Fourth Quarter 2010 Gtaa Fixed Income

8/3/2019 Fourth Quarter 2010 Gtaa Fixed Income

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o a ac casse oca on

GTAAFixed Income

September 20th, 2010

Damien Cleusix

Clue6 Fourth Quarter 2010

am en c ue .com


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1Executive SummaryFixed Income

US Government bonds are not a bubble. They are probably not a good B&H investment but they are behaving rationally.

They correlation with nominal GDP growth will continue to rise as long as the economy will be in a balance sheet recession

with deflation showing its ugly face on every slowdown...

Yields have resumed their downtrends as expected when the leading indicators started to soften. As with equities, the business

cycle will rule.

On the inflation/deflation debate we did not have the feared short-term inflation scare that would pave the way to a new wave

of deflation and, further down the road, inflation or more. Emerging market are experiencing one (food price inflation and its

social consequences) and, as in 2008, will force authorities to tighten precisely at the wrong time.

Careful analysis of government and Central Banks words and acts will be needed as there remain a risk that they will try toinflate the problems away more quickly than anticipated. QE2 might be soon a reality and while its effectiveness in pushing rate

lower is still to be proved, if it does it could be the trigger to a new round of competitive devaluation around the world (which

ironically will push US government bond yields lower and ).

On the potential of QE2 to solve the challenge facing the US economy (and similar policies elsewhere) our response is a

categorical no for economies in the middle of a balance sheet recession. Fiscal policies yes, monetary policies no (but one has to

remember that the Fed, when it guaranteed and bought GSE MBS, was in fact making an unconstitutional fiscal policy, not a

The fact that AUSTERITY is on every politicians mouth seems to strengthen the case for deflation now and inflation laterin

desperation.


Corporate and Emerging market bonds spreads have contracted in the past few weeks . Dont be fooled, while spreads


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2Executive Summary

seems to have some room to fall further, absolute yields are almost at historic lows. Both high yield and emerging markets

bonds are yielding less today than at the high of the credit bubble in 2007 . Beware

Sentiment analysis is inconclusive for government bonds after having showed signs of short-term excessive optimism in

August. While we are seeing excess on the corporate and sovereign high yield (not so high yield) space.

On the liquidity side, banks and public demand should be more than sufficient to absorb public issuance, for now. Refinancing

needs at the high yield corporate, banks and emerging markets side are likely to pose a much greater risk in the futureut compan es countr es ave are pro t ng rom t e current nvestors t rst or y e s to re nance an engt en t e

duration of their repayment schedule. While many emerging markets are in much better shape than 10-15 years ago, they still

remain dependant on flows from the US, Europe and Japan. Furthermore never underestimate the power of crowd dynamic in

this area of the market. Stress in Eastern Europe or inside the EU will have dramatic domino effects especially when, as we have

, .

This will provide a fantastic buying opportunities. If you have to be long or if you can do relative value, favor operating

leveraged against financially leveraged countries.

Seasonality is still favorable for government bonds and negative for more risky bonds.

The trend of the US, Euro and UK government bonds markets is unequivocally down (for yields). Yields have pulled backto well defined resistances where we would be buyer on weakness (yield weakness) or on further strength. We are seller of

covere ups e pr ce vo at ty on excess ve pr ce strengt .

Corporate and emerging market bonds trends are rising. We prefer to be on the sideline. Remember that it is sometimes

better to be out of the market wishing to be in than in the market wishing to be out.


Sometimes less yield is better.


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3Bonds: ValuationsChart 1

Forecast (July)

Source: GMO

We still do not think that US government bonds are a bubble. They are clearly a poor long-term investment (Chart 1) but they are behaving

rationally given the nominal growth prospects. Yields will continue to follow the ebb and flows of leading indicators and 10 years yield will decline

much below 2% before we have a real inflation scarce.

There will be a time when one will have to worry about inflation as government spending continue to grow and new stimuli will have to be

voted in the next few years but we are still in a deflationary environment whose existence has now become apparent even if commodities

have yet to fall.

The huge pick up in the monetary base has not resulted in an increase of credit (money multiplier collapsing). Capacity utilization is low, wages


should continue to have a moderating effect,


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4Bonds: Default HistoryTable 1

Chart 2 Moodys US Investment Grade default Rate Investment Grade 5 Years Default Priced

by the CDS Market

Source: Bloomberg, Clue6

Investment Grade default risk priced by the CDS market is still high if one look at the historical 5 years cumulative default. 103 bps with a 30%

recovery rate imply a 6.8% 5 years cumulative default which is higher than the 4.5% reached in the 30's.

Source: Moodys, Clue6

But when one look at the level of indebtedness and the fact that we might experience (this is our main scenario as you know) some quarters of

negative NOMINAL growth in the 3-18 month to come, there is room for yields to widen a bit. Note also that leases will have to be capitalized in

the balance sheet according to a new FASB proposal. This will increase, substantially for some sectors, their absolute and relative (debt/equity)

indebtedness.


Lastly if one look at absolute yields, there is nothing to be exited about. We prefer to buy high quality high dividend paying stocks. You have

an implicit inflation hedge and the capital gains prospects are larger


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5Bonds: Default HistoryTable 2

Chart 3 Moodys US Speculative Grade default Rate High Yield 5 Years Default Priced by the

CDS Market


High yield and emerging markets default risk priced by the CDS market has decreased substantially . 544 bps (for the US high yield bonds)


w t a 30% recovery rate mp y a 31.2% 5 years cumu at ve e au t w c s ower t at t e 2 prev ous pea s sprea s wou nee to w en y more

than 100 bps) and much lower than the peak in the 30s (spreads would need to widen by more than 400 bps).

The problems identified for investment grade bonds apply here too.


n


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6Bonds: Default History


One should keep in mind that the percentage ofhigh yield bonds issued near the end of the credit bubble in 2007 which were rated Caa and

below was the highest in history.

Those bonds have a very high default propensity (not that the chart above is not 5 years cumulative default as the previous ones but yearly default).


This time it wont be different.


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7Bonds: FundamentalsDevelo ed Economies Nominal Interest Rates and Develo in Economies Nominal Interest

Chart 5Chart 4

Growth Rate Relationship

Rates and Growth Rate Relationship

Source: UBSSource: UBS

We have demonstrated in the past that the US 10 years government bond yields levels and change have a high correlation with the GDP

nominal growth.

On the charts above one can see that it is true for developed economies in general (Chart 4) but it is not the case for developing economies (Chart 5).

The graphs are calculated comparing 20 years nominal growth rate to the 20 years average nominal rates.



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8Bonds: FundamentalsJa an Avera e Nominal Growth and 10 Years Ja an OECD Trend Restored Leadin

Chart 7Chart 6

Government Bond Yield

Indicator and 10 Years Government Bond

Yield

On chart 6 one can see the relationships between Japanese nominal GDP growth and nominal 10 years yields. Note the downside acceleration

Source: OECD, Clue6Source: BOJ, Clue6

when YoY growth move below 0.

The lower the average nominal growth, the more sensible yields become to the macro cycle . Ten years yield are topping at the same time as

leading indicators (chart 7)



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9Bonds: FundamentalsUS Avera e Nominal Growth and 10 Years US OECD Trend Restored Leadin

Chart 9Chart 8

Government Bond Yield

Indicator and 10 Years Government Bond

Source: Federal Reserve, Clue6 Source: OECD, Clue6

.

If those were the only things to think about, forecast would almost be easy but

you have to add the current real debt burden and the banking crisis/debt crisis historical relationships which should eventually lead to a rapid

structural move u in ields our central case is that this is not et somethin eo le should worr about for the US at least



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10Bonds: FundamentalsFiscal Imbalance as a

Chart 10Table 3 US Government Debt to GDP Ratio

Percentage of GDP (2004)

It is not the towering sail, but the unseen wind that moves the ship.

Source: Measuring the Unfunded Obligations of European Countries J. Gokhale Source: Federal Reserve, Clue6

Dont be fooled, when the public realize that they will never get what they have been promised, behaviors will change and this is not going

to be good for growth and risky assets.

On chart 10 one can see a debt to GDP ratio for the US including state and local debt and GSE debt (if you want to know why the GSE are


, .


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11Bonds: Fundamentals

Source: M. Reinhart and K. Rogoff

note.

Banking crisis are expected to be followed by debt crisis with a lag as the fiscal costs ultimately overwhelm the capacity of affected countries to

repay their foreign owned debt.


So be prepared for sovereign stress to continue and dont chase yields where risks are too high. The most successful investors are those who do

not lose money.


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12Bonds: FundamentalsGreece CDS Im lied Default Probabilit assumin 60% S ain CDS Im lied Default Probabilit

Chart 12Chart 11

recovery rate) (assuming 60% recovery rate)

Among the developed economies, the day of reckoning will hit Europe first (Japan should be monitored attentively too).

Source: Bloomberg, Clue6 Idea: P. Schwartz Source: Bloomberg, Clue6

s one can see, e uropean nanc a a y ac y announcemen as ecrease e mar e pr ce pro a y o a e au n e

short-term for countries like Greece and Spain (Chart 11-12) but the long-term probability have increased.

As said when the announcement was made, we find it easy to promise money to bail out a country when one believe that we will never have to bail

one out but what happen if countries have to be bailed out (Greece is manageable but Spain isnt, Greece, Portugal and Ireland together barely and


w o rea y n e om nos w s op o a . e en resu s a p ung ng uro an en a sappear ng one , e res ruc ura on an ra ca y

lower standard of living in most countries (and dont expect the masses to stay quite)


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14Bonds: SentimentChart 14Chart 13 TLT and Conference Board Interest Rate Survey Strategists Bond Allocation

A net 30% of people surveyed by The Conference Board are expecting rates to rise in the next 12 months (Chart 13). As one can see they were

Source: Bloomberg, Clue6Source: Conference Board, Clue6

most bullish at the start and end of 2008 just when yields were making lows. We are still far away from levels where we would rate optimism

exuberant

Strategists have sharply lowered their recommended allocation to bonds since the start of 2009 (Chart 14) but we are probably near the bottom

of a new range.



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15Bonds: SentimentJP Mor an Treasur Investor all

Chart 16Chart 15 ML Fund Managers Survey on US Bonds

Clients Net Long Survey

Source: Merrill Lynch

A net 25% of managers pooled by Merrill Lynch are underweight bonds (Chart 15) and more than 60% are expecting long-term rates to be


g er n mon s.

JP Morgan Treasury Investor Sentiment all Clients Net long survey (% net long - % net short) is just shy of 10 (Chart 16).

Note that the clients surveyed have been more often right than wrong at turning points



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16Bonds: SentimentTLT and R dex Short US

Chart 18

Government Bonds Funds AssetChart 17 US Long Bond Future and its Put Call Ratio

The Long Bond future PC ratio is low and thus not as supportive as it was in the past few months (Chart 17). It should even be rated as bearish .

Source: Rydex, Clue6Source: Bloomberg, Clue6

Assets in the Rydex Short Government Bond funds have decreased substantially but this is due to the underlying performance rather than net

funds selling (Chart 18).

Note that the last time we really had net selling despite yields falling was at the 2007 ten years treasury yields top.



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17Bonds: SentimentChart 20 HYG Shares OutstandingsChart 19 TLT Shares Outstandings

TLT shares outstandin have been risin ver ra idl durin the recent correction chart 19 . Similar frantic bu in have been usuall

Source: Bloomberg, Clue6Source: Bloomberg, Clue6

witnessed at bottoms.

HYG shares outstanding have also been increasing at a very rapid pace (chart 20). They have not declined during the last correction as they

have in the past. Feels like too much money pouring in and the rest of our analysis is giving the same impression By the way corporation have

noticed and are ivin investor what the want a er.



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18Bonds: SentimentUS 10 Years Treasur Yields and Tbonds Commercials US 10 Years Treasur Yields and 10 Years Tresur s

Chart 22Chart 21

and Non Reportable Net Future Position

Commercials and Non Reportable Net Future Position

Commercials are now net shorts Tbonds for the first time since the middle of 2008 (Chart 21) while non-reportables are net long. Commercials


ave s or ca y een e smar money u ey can e wrong as ey were e ween - . e w s ar o worry e pr ce ren e er ora e

and the commercials/non-reportables configuration remains the same.

Both commercials and Non Reportable have sharply decreased their net position on the 10 years treasury(Chart 22). Commericals remain net

long while non-reportables have switched to a net short position. Yields have had a tendency to start meaningful decline when both have


.


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19Bonds: Sentiment Smart MoneyUS Government Bonds 10 + Total Return and Wasatch- ML Hi h Yield Master II and Loomis Sa les

Chart 24Chart 23

Hoisington US Treasury Beta Exposure

Institutional High Income Beta Exposure

There are many good bond investors but there are 2 which consistency has always fascinated us .

Source: Clue6Source: Clue6

On Chart 23 one can see that V. Hoisington has decreased its exposure to the US long bonds on the recent rally. It still remains at the top of its

pre2009 range.

D. Fuss has been a buyer on the most recent decline (Chart 24). Its exposure is in the middle to upper of the historical range.



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20Bonds: LiquidityGovernment Bonds as a Percenta e of Commercial

Chart 26Chart 25 10 Years Treasury and Yield Curve

Banks Total Assets

There are many investors worrying about who will be left buying the bonds issued by the US Treasury (and others finance ministries around the

Source: Bloomberg, Clue6Source: Federal Reserve, Clue6

. -

2.5x the public one in the US) but there are potentially huge pool of demand.

Commercial banks will probably increase dramatically their Treasury investment (Chart 25), both because they will have to (new regulations)

and because they will us the carry between long and short rate to build up capital at low risks (Chart 26).


This is what happened in Japan and in other countries (US included) in past similar configuration.


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21Bonds: LiquidityChart 28Chart 27 ICI Bond Mutual Fund Assets and Net Cash FlowUS Households Net Buying of Treasuries

Households will also continue to reallocate toward fixed income investments as we demonstrated in 2007 (Chart 27) Only 9-10% of their assets

Source: ICI, Clue6Source: Federal Reserve, Clue6

are in fixed income securities Retiring boomers will see more attraction in stable cash flows as opposed to capital gains (and they haven't

made a dime on this in the past 12 years...)

Fixed income mutual fund buying (Chart 28) has been concentrated in the corporate bonds mutual funds demand will slowly be moving toward

government bonds now that yields have been rising and corporate spreads declined



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22Bonds: Liquidity

Source: Mirae Asset Management

If we take the 1989-1994 cycle has a model, the private domestic sector should buy usd 6.3 tn. Until the end of 2013, more than the usd 5.5 tn.

budget deficit projected and we believe that they will buy substantially more

Something to keep an eye on in the short/medium-term is a potential resurgence of private sector credit demand. The stock private sector


. -


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23Bonds: LiquidityChart 30Chart 29 US TIC Data10 Years Treasuries and Bids

What about foreign demand.

When bu in treasur bonds forei ners have four main variables to consider. First the level of the ields then the relative valuation of the USD the inflation ros ects

Source: Bloomberg, Clue6Source: Clue6

and finally the alternatives.

US long yields are higher than in Europe and Japan while the currency is significantly undervalued. With regard to the inflation variable The Fed has been somehow more

aggressive than the ECB and the treasuries has put a lot of guarantees everywhere which are likely to end up being very costly but the next phase of the economic stress might be

centered in Europe and as such the ECB will have to be aggressive too. Remain the alternatives. Seems that there will be less concurrence from European sovereign bonds in the

medium-term The last alternative is the creation of larger bond markets in various emerging market regions this will happen but slowly so no real influence for now


Note that foreigners have started to buy corporate and Agency bonds again (Chart 30).

B d


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24Bonds: LiquidityChart 31Table 4 Bonds Funds Net Flows QTDBonds Funds Net Flows

Source: BoA, Lipper/AMG, Clue6

Source: BoA, Lipper/AMG, Clue6

oo ng at net n ows nto on un s, one can see t at ore gn on s rema n very popu ar ta e an art anot er s gn o extreme

negativism toward the USD).


B d


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25Bonds: Liquidity RefinancingChart 33Chart 32 US High Yield and Leveraged Loans Maturity Schedule EUR High Yield and Leveraged Loans Maturity Schedule

We have been talkin a lot about the refinancin roblematic since last autumn It is oin to be HUGE. Soverei n hi h ield cor orate

Source: BarclaysSource: Barclays

bonds, leveraged loans (Chart 32 and 33),

Banks have also huge refinancing ahead and they have an historic low average maturity for their debt. European banks needs more than eur

700 bio. by the end of 2013 to roll over and pay interest on their debt . What if they are starved of short-term funding Basel III was a relief as

re uired covera e ratios were below the lowest forecasts a relief for banks but not for tax a ers down the road .


B d


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26Bonds: Liquidity RefinancingChart 35Chart 34

Schedule: Current vs. Historical

Current vs. Historical

Source: MLSource: ML

We have also noted that the maturity length has been declining in the past 5-6 years, notably in the leveraged loan sector.

This can be clearly seen on the chart 34 and 35.


B d


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27Bonds: Liquidity RefinancingChart 36 CMBS Maturity Schedule

Source: Deutsche Bank

An ere one can see w at CMBS maturities oo e


B d i idi


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28Bonds: LiquidityEmer in Markets Bonds uarterl BondUS uarterl Hi h Yield Bond

Chart 38Chart 37

Issuance (US bn.)

Issuance (US bn.)

But one also has to take into account the huge issuance of fixed income paper which has, as will be shown on next page, been mainly used torefinance existin debt.


On Chart 37 and 38 one can see that there is as much junk bonds being sold today as during the heyday of 2007 while emerging markets bonds

issuance is making records after record.

Our uess is that investors will re ret their thirst for ields


Bonds: Li idi R fi i


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29Bonds: Liquidity RefinancingChart 40Chart 39 2010 First Half High Yield Issuance Purpose

Refinancing and Maturity Schedule

Source: Morgan StanleySource: Moodys

Moodys has estimated that up to 64% of the first quarter high yield issuance (and even more in 2009) has been used to refinance debt and

extend maturity c art 39 .

This has pushed backward the refinancing time bomb we have been discussing in the previous pages (chart 40).


Bonds: Li idit R fi i


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30Bonds: Liquidity RefinancingChart 42Chart 41 Europe Bonds Net Issuance Calendar Eastern Europe External Flows

As one can see, the refinancing issue is not limited to corporate but also sovereign bonds.

Source: IMF

Source: MS

Where will the money come from? We do not know Expect higher real yields, higher spreads and much more bankruptcies than currently

discounted by the market. Watch for failed auctions as catalysts.

This is going to be THE ISSUE in the next 2-3 years and remember that government can not afford this inevitable crisesWe will have time to


wr te muc more a out t s ssue ater

31Bonds: Q tit ti E i 2


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31Bonds: Quantitative Easing 2

Fed buys Treasuries

US Back end of the Treasury curve falls

US Dollar fallsUS Mortgage prepayment rise if

Fed MBS holding fall

Foreign Central banks buy USD to

weaken/limit the rise of their own

currenciesUS Government Yields fall

Source: Clue6

Intervention proceedsinvested in Treasuries

Gold bugs surely hope the Fed will embark on QE2


32Bonds: Breadth


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32Bonds: BreadthChart 44Chart 43 Investment grade Cumulative Advance-Decline Line High Yields Cumulative Advance-Decline Line

Source: IMF

Source: MS

The high yield and investment grade bonds US advance-decline line is still in synch with the markets.


33Bonds: Breadth


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33Bonds: BreadthChart 46Chart 45 High Yield Bonds Fosback High-Low Index High Yield Bonds New High as a % of Total

Source: IMF

Source: MS

.

But note that the high yield indices are making new highs at the same time as the % bonds making new highs is declining (Chart 46). It is hovering

just above the 5% zone where high yield bonds indices have tended to suffer.


34Bonds: Seasonality


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34Bonds: SeasonalityUS hi h Yield Bonds TRUS Treasur Bonds 7-10 ears TR

Chart 48Chart 47

Seasonality (since 1990)

Seasonality (since 1986)

Source: Clue6Source: Clue6

.

High yield bonds seasonality pattern is similar as the stock market (Chart 48).


35Bonds: Intermarket


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35Bonds: Intermarket

10 Years yield have a tendency to fall when 5 year forward 5 year real yield rise above 2.5%. Well it worked again, like a charm and we are

creaping back to those levels

The ECRI, other leading indicators and J. Hussman recession models remarks made in the equity section have the opposite implication for bonds.


- . , ,

paribus seems far fetched for Europe, the UK and ultimately Australia.

36Bonds: Demographic


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36Bonds: DemographicChart 49 10 Years Treasury Yields and Demography

Source: Emphase Finance

We w wr te more a out t s n t e uture ut su ce to say t at pure y emograp c mo e s are not avora e or on y e s

The proportion of retirees will rise faster than those saving a lot


37Bonds: Graphs


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37Bonds: Graphsears overnment on e

Shoulder

Shoulder

Shoulder

Shoulder

Head

Head

There were a lots of talks about a potential inversed Head & Shoulders secular bottom in the 10 years US yield. This was also the case in 2005 .

We are still in a secular bull market, make no mistake. There will be time to get structurally bearish but not now


38Bonds: Graphs


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38Bonds: Graphs

Ten year yield are pulling back to the 2.8-2.9 resistance where some demand should reappear.

While there were many sign of short to medium term excesses in mid-August most have been corrected since.


e are ac ca y uyer reasury uyer on a mover e ow . or on a move o . - . .

39Bonds: Graphs


40/45

o ds: G ap sEuro 10 Years Government Bon Y e

We would avoid European bonds for now.

For the pure technician we are at resistance and we would be buyer on a move below 2.35 or in the 2.65-2.8 range.


40Bonds: Graphs


41/45

p

UK 10 Years Government Bon Y e

We have said since 2007 that the UK would face a very serious fiscal crisis which would potentially need the intervention of the IMF. We still

believe it. Lets see how it copes with a rapidly falling residential real estate market in the next 6-24 months.


41Bonds: Graphs


42/45

p

ares oxx g e orporate on un

Moodys BAA Yields

The trend is up but

Do not forget that while spreads have yet to reach historic lows, absolute yields are at secular lows.

Do ou feel ou are com ensated for the risks? We do not. This can be frustratin to sta out at this uncture but the reward reserved cash to


buy at much wider spreads and fatter yields) is worth the discomfort.

42Bonds: Graphs


43/45

p

ares organ merg ng ar ets on un

ML Emerging Markets

Sovereign Plus Yields

There will be great opportunities coming but now we want to continue to observe the market from the outside.

We know that there will be better opportunities when we hear people talking about the fantastic opportunities in Ghana domestic bonds yielding 5

and something percent.


When time comes and the baby is thrown with the bath water we will be heavy buyers as we have sometimes in the past.

43Bonds: Conclusion


44/45

US Government bonds are not a bubble. They are probably not a good B&H investment but they are behaving rationally. They correlation withnominal GDP growth will continue to rise as long as the economy will be in a balance sheet recession with deflation showing its ugly face on every

slowdown...

Yields have resumed their downtrends as expected when the leading indicators started to soften. As with equities, the business cycle will rule.

On the inflation/deflation debate we did not have the feared short-term inflation scare that would pave the way to a new wave of deflation and,

further down the road, inflation or more. Emerging market are experiencing one (food price inflation and its social consequences) and, as in 2008,

w orce au or es o g en prec se y a e wrong me.

Careful analysis of government and Central Banks words and acts will be needed as there remain a risk that they will try to inflate the problems

away more quickly than anticipated. QE2 might be soon a reality and while its effectiveness in pushing rate lower is still to be proved, if it does it

could be the trigger to a new round of competitive devaluation around the world (which ironically will push US government bond yields lower and

.

On the potential of QE2 to solve the challenge facing the US economy (and similar policies elsewhere) our response is a categorical no foreconomies in the middle of a balance sheet recession. Fiscal policies yes, monetary policies no (but one has to remember that the Fed, when it

guaranteed and bought GSE MBS, was in fact making an unconstitutional fiscal policy, not a monetary one)

The fact that AUSTERITY is on every politicians mouth seems to strengthen the case for deflation now and inflation laterin desperation.

Corporate and Emerging market bonds spreads have contracted in the past few weeks . Dont be fooled, while spreads

, .

today than at the high of the credit bubble in 2007. Beware

Sentiment analysis is inconclusive for government bonds after having showed signs of short-term excessive optimism in August. While we

are seeing excess on the corporate and sovereign high yield (not so high yield) space.


44Bonds: Conclusion


45/45

On the liquidity side, banks and public demand should be more than sufficient to absorb public issuance, for now. Refinancing needs at the highyield corporate, banks and emerging markets side are likely to pose a much greater risk in the future but companies/countries have/are

profiting from the current investors thirst for yields to refinance and lengthen the duration of their repayment schedule. While many

emerg ng mar e s are n muc e er s ape an - years ago, ey s rema n epen an on ows rom e , urope an apan. ur ermore

never underestimate the power of crowd dynamic in this area of the market. Stress in Eastern Europe or inside the EU will have dramatic domino

effects especially when, as we have documented in the past, more than 70% of the loans to emerging markets have been made by European financial

institutions.

s w prov e a an as c uy ng oppor un es. you ave o e ong or you can o re a ve va ue, avor opera ng everage aga ns

financially leveraged countries.

Seasonality is still favorable for government bonds and negative for more risky bonds.

, .

resistances where we would be buyer on weakness (yield weakness) or on further strength. We are seller of covered upside price volatility on

excessive price strength.

Corporate and emerging market bonds trends are rising. We prefer to be on the sideline. Remember that it is sometimes better to be out of the

.

Sometimes less yield is better.


Documents

Fourth Quarter 2010 Gtaa Fixed Income