 1.8 2.1 2.0 1.8 1.8 1.6

AUSTRIA 2.2 3.2 0.5 1.8 2.0 1.9 1.8 1.9 1.9

SWEDEN 2.2 3.5 -0.3 1.2 1.4 1.6 1.2 2.2 2.3

NORWAY 0.7 3.8 2.2 2.3 1.7 2.0 2.4 1.7 1.8

UNITED KINGDOM 2.3 3.6 2.2 3.3 3.3 2.3 3.3 3.3 2.0

SWITZERLAND 0.7 2.4 -0.5 0.7 0.8 1.7 0.7 0.9 1.3

Source: Consensus Forecast, UniCredit Research

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Curves & Crosses


Disclaimer

Our recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness andaccuracy of which we assume no liability. All estimates and opinions included in the report represent the independent judgment of the analysts as of the date of the issue. We reserve theright to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice.

This analysis is for information purposes only and (i) does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for anyfinancial, money market or investment instrument or any security, (ii) is neither intended as such an offer for sale or subscription of or solicitation of an offer to buy or subscribefor any financial, money market or investment instrument or any security nor (iii) as an advertisement thereof. The investment possibilities discussed in this report may not besuitable for certain investors depending on their specific investment objectives and time horizon or in the context of their overall financial situation. The investments discussedmay fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value of investments.Furthermore, past performance is not necessarily indicative of future results. In particular, the risks associated with an investment in the financial, money market or investmentinstrument or security under discussion are not explained in their entirety.

This information is given without any warranty on an "as is" basis and should not be regarded as a substitute for obtaining individual advice. Investors must make their owndetermination of the appropriateness of an investment in any instruments referred to herein based on the merits and risks involved, their own investment strategy and their legal,fiscal and financial position. As this document does not qualify as an investment recommendation or as a direct investment recommendation, neither this document nor any partof it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Investors are urged to contact theirbank's investment advisor for individual explanations and advice.

Neither UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch, UniCredit Securities, UniCredit MenkulDeğerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank nor any of their respective directors, officers or employees nor any other person accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents orotherwise arising in connection therewith.

This analysis is being distributed by electronic and ordinary mail to professional investors, who are expected to make their own investment decisions without undue reliance onthis publication, and may not be redistributed, reproduced or published in whole or in part for any purpose.

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a) UniCredit Bank AG, Am Tucherpark 16, 80538 Munich, Germany, (also responsible for the distribution pursuant to §34b WpHG). The company belongs to UCI Group.Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany.

b) UniCredit Bank AG London Branch, Moor House, 120 London Wall, London EC2Y 5ET, United Kingdom.Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany and subject to limited regulation by the FinancialServices Authority (FSA), 25 The North Colonnade, Canary Wharf, London E14 5HS, United Kingdom. Details about the extent of our regulation by the Financial ServicesAuthority are available from us on request.

c) UniCredit Bank AG Milan Branch, Via Tommaso Grossi 10, 20121 Milan, Italy, duly authorized by the Bank of Italy to provide investment services.Regulatory authority: “Bank of Italy”, Via Nazionale 91, 00184 Roma, Italy and Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany.

d) UniCredit Bank AG Vienna Branch, Julius-Tandler-Platz 3, 1090 Vienna, AustriaRegulatory authority: Finanzmarktaufsichtsbehörde (FMA), Praterstrasse 23, 1020 Vienna, Austria and subject to limited regulation by the “BaFin“ – Bundesanstalt für Finanz-dienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany. Details about the extent of our regulation by the Bundesanstalt für Finanzdienstleistungsaufsicht are availablefrom us on request.

e) UniCredit Securities, Boulevard Ring Office Building, 17/1 Chistoprudni Boulevard, Moscow 101000, RussiaRegulatory authority: Federal Service on Financial Markets, 9 Leninsky prospekt, Moscow 119991, Russia

f) UniCredit Menkul Değerler A.Ş., Büyükdere Cad. No. 195, Büyükdere Plaza Kat. 5, 34394 Levent, Istanbul, Turkey Regulatory authority: Sermaye Piyasası Kurulu – Capital Markets Board of Turkey, Eskişehir Yolu 8.Km No:156, 06530 Ankara, Turkey

g) UniCredit Bulbank, Sveta Nedelya Sq. 7, BG-1000 Sofia, BulgariaRegulatory authority: Financial Supervision Commission (FSC), 33 Shar Planina str.,1303 Sofia, Bulgaria

h) Zagrebačka banka, Paromlinska 2, HR-10000 Zagreb, Croatia Regulatory authority: Croatian Agency for Supervision of Financial Services, Miramarska 24B, 10000 Zagreb, Croatia

i) UniCredit Bank, Na Príkope 858/20, CZ-11121 Prague, Czech RepublicRegulatory authority: CNB Czech National Bank, Na Příkopě 28, 115 03 Praha 1, Czech Republic

j) Bank Pekao, ul. Grzybowska 53/57, PL-00-950 Warsaw, PolandRegulatory authority: Polish Financial Supervision Authority, Plac Powstańców Warszawy 1, 00-950 Warsaw, Poland

k) UniCredit Bank, Prechistenskaya emb. 9, RF-19034 Moscow, RussiaRegulatory authority: Federal Service on Financial Markets, 9 Leninsky prospekt, Moscow 119991, Russia

l) UniCredit Bank, Šancova 1/A, SK-813 33 Bratislava, SlovakiaRegulatory authority: National Bank of Slovakia, Stefanikovo nam. 10/19, 967 01 Kremnica, Slovakia

m) Yapi Kredi, Yapi Kredi Plaza D Blok, Levent, TR-80620 Istanbul, TurkeyRegulatory authority: Sermaye Piyasası Kurulu – Capital Markets Board of Turkey, Eskişehir Yolu 8.Km No:156, 06530 Ankara, Turkey

n) UniCredit Tiriac Bank, Ghetarilor Street 23-25, RO-014106 Bucharest 1,RomaniaRegulatory authority: CNVM, Romanian National Securities Commission, Foişorului street, no.2, sector 3, Bucharest, Romania

o) ATFBank, 100 Furmanov Str., KZ-050000 Almaty, KazakhstanAgency of the Republic of Kazakhstan on the state regulation and supervision of financial market and financial organisations, 050000, Almaty, 67 Aiteke Bi str., Kazakhstan

POTENTIAL CONFLICTS OF INTEREST

UniCredit Bank AG acts as a Specialist or Primary Dealer in government bonds issued by the Italian, Portuguese and Greek Treasury. Main tasks of the Specialist are toparticipate with continuity and efficiency to the governments' securities auctions, to contribute to the efficiency of the secondary market through market making activity andquoting requirements and to contribute to the management of public debt and to the debt issuance policy choices, also through advisory and research activities.

ANALYST DECLARATION

The author’s remuneration has not been, and will not be, geared to the recommendations or views expressed in this study, neither directly nor indirectly.

ORGANIZATIONAL AND ADMINISTRATIVE ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST

To prevent or remedy conflicts of interest, UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch,UniCredit Securities, UniCredit Menkul Değerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank have established the organizational arrangements required from a legal and supervisory aspect, adherence to which is monitored by its compliance department. Conflicts of interestarising are managed by legal and physical and non-physical barriers (collectively referred to as “Chinese Walls”) designed to restrict the flow of information between onearea/department of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch, UniCredit Securities, UniCreditMenkul Değerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank and another. In particular, Investment Banking units, including corporate finance, capital market activities, financial advisory and other capital raising activities, are segregated by physical and non-physical boundariesfrom Markets Units, as well as the research department. In the case of equities execution by UniCredit Bank AG Milan Branch, other than as a matter of client facilitation or deltahedging of OTC and listed derivative positions, there is no proprietary trading. Disclosure of publicly available conflicts of interest and other material interests is made in theresearch. Analysts are supervised and managed on a day-to-day basis by line managers who do not have responsibility for Investment Banking activities, including corporatefinance activities, or other activities other than the sale of securities to clients.


Curves & Crosses


ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED

Notice to Austrian investorsThis document does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities and neither this documentnor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever.This document is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published, inwhole or part, for any purpose.

Notice to Czech investorsThis report is intended for clients of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch, UniCreditSecurities, UniCredit Menkul Değerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank in the Czech Republic and may not be used or relied upon by any other person for any purpose.

Notice to Italian investorsThis document is not for distribution to retail clients as defined in article 26, paragraph 1(e) of Regulation n. 16190 approved by CONSOB on October 29, 2007. In the case of ashort note, we invite the investors to read the related company report that can be found on UniCredit Research website www.research.unicreditgroup.eu.

Notice to Japanese investorsThis document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this documentnor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever.

Notice to Polish investorsThis document is intended solely for professional clients as defined in Art. 3 39b of the Trading in Financial Instruments Act of 29 July 2005.The publisher and distributor of therecommendation certifies that it has acted with due care and diligence in preparing the recommendation, however, assumes no liability for its completeness and accuracy.

Notice to Russian investorsAs far as we are aware, not all of the financial instruments referred to in this analysis have been registered under the federal law of the Russian Federation "On the SecuritiesMarket" dated 22 April 1996, as amended (the "Law"), and are not being offered, sold, delivered or advertised in the Russian Federation. This analysis is intended for qualifiedinvestors, as defined by the Law, and shall not be distributed or disseminated to a general public and to any person, who is not a qualified investor.

Notice to Turkish investorsInvestment information, comments and recommendations stated herein are not within the scope of investment advisory activities. Investment advisory services are provided inaccordance with a contract of engagement on investment advisory services concluded with brokerage houses, portfolio management companies, non-deposit banks and theclients. Comments and recommendations stated herein rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not suityour financial status, risk and return preferences. For this reason, to make an investment decision by relying solely on the information stated here may not result in consequencesthat meet your expectations.

Notice to UK investorsThis communication is directed only at clients of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch,UniCredit Securities, UniCredit Menkul Değerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank in the Czech Republic who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies,unincorporated associations, etc.”) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfully becommunicated (all such persons together being referred to as “relevant persons”). This communication must not be acted on or relied on by persons who are not relevantpersons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons.

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Curves & Crosses


UniCredit Research*Thorsten Weinelt, CFAGlobal Head of Research & Chief Strategist+49 89 [email protected]

Dr. Ingo HeimigHead of Research Operations+49 89 [email protected]

Economics & FI/FX Research

Economics & Commodity Research

European Economics

Marco Valli, Chief Euro zone Economist+39 02 [email protected]

Andreas Rees, Chief German Economist+49 89 [email protected]

Stefan Bruckbauer, Chief Austrian Economist+43 50505 [email protected]

Tullia Bucco+39 02 [email protected]

Chiara Corsa+39 02 [email protected]

Dr. Loredana Federico+39 02 [email protected]

Alexander Koch, CFA+49 89 [email protected]

Chiara [email protected]

US Economics

Dr. Harm Bandholz, CFA, Chief US Economist+1 212 672 [email protected]

Commodity Research

Jochen Hitzfeld+49 89 [email protected]

Nikolaus Keis+49 89 [email protected]

EEMEA Economics & FI/FX Strategy

Gillian Edgeworth, Chief EEMEA Economist+44 0207 826 1772, [email protected]

Gyula Toth, Head of EEMEA FI/FX Strategy+43 50505 823-62, [email protected]

Cevdet Akcay, Ph.D., Chief Economist, Turkey+90 212 319-8430, [email protected]

Dmitry Gourov, Economist, EEMEA+43 50505 823-64, [email protected]

Hans Holzhacker, Chief Economist, Kazakhstan+7 727 244-1463, [email protected]

Marcin Mrowiec, Chief Economist, Poland+48 22 656-0678, [email protected]

Vladimir Osakovsky, Ph.D., Head of Strategy and Research, Russia+7 495 258-7258 ext.7558, [email protected]

Rozália Pál, Ph.D., Chief Economist, Romania+40 21 203-2376, [email protected]

Kristofor Pavlov, Chief Economist, Bulgaria+359 2 9269-390, [email protected]

Goran Šaravanja, Chief Economist, Croatia+385 1 6006-678, [email protected]

Pavel Sobisek, Chief Economist, Czech Republic+420 2 211-12504, [email protected]

Vladimír Zlacký, Chief Economist, Slovakia+421 2 4950-2267, [email protected]

Global FI/FX Strategy

Michael Rottmann, Head+49 89 378-15121, [email protected]

Dr. Luca Cazzulani, Deputy Head, FI Strategy+39 02 8862-0640, [email protected]

Chiara Cremonesi, FI Strategy+44 20 7826-1771, [email protected]

Elia Lattuga, FI Strategy+39 02 8862-2027, [email protected]

Dr. Stephan Maier, FX Strategy+39 02 8862-8604, [email protected]

Armin Mekelburg, FX Strategy+49 89 378-14307, [email protected]

Roberto Mialich, FX Strategy+39 02 8862-0658, [email protected]

Kornelius Purps, FI Strategy+49 89 378-12753, [email protected]

Herbert Stocker, Technical Analysis+49 89 378-14305, [email protected]

Publication Address

UniCredit ResearchCorporate & Investment BankingUniCredit Bank AG Milan BranchEconomics & FI/FX ResearchVia Tommaso Grossi, 10 - 20121 MilanTel +39 02 8862.2019 - Fax +39 02 8862.2585

BloombergUCGR

Internetwww.research.unicreditgroup.eu

* UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank), UniCredit CAIB Group (UniCredit CAIB), UniCredit Securities (UniCredit Securities),UniCredit Menkul Değerler A.Ş. (UniCredit Menkul), UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank and ATFBank.

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