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Deutsche Bank Research

Global

Economics Rates Inflation

Date 23 January 2015

DB Inflation Report

Weekly Inflation Update

________________________________________________________________________________________________________________

Deutsche Bank AG/London

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.

Markus Heider

Strategist

(+44) 20 754-52167

[email protected]

Alex Li

Research Analyst

(+1) 212 250-5483

[email protected]

Global Long-end USD/EUR B/E spreads are 4 standard-deviations below 2y averages and the USD 10y30y B/E curve looks very flat relative to the level of 10y B/Es.

EUR inflation watch ECB reduces the downside risks to the inflation outlook. In terms of 2016 or 2017 expectations the 7%+ FX depreciation since December should more than offset the effects from the 30% drop in oil prices over the same period.

EUR ECB, FX, valuations and better data against political risk, oil uncertainty and downside risks to near-term inflation prints: on balance, the macro backdrop may justify a cautiously positive stance on 5y EUR cash B/Es.

GBP RPI momentum remains weak and the BoE minutes have added to concerns about downside risks, we are neutral on 5y. At the long-end, we see upside for B/Es given low valuations, and remain biased towards steepeners.

USD The 10y sector looks rich on the inflation curve. We recommend selling the rich 1/2026 TIPS. The flattening in the 10y30y breakeven curve this week made the long end more attractive to 10y.

EMEA We recommend overweighting ILBs in Israel, Turkey and Poland, but remain neutral on B/Es in South Africa for now.

Inflation Markets

Bond Yld BEI 1M fwd ASW ASW discnt

ZC Rate Sprd ZC-BEI

CPI/ RPI

fcst

US CPI

TIIJan20 -0.04 1.36 1.51 -1 13 5y 1.50 14 spot 0.8

TIIJan24 0.22 1.55 1.64 11 21 10y 1.85 30 Jun-15 -0.8

TIIFeb44 0.61 1.75 1.79 38 30 30y 2.07 32 Dec-15 0.7

EA HICPxt

OATei20 -0.61 0.70 0.84 -3 17 5y 0.77 6 spot -0.2

OATei24 -0.55 1.03 1.13 2 17 10y 1.23 20 Jun-15 -0.3

OATei40 -0.13 1.42 1.48 64 42 30y 1.81 38 Dec-15 0.5

FR CPIxt

OATi19 -0.73 0.74 0.74 6 27 5y 0.97 23 spot 0.0

OATi23 -0.70 1.10 1.10 13 30 10y 1.42 33 Jun-15 -0.1

OATi29 -0.47 1.34 1.34 51 48 20y 1.81 47 Dec-15 0.5

UK RPI

UKTi19 -1.42 2.33 2.35 4 29 5y 2.69 36 spot 1.6

UKTi24 -1.04 2.49 2.50 24 32 10y 2.89 40 Jun-15 1.4

UKTi44 -0.97 3.11 3.12 54 27 30y 3.30 19 Dec-15 2.2

Source: Deutsche Bank

Change in breakevens, US & UK

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

5y 10y 20y 30y 5y 10y 20y 30y

1W change in BEI

carry adjusted

GBP USD

Change in breakevens, EUR & FRF

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

5y 10y 20y 30y 5y 10y 20y 30y

1W change in BEI

carry adjusted

EUR FRF

ILB rich/cheap v nominals

0

5

10

15

20

25

30

35

40

2014 2019 2025 2030 2036 2041

GBP DEM

USD FRF

Rich (-) / cheap (+) vs nominal




23 January 2015

DB Inflation Report: Weekly Inflation Update


Global

USD and EUR B/Es widened this week as some stabilization in oil prices as well as—for the latter—building expectations and confirmation of ECB action were positives. GBP B/Es underperformed as BoE minutes put some focus on the downside risks of low spot inflation. Brent has now stayed within a USD3 band for two consecutive weeks, which may raise expectations of some stabilization going forward. Should the latter materialize shorter-end B/Es globally would have upside in our view, given 1y swaps still about 20bp – 40bp below our baseline CPI forecasts. With spot inflation rates expected to fall to very low levels in the coming months, the uncertainty about the magnitude of indirect effects may however mean that the market will continue to price in some downside risks relative to forecasts for now. Across markets the main trend has recently been the outperformance of EUR B/Es and under-performance of USD B/Es. While GBP/EUR B/E spreads are relatively close to past averages, USD/EUR spreads across the curve now stand below two-year means (chart 3). At shorter maturities this may partly be explained by currency trends as well as the higher oil sensitivity of US CPI, but spreads look particularly tight at the long-end, in 30y some four standard-deviations below averages (chart 3). This is despite core inflation being closer to target and domestic economic trends closer to potential in the US, but of course likely to be related to divergence in policy, with Fed communications so far still consistent with a potential start to policy rate normalization around the middle of this year, despite the recent downward revisions to the medium-term inflation outlook. We find 5y5y as well as 30y USD/EUR B/E spreads too tight, but would be reluctant to fade this in the current context; we maintain our long EUR 1y1y B/E v short USD 1y1y real rate policy divergence trade. The unusual flatness of the US curve can also be seen by comparing (CPI swap) curve spreads to past averages, which shows 10y30y unusually flat (and 10y rich v 5y and 30y; chart 4). This is particularly true when taking into account the low level of B/Es (chart 2), with the residual of the regression of 10y30y on 10y at 1y lows (5y10y also looks somewhat flat v 5y B/Es; chart 2). We would see scope for 10y30y B/Es to steepen.

Markus Heider (+44) 20 754 52167

3. USD/EUR B/E spreads below averages, esp at long-end 4. USD 10y30y CPI flat, 5y10y30y high v past averages

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2Y 5Y 10Y 30Y 2Y 5Y 10Y 30Y 2Y 5Y 10Y 30Y

3m 6M

1Y 2Y

USDEUR GBPUSD GBPEUR

CPI swap spreads: z-scores

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2Y5Y 5Y10Y 10Y30Y 2Y5Y10Y 5Y10Y20Y 5Y10Y30Y

3m 6M

1Y 2Y

USD CPI swaps: z-scores



1. EUR B/Es rise strongly

-10

-5

0

5

10

15

20

25

30

35

40

5y 10y 20y 30y

EUR FRF

GBP USD

1w change in BEI on 22-Jan, carry adj., bp

2. USD 10y30y B/Es too flat v 10y

-20

-15

-10

-5

0

5

10

2y5y 5y10y 10y30y

residual, B/E slope = f(B/E level)

stdev Max Min -stdev Last yday

US CPI, 1y regression



23 January 2015



EUR inflation watch

The ECB measures announced this week should reduce the downside risks to the euro area inflation outlook. First, the decision to explicitly link the duration of balance sheet expansion to the inflation outlook should support inflation expectations, and hence reduce the risk of persistent effects on wage and price setting from currently low spot inflation. Breakeven inflation rates have rebounded, both at shorter and longer maturities (but remain at depressed levels; chart 1). Second, this week’s policy announcements have accelerated the pace of currency depreciation, with the trade-weighted EUR down more than 7% since last December. The inflation impact of currency changes is uncertain and may be lower in a context of subdued growth trends and low global inflation. Nevertheless, macro models typically suggest the FX effect to be significant and in the range of 0.5% - 1% after two years for a 10% change in the exchange rate. In terms of expectations for 2016 or 2017 inflation this should more than offset the effects from the 30% drop in oil prices since December. Over time, the weaker currency will have a relatively broad-based impact across HICP components: from non-oil energy (chart 2, although there it is unlikely to prevent a fall in inflation given lower oil), food (chart 3), core goods—both via imported consumer goods as well as via higher domestic production costs—(charts 4 & 5), as well as services (chart 6). Business surveys suggest that for now the commodity effects are dominating however.

Markus Heider (+44) 20 754 52167

3. FX v HICP unprocessed food 4. FX v imported core goods prices -25

-20

-15

-10

-5

0

5

10

15

20-4

-2

0

2

4

6

8

10

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

HICP unprocessed food, % y/y

TW EUR, % y/y, 12m lead (rhs, inverted)

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0-20

-15

-10

-5

0

5

10

15

20

2005 2007 2009 2011 2013 2015

Trade-weighted EUR, % y/y (lhs, inverted)

Import prices core consumer goods, % y/y (rhs)

Source: Deutsche Bank Source: Deutsche Bank

5. FX v HICP core goods 6. FX v HICP recreational & personal services

-0.5

0.0

0.5

1.0

1.5

2.0

2.5-25

-20

-15

-10

-5

0

5

10

15

20

1998 2001 2004 2007 2010 2013 2016

Trade-weighted EUR, % y/y, 18m lead (lhs, inverted)

HICP core goods, % y/y (rhs)

-25

-20

-15

-10

-5

0

5

10

15

200.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

HICP recreational & pers services, % y/y

TW EUR, % y/y, 18m lead (rhs, inverted)

Source: Haver, Deutsche Bank


1. Breakevens off the lows

0.3

0.8

1.3

1.8

2.3

2.8

Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14

5y5y

5y

EUR HICP swaps

2. FX v HICP non-oil energy

-30

-20

-10

0

10

20

30-10

-5

0

5

10

15

20

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

HICP non-oil energy

EURUSD, % y/y, 3m lead (rhs, inverted)



23 January 2015



EUR EUR B/Es across all markets and maturities rallied strongly into and following the ECB policy announcement this week; real yields declined, especially for BTPei and SPGei (chart 1). Several factors have recently turned more positive for B/Es: (1) The step-up in ECB support is significant; the pace and magnitude of expected balance sheet expansion is above expectations and the duration of the program is explicitly linked to the inflation outlook, which should provide ongoing support for B/Es. The 5y5y GDP-weighted real yield has fallen to the levels seen in the US at the time of ‘QE eternity’ (around -25bp); US B/Es have persistently traded rich to our fundamental models between summer 2012 and May/June 2013, pointing to some additional support from Fed ‘QE’. (2) The currency depreciation has accelerated strongly since December, with the trade-weighted EUR down 7% from last month and about 10% over the past year. Macro models would suggest that a 10% depreciation could add 0.5% or more to inflation over two years. (3) Economic data has turned more supportive. Data surprise indicators—which had trended lower between late 2013 and Q4 last year—have recently been rising (chart 5), and Q4 GDP trackers have moved up to 0.3% q/q. Perhaps more importantly, the latest bank lending survey published this week is consistent with improving growth in domestic demand, and especially in investment spending (chart 2), which had been disappointing in previous quarters; trends in German capital goods orders convey a similar message (chart 3). (4) Finally, ECB purchases of ILBs could provide some flow support for B/Es in the coming months, although this will depend on the proportions in which buying will take place. Swap-bond B/E spreads have (mostly) tightened this week and we would continue to prefer cash over swap B/Es for now.

Meanwhile, B/E valuations remain relatively low against economic indicators, but have moved back in line with commodity/spot inflation trends (chart 4). 1y swaps remain about 40bp below forecasts and 1y1y at 70bp—though now close to 35bp above the lows seen in early January—still imply a slowdown in core inflation of 0.5pp or more until October 2016 assuming oil prices in line with market futures and some normalization in fresh food inflation. On the other hand, the near-term downside risks for B/Es include further declines in oil prices, an increase in risk aversion on the back of the Greek election, as well as the weakness in the spot inflation trend which could produce further downside surprises in the coming months. On balance, the macro backdrop may justify a cautiously positive stance on 5y EUR cash B/Es.

Markus Heider (+44) 20 754 52167

4. 5y B/Es back in line with commodities/spot inflation 5. Data surprise indicator has been improving

0.0

0.5

1.0

1.5

2.0

2.5

Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14

DEMBE5Y

fitted, f(oil, agriculture, metals, spot HICP)

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

-150

-100

-50

0

50

100

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

EUR data surprise indicator (lhs)

OATei implied 10y ZC BEI

Source: Deutsche Bank Source: Deutsche Bank

1. EUR B/Es rise

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

DB

Re

i16

OB

Lei1

8

DB

Re

i20

DB

Re

i23

DB

Re

i30

OA

Tei1

8

OA

Tei2

0

OA

Tei2

2

OA

Tei2

4

OA

Tei2

7

OA

Tei4

0

BTP

ei1

6

BTP

ei1

8

BTP

ei2

4

BTP

ei2

6

BTP

ei4

1

SP

Gei1

9

SP

Gei2

4

BEI

Real Yld

Nom Yld

1w change on 22-Jan, carry adj., bp

2. BLS positive, consistent…

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

-80

-60

-40

-20

0

20

40

2004 2006 2008 2010 2012 2014

BLS loan dmd for investment

EUR ex constr investment % q/q

3. … with trends in orders

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

-12

-7

-2

3

8

13

2010 2011 2012 2013 2014 2015

German core capital goods orders from EUR

EUR ex constr investment % q/q

Source: Destatis, Eurostat, Deutsche Bank

Source: ECB, Eurostat, Deutsche Bank


23 January 2015



GBP This week saw strong curve moves in the IL gilt market with real yields flattening and B/Es steepening; at shorter maturities, nominal-real yield betas were negative, while nominal-B/E betas were negative for longer maturities (chart 1). Several factors weighed on front-end B/Es: (i) Two more utility providers announced retail gas price cuts, with the average reduction (4.7%) somewhat stronger than expected. With no cuts in electricity prices expected, this will take off about 0.1pp from RPI. We continue to expect RPI inflation to move towards 1% in the coming months. (ii) Policy rate expectations fell after dovish minutes of the January BoE meeting, which may have weighed on projections for MIPs inflation. Moreover, the minutes put additional focus on the potential risks associated with unusually low spot inflation. (iii) November wage inflation was lower than expected, with earnings down 0.2% m/m. This follows three strong monthly pay increases so some slowdown in momentum should not have been a surprise and the three month run-rate remains about in line with leading indicators, which point to a further acceleration in Q1 (chart 2). Still, another weak outcome in December would likely lead to renewed doubts about wages following leading indicators higher as well as about second round effects from lower oil prices. Shorter-end B/Es have moved about in line with trends in commodities, sterling and spot inflation (chart 3), and given the expected near-term weakness in spot inflation, we would be neutral for now, despite some signs of stability in oil and some cheapness against RPI forecasts.

We continue to see some upside for long-end B/Es into next week’s IL2058 syndication. The 10y30y or 10y40y B/E curve looks flat against the level of 10y B/Es, and long-end forward B/Es remain at post January 2013 formula effect clarification lows (chart 4). 30y10y in particular has fallen below 3.2% in swaps (we estimate to about 2.9% in cash), which is low when compared to (i) historical averages (2y lows, chart 4), (ii) other sectors on the curve (10y10y and 15y10y above 3.6%, chart 4) or (iii) long-run RPI inflation implied by the BoE’s CPI target and estimate of the long-term RPI/CPI wedge (3.3%), pointing to an unusually low inflation risk premium. The relative cheapness in 30y10y may also reflect the recent concentration of bond supply in the 40y sector as well as the skew of pension hedging demand towards somewhat shorter (20y-30y) maturities. Still, we would see medium-term upside for long-end B/Es.

Markus Heider (+44) 20 754 52167

3. 5y B/Es in line with commodities, FX and spot RPI 4. Long-end forward B/Es low, especially 30y10y

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14

GBPBE5Y

fitted, f(FX, commodities, spot RPI, formula effect dummy)

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

10y 10y10y 15y10y 20y10y 30y10y 40y10y

spot 75% quart max min 25% quart

GBP RPIswap rate RV since 1-Feb-2013



1. B/E curve steepens

-10

-8

-6

-4

-2

0

2

4

6

UK

Ti1

7

UK

Ti1

9

UK

Ti2

2

UK

Ti2

4

UK

Ti2

7

UK

Ti2

9

UK

Ti3

2

UK

Ti3

4

UK

Ti3

7

UK

Ti4

0

UK

Ti4

2

UK

Ti4

4

UK

Ti4

7

UK

Ti5

0

UK

Ti5

2

UK

Ti5

8

UK

Ti6

2

UK

Ti6

8

BEI Real Yld Nom Yld

1w change, on 22-Jan, cary adj, bp

2. 3m wage growth in line with LI

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2001 2003 2005 2007 2009 2011 2013 2015

AWE, priv ex bonus, % q/q

Vacancies

REC wages

BoE agents capacity constr



23 January 2015



USD

10-year TIPS auction had strong customer demand this week, with a record 74% in direct and indirect bidder participations.

The 10-year sector looks rich on the inflation curve. We recommend selling the rich 1/2026 TIPS. The flattening in the 10s-30s breakeven curve this week made the long end more attractive to 10s.

In our inflation forecast, we expect the headline CPI to post a 0.7% decline in January from December’s level, and the year-on-year CPI to be negative from January to October 2015.

10s look rich; sell the rich 1/2026s; 30s look cheap

The 10-year sector looks rich on the inflation curve against 5s and 30s. The 5s-10s-30s spread is in the high end of the recent trading range. Both the 1/2025 and 1/2026 TIPS have outperformed recently, and appear rich on our spline models and asset swaps. The richening of the 1/2025s might be related to its inclusion in the one- to ten-year TIPS index by month’s end. The 1/2026 TIPS won’t be part of the one- to ten-year TIPS index for another year. We recommend selling the rich 1/2026 TIPS.

10s look rich on breakeven curve

-10

0

10

20

30

40

1/1/13 4/1/13 7/1/13 10/1/13 1/1/14 4/1/14 7/1/14 10/1/14 1/1/15

5s-10s-30s TIPS BE spread

Source: Bloomberg and Deutsche Bank

Rich issues on TIPS spline and asset swaps


23 January 2015



The flattening in the 10s-30s breakeven curve this week made the long end more attractive to 10s. We recommend selling 10s to buy 30s on a breakeven basis.

10s-30s breakeven curve flattened this week

-0.1

0.0

0.1

0.2

0.3

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15

10s-30s BE

Source: Bloomberg and Deutsche Bank

10-year TIPS auction had strong customer demand

Indirect bidders took down 64% of the new issue, second only to their participation in May last year, and compares to their prior year average 55.5%. The direct bidder takedown was up from 8.1% in November to 10.2%, and the combined customer participation was a record 74.1%. As noted in the previous week, multi-year low 10-year breakevens and a flat 10s-30s real curve probably drove the increased interest among customers. The auction came through by 2.5bp on the 1pm bid. The bid-to-cover ratio was soft at 2.39 as compared to the 2.49 average in the last year.

Record customer demand at the ten-year TIPS auction this week

10%

20%

30%

40%

50%

60%

70%

80%

Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14

Source: Treasury and Deutsche Bank

23 January 2015



Ten-year TIPS auction statistics

Size ($bn)

Primary Dealers

Direct Bidders

Indirect Bidders

Cover Ratio

Stop-out Yield

1PM WI Bid

BP Tail

1yr Avg $ 13.7 36.8% 7.8% 55.5% 2.49 0.6

Jan-15 $ 15.0 25.9% 10.2% 64.0% 2.39 0.315 0.340 -2.5

Nov-14 $ 13.0 29.5% 8.1% 62.4% 2.57 0.497 0.503 -0.6

Sep-14 $ 13.0 41.7% 5.7% 52.7% 2.20 0.610 0.565 4.5

Jul-14 $ 15.0 36.6% 10.3% 53.1% 2.49 0.249 0.252 -0.3

May-14 $ 13.0 27.5% 6.3% 66.3% 2.91 0.339 0.360 -2.1

Mar-14 $ 13.0 45.4% 7.9% 46.6% 2.48 0.659 0.650 0.9

Jan-14 $ 15.0 39.9% 8.3% 51.8% 2.31 0.661 0.650 1.1

Nov-13 $ 13.0 31.8% 21.5% 46.7% 2.59 0.560 0.600 -4.0

Sep-13 $ 13.0 44.6% 1.6% 53.8% 2.38 0.500 0.470 3.0

Jul-13 $ 15.0 35.4% 6.9% 57.7% 2.44 0.384 0.404 -2.0

May-13 $ 13.0 30.9% 12.4% 56.8% 2.52 -0.225 -0.240 1.5 Source: US Treasury and Deutsche Bank

Headline CPI expected to fall further in January

The economy appears to be entering a bout of deflation in year-on-year headline CPI starting this month, according to our forecasts. We project prices to decline by an average 0.6% year-on-year over the next ten months. This deflation cycle would appear to last the same as the post-crisis period from March-October 2009. The headline index is expected to decline by 0.7% on a monthly basis in January, following -0.6% in December. If materialized, this would translate to a 0.3% annual decline in the index. The index level would have likely bottomed down in January.

US CPI-U NSA y/y, actual and forecast MoM CPI-U, actual and forecast (non-seasonally-

adjusted)

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

%Y/Y

Projections

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6%MoM NSA

Projected

Source: Bureau of Labor Statistics and Deutsche Bank Source: Bureau of Labor Statistics and Deutsche Bank

Alex Li (+1) 212 250-5483

23 January 2015



EMEA

I/L-bonds waiting for the inflation turnaround – cautious in the near term but current valuation very attractive in the medium-term The current environment has not been favorable for I/L-bonds across the globe. In EMEA, the collapse in energy prices and some lower than expected domestic inflation prints have weighed on B/E levels. In Israel and Poland spot inflation is very low and price pressure should remain in deflationary territory for the next few months. In South Africa and Turkey price pressure should drop further and in fact more rapidly than previously expected.

Despite the risk of further disinflation shocks and the current negative sentiment historical low B/E levels across the region and the QE announcement by the ECB, make overweighting I/L-bonds selectively attractive. We favour to overweight I/L-bonds in the belly in Israel, in the long-end in Turkey and Poland but remain neutral on B/Es in South Africa and wait for better entrance level.

Israel - Keep an overweight in I/L bonds in the belly of the curve, targeting 1.80% in B/Es B/Es have continued its gradual down trend which started in early 2014. However, the sell-off so far in 2015 has been much more muted compared to other EMEA countries. Our overall view on I/L-bonds has not changed. If at all a) the resilience in B/Es despite global disinflation shocks, b) further global monetary easing across the regions and c) the further depreciation of the shekel, have all made B/Es at the margin more attractive. B/Es in the belly of the curve remain attractive given cheap valuation vs historical averages, and other parts of the curve

Poland – Overweight Polgb Aug-23 (B/E target 2.0% / stop 0.60%) Despite already historically low levels at the start of the year B/Es could not fight off external headwinds and have fallen further with 10Y B/Es now trading below 1.00%. Clearly the inflation backdrop remains challenging with spot CPI at very low levels and expected to remain in negative territory now until at least H2-15. While its provides negative carry on I/L-bonds in the near-term we nevertheless believe that 10Y B/Es have reached a level where a further decline would not be justified given a) DB CPI forecast, b) domestic growth dynamics and the still credible NBPs inflation target of 2.5%. Hence, we remain constructive on long-end B/Es and continue to overweight Polgb Aug-23

South Africa - Remain neutral in the near-term but overweight I/L-bonds in 5Y if B/Es below 4.50% and in 10Y if B/Es below 5.25% As a large energy importer South Africa remains one of the main beneficiaries of lower energy prices. Hence, it is not a surprise that B/Es sold off aggressively over recent weeks further supported by another lower than expected inflation print and the rally in nominals. Similar to Turkey, we turn more constructive on I/L-bonds in South Africa in the medium term but see – in contrary to Turkey – more limited potential in the very near term. The main reason is the fact that CPI is expected to fall below current level in B/Es in the coming months. While this reduces the still marginal positive carry and could further weigh on sentiment in linkers it could also trigger rate cuts being negative for B/Es in the very near term

Turkey – Overweight I/L-bonds in the long end best expressed in May-24 and Sep-24 – target 6.50% B/Es across the curve have literally collapsed since YTD. In fact, comparing the current level in B/Es vs. DB-forecasts for the next two years we see that the current levels are not expected to be reached once over the next 24 months. No other market in EMEA shows this persistent divergence between DB forecasts and B/Es. While global disinflation will certainly continue to weigh on sentiment, we believe that a major part of this is already priced into B/Es and current valuation in I/L-bonds looks cheap. The positive external environment could lead to more aggressive easing by the CBT than justified by the inflation prints in the near term, which in turn would generate higher medium-term inflation pressures

23 January 2015



Israel – B/Es have shown some resistance

Inflation update Headline CPI for December was reported at a slightly lower-than-expected -0.2% YoY. This is the fourth consecutive month of negative inflation, as the headline rate remains weighed down by declining fuel and food prices. In MoM terms, CPI remained unchanged; however, after stripping out seasonal effects, prices increased by 0.1% MoM. Inflation outlook Looking forward, we expect YoY CPI to remain in marginally negative territory for the next few months (mainly on the back of weakness in oil prices); further, cuts to water and electricity prices – which have been implemented in January – will also exert downward pressure on the headline rate. We expect inflation to start picking up around mid-year, in response to the shekel depreciation at the end of last year and with food prices expected to recover; we forecast YoY CPI reaching 1% by the end of 2015, averaging 0.4% for the year (well below the BoI’s 1%-3% target range). The risk, however, remains that inflation underwhelms for a longer period, given the weakness in oil prices and the global disinflationary headwinds. B/E overview: YTD B/Es have continued their gradual down trend which started in early 2014. However, the sell-off so far in 2015 has been much more muted compared to other EMEA countries. While in 2014 poor activity data, subdued spot CPI and the rally in nominals caused the sell-off in B/Es, the recent move was mainly driven by global disinflation. As off now, 2Y B/Es are trading at 70bp, 5Y B/Es at 1.15bp and 10Y B/Es remain at 1.80%. B/E recommendation: Keep an overweight in I/L bonds in the belly of the curve with B/E target 1.80% Rationale Despite the challenging outlook in the near term and the negative carry we recommended in our 2015 outlook to overweight I/L-bonds in the belly of the curve. We justified this with the historically cheap valuation, our view that the inflation target of 2.0% remains credible and the recent low inflation pressure to only remain a short-term phenomenon. Since then B/Es have remained quite resistant with B/Es trading only 10bps lower. Our overall view on I/L-bonds in Israel has not changed. If at all a) the resilience in B/Es despite global disinflation shocks, b) further global monetary easing across the regions and c) the further depreciation of the shekel, have all made B/Es in Israel at the margin even more attractive. While we continue to see levels in long-end B/Es in particular relative to Poland as too high we would also dissuade from a risk-return perspective into overweighting I/L-bonds in the short-end given the surrounding uncertainties. However, we favour to overweight B/Es in the belly of the curve given that valuation remains attractive vs a) historical averages, b) other parts of the curve and c) the BoIs medium term inflation target of 2.0%. Comparing current valuation with DB-forecast we see that the level in B/Es should be reached by Jan-16.

CPI profile relative to current B/E levels B/Es on a continuous down-trend since Jan-14

-1.0

0.0

1.0

2.0

3.0

Jan-

13

Apr-

13

Jul-1

3

Oct

-13

Jan-

14

Apr-

14

Jul-1

4

Oct

-14

Jan-

15

Apr-

15

Jul-1

5

Oct

-15

Jan-

16

Apr-

16

Jul-1

6

Oct

-16

CPI YoY current level in 2Y B/E

current level in 10Y B/E

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan/14

Feb/14

Mar/14

Mar/14

Apr/14

May/14

May/14

Jun/14

Jul/14

Jul/14

Aug/14

Sep/14

Oct/14

Oct/14

Nov/14

Dec/14

Dec/14

Jan/15

2Y B/E

5Y B/E

10Y B/E

Source: Deutsche Bank, Haver Analytics Source: Deutsche Bank

Gautam Kalani, (+44) 20 754 57066 /Christian Wietoska, (+44) 20 754 52424

CPI Details Israel

CPI Details Israel YoY Weighting Latest Previous3m

Average2014 2013 LT

core CPI -1.0% -0.9% -0.9% -0.2% 1.0% 1.6%

CPI -0.2% -0.1% -0.2% 0.5% 1.5% 1.9%

Housing 25% 3.1% 2.7% 2.7% 2.5% 3.0% 2.9%

Transport & Communication 21% -0.9% -1.1% -0.9% -1.3% -2.6% 1.1%

Food incl Fruit & Vegetables 17% -3.6% -2.4% -3.0% -0.6% 5.0% 3.1%

Education, Culture & Entertainment 12% 0.4% 0.6% 0.5% 1.3% -0.8% 0.6%

Housing Maintenance 10% 0.0% 0.0% 0.0% 1.3% 4.1% 3.2%

Health 5% 0.8% 0.0% 0.3% 0.6% 1.6% 1.8%

Miscellaneous 4% -0.5% -0.2% -0.4% 1.4% 5.4% 2.6%

Furniture & Home Equipments 4% -3.6% -3.2% -3.5% -3.3% -1.4% -1.5%

Clothing 3% -3.7% -1.0% -1.9% -0.9% -1.4% -1.6%

Source: Deutsche Bank, Haver Analytics

Outstanding Inflation linked bonds

IL Bonds CouponAmount in

shekel

Amount

in USD

Time to

Maturity

B/E

Inflation

ILCPI 0.1 10/31/16 0.10 8.9 2.3 1.77 0.69%

ILCPI 1 05/30/17 1.00 15.5 3.9 2.35 0.67%

ILCPI 3 1/2 04/30/18 3.50 17.9 4.5 3.27 0.69%

ILCPI 3 10/31/19 3.00 15.1 3.8 4.77 1.05%

GALIL 4 07/30/21 4.00 15.4 3.9 6.52 1.29%

ILCPI 2 3/4 09/30/22 2.75 16.1 4.1 7.69 1.44%

ILCPI 1 3/4 09/29/23 1.75 11.3 2.9 8.68 1.58%

GALIL 4 07/31/24 4.00 10.5 2.7 9.52 1.65%

ILCPI 4 05/30/36 4.00 16.1 4.1 21.35 2.82%

ILCPI 2 3/4 08/30/41 2.75 16.9 4.3 26.60 1.99%

Source: Deutsche Bank / Inflation prem. is calculated based on current valuation and DB forecast for inflation / B/Es based on constant maturity curve in nominal government bonds

23 January 2015



Poland –still waiting for the inflation turnaround...

Inflation update: Headline CPI for Dec disappointed once again marginally to the downside coming in at -1.0% YoY vs -0.9% expected and -0.6% in November. The main drag came as expected from energy prices but also from food and clothes. Overall headline CPI averaged 0.0% in 2014 while core-inflation remained at 0.6% in positive territory.

Inflation outlook: As is the case across Central Europe, inflation in Poland has been very low in 2014. The main reasons for the drop in Polish headline inflation in 2014 versus the previous 5-year period are weakness in the food component as well as the rent and energy component. Hence despite our constructive outlook for Polish growth and activity in the coming year, the pickup in inflation is expected to be a very gradual one and inflation should remain subdued by historical standards; continued weak commodity prices, subdued cost pressures and low imported inflation from the euro area will continue to represent a drag on headline CPI. On the back of the recent weaker than expected inflation print DB economics adjusted its inflation projections and now sees inflation climbing back into positive territory only later in Q2 and ending the year still well below target at close to 1.0%. DB economics highlights that a combination of continued domestic demand growth and more helpful base effects on food and fuel should ensure inflation ticks up from Q3. Nevertheless inflation is not expected back at the NBPs 2.5% target during the forecast horizon. DB economics forecasts CPI to average 0.3% in 2015 and 1.5% in 2016.

B/E development in 2014 - B/Es have seen an impressive sell-off over the course of 2014. While 2Y B/Es sold-off by 100bps since the start of the year 10Y B/Es have even dropped by more than 125bp and reached a new all time low at 1.10% by end November. Despite those already low levels B/Es could not fight off external headwinds and have fallen further. 10Y B/Es are now trading below 1.00% for the first time in history while Aug-16 B/E inflation is now at below 0.8%.

B/E Trade recommendations – Overweight Polgb Aug-23 (B/E target 2.0% / stop 0.60%). Rationale: In our outlook publication, we recommended to overweight Polgb Aug-23 given a) their relative resilience against near-term downside surprises in inflation and b) low valuations against (i) historical averages, (ii) the NBP’s medium-term inflation target (2.5%) and (iii) core-Europe B/Es. However, we were stopped out on this position (1.00%). Nevertheless, we highlight that our medium term strategy view on long-end B/Es has not changed. Valuation continues to remain attractive relative to other countries with a similar inflation profile (in EMEA Israel where 10Y B/Es are trading 90bps higher). Is it now the right time to add I/L-bonds? In our view, the inflation backdrop remains challenging with spot CPI at very low levels and expected to remain in negative territory now until at least H2-15. While it provides negative carry on I/L-bonds in the near-term, we nevertheless believe that 10Y B/Es have reached a level where a further decline would not be justified given a) DB CPI forecast, b) domestic growth dynamics and the still credible NBPs inflation target of 2.5%. Hence, we remain constructive on long-end B/Es and continue to overweight Polgb Aug-23 while we continue to dissuade from positioning into short-end I/L-bonds at current valuation.

CPI Details Poland

CPI Details Poland YoY Weighting Latest Previous3m

Average2014 2013 LT

Core CPI 0.5% 0.4% 0.4% 0.6% 1.2% 1.6%

CPI -1.0% -0.6% -0.7% 0.0% 0.9% 2.6%

Food/Non alc. Bev erages 24% -3.2% -2.5% -2.6% -0.9% 2.0% 3.4%

Housing/W ater/Electrici ty/Gas 21% 0.5% 0.6% 0.6% 1.4% 1.9% 4.9%

Transport 9% -6.5% -3.7% -4.4% -2.3% -1.8% 3.0%

Recreation & Cul ture 8% 1.3% 0.6% 0.7% 1.1% 2.8% 0.7%

Restaurants & Hote ls 6% 1.3% 1.3% 1.3% 1.4% 2.2% 3.3%

Alcohol ic Bev erages&Tobacco 6% 3.5% 3.6% 3.6% 3.7% 3.5% 4.2%

Miscel laneous Goods&Serv ices 5% -0.4% -0.5% -0.5% -0.2% 0.7% 1.3%

Heal th 5% -0.6% -0.7% -0.2% 0.2% 1.8% 2.5%

Cloth ing & Footw ear 5% -5.0% -4.6% -4.7% -4.7% -4.9% -5.2%

Furn ish ing 5% -0.2% -0.2% -0.1% -0.1% 0.8% 1.4%

Communication 4% 3.0% 3.0% 1.9% 0.3% -8.3% -1.0%

Education 1% 1.3% 1.3% 1.3% -3.7% -0.3% 2.0%

Source: Deutsche Bank / Haver Analytics


IL Bonds CouponAmount

in Zloty

Amount

in USD

Time to

Maturity

B/E

inflation

POLGB 3 08/24/16 3.00 3.7 1.0 1.59 0.77

POLGB 2 3/4 08/25/23 2.75 2.6 0.7 8.59 0.94


23 January 2015



CPI profile relative to B/E levels Sharpe decrease in B/Es since start of the year?

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Jan/1

3

Ap

r/13

Jul/1

3

Oct/1

3

Jan/1

4

Ap

r/14

Jul/1

4

Oct/1

4

Jan/1

5

Ap

r/15

Jul/1

5

Oct/1

5

Jan/1

6

Ap

r/16

Jul/1

6

Oct/1

6

CPI DB forecast

Current B/E level in Aug-16 Current B/E level in Aug-23

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Jan/1

4

Feb/1

4

Mar/1

4

Ap

r/14

May/1

4

Jun

/14

Jul/1

4

Au

g/14

Sep/1

4

Oct/1

4

No

v/14

Dec/1

4

POLGB 2.75% 25-Aug-23 B/E Inflation

POLGB 3% 24-Aug-16 B/E Inflation


Christian Wietoska, (+44) 20 754 5242

South Africa – don’t catch the falling knife

Inflation update: The surprising fall in the December CPI print (5.3% vs 5.5% expected and 5.8% in Nov) was mostly driven by a mom decline in food prices, which were fairly widespread amongst components. This may reflect the rapid impact of lower fuel prices on the food market, and the extent of competition for market share among retailers. As such, our food inflation forecast of 4.5% this year may be too conservative, especially if oil prices do not back up in 2H15 as we currently expect. A further point to make is the fairly benign increases in core inflation components, where quarterly surveys surprised by printing well below comparable periods. Overall, the details suggest fairly large revisions are in order for SARB forecasts of 5.3% and 5.5% for 2015 and 2016, respectively. Note the SARB expects CPI to bounce up somewhat next year, while core inflation should recede to 5.3% in 2016 - in line with our view. The inflation outlook The outlook for inflation has improved significantly to 4.2%, the lowest level in 10 years. Besides the decline in oil prices, a moderation in global food inflation and a good maize harvest have led to a much improved outlook for food inflation. These developments mean that inflation will be 1.5% lower than previously thought. At current rand and world food prices further food inflation relief is expected, however, in a milder fashion than experienced in 2010. The extent of recent oil price declines could mean further declines are in store for global food prices. At our $59/bl assumption for oil this year, rand fuel prices will be 18% lower than last year, subtracting 1% from inflation. As a result, consumer inflation should recede to around 3.5% by March, before edging up again towards 5.1% at year-end. A recovery in oil to $70/bl next year would add only 0.5% to inflation (averaging 5.8% in 2016). Core inflation, while sticky at first, should ease fairly quickly in the second half of 2015, reaching 5.3% by year-end - the level we see it stabilizing next year. B/E overview Despite the decline in B/Es in particular in Q3-14 B/Es in South Africa ended 2014 hardly unchanged mainly driven by a strong rebound in December. Since then once again B/Es have sold-off aggressively by ~80bp YTD across the curve with 5Y and 10Y B/Es currently at 5.05% and 5.60%, respectively.

CPI Details South Africa

CPI Details South Africa YoY Weighting Latest Previous3m

Average2014 2013 LT

Core CPI ex Food and Gasoline 5.7% 5.8% 5.7% 5.6% 5.2% 5.1%

CPI 5.3% 5.8% 5.7% 6.1% 5.8% 5.0%

Housing & Utilities 23% 5.7% 5.7% 5.7% 5.7% 5.7% 5.3%

Food & Nonalcoholic Beverages 18% 7.1% 7.4% 7.5% 8.0% 5.7% 6.7%

Transport 16% 2.0% 4.6% 3.9% 6.4% 6.2% 4.1%

Miscellaneous Goods & Services 14% 6.9% 6.9% 6.9% 6.7% 7.0% 5.3%

Alcoholic Beverages & Tobacco 5% 7.5% 7.7% 7.3% 6.4% 7.0% 8.0%

Household Contents & Equipment 5% 2.0% 1.9% 2.0% 3.0% 3.2% 3.3%

Clothing & Footwear 4% 6.4% 6.4% 6.3% 5.4% 3.2% 1.1%

Recreation & Culture 4% 2.8% 2.7% 2.7% 2.7% 3.4% 1.1%

Restaurants & Hotels 3% 8.4% 9.0% 8.8% 8.4% 6.7% 7.4%

Education 3% 8.8% 8.8% 8.8% 8.8% 9.0% 8.0%

Communication 3% -1.8% -0.9% -1.5% -0.7% 1.1% -0.4%

Health 1% 5.6% 6.0% 5.9% 5.3% 4.7% 6.2%

Source: Deutsche Bank / Haver Analytics

23 January 2015



B/E recommendation: Remain neutral in the near-term but overweigh I/-bonds in 5Y if B/Es below 4.50% and in 10Y if B/Es below 5.25%. Rationale In our outlook publication we remained neutral on I/L-bonds but recommended to overweight I/L-bonds (<=10Y) if trading in the belly with B/E below 5.30%. As a large energy importer South Africa remains next to Turkey one of the main beneficiaries of lower energy prices. Hence it is not a surprise that B/Es sold off aggressively over recent weeks further supported by another lower than expected inflation print, the rally in nominals and the likelihood of rate cuts in the near-term while an aggressive hiking cycle was priced only a few weeks back. Similar to Turkey we turn more constructive on I/L-bonds in South Africa in the medium term but see – in contrary to Turkey – more limited potential in the very near term. The main reason for this is the fact that spot inflation is indeed expected to fall below current level in B/Es over the next few months. In fact, based on DB-forecast it’s already expected to happened with the next inflation print. While this reduces the still marginal positive carry and could further weigh on sentiment in I/L-bonds on the one hand it on the other hand could also trigger rate cuts supporting domestic rate markets further in the very near term. Hence although we see current valuation as attractive entrance level to overweight I/L-bond in the medium term we see better risk-return alternative within EMEA I/L-bond markets and remain neutral for now. We reduce our entrance level to overweigh I/L-bonds in B/Es in 5Y B/Es to 4.50% and in 10Y B/Es to 5.25%.

CPI profile relative to B/E levels B/Es in South Africa have also sold-off since YTD

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

Jan/1

3

Ap

r/13

Jul/1

3

Oct/1

3

Jan/1

4

Ap

r/14

Jul/1

4

Oct/1

4

Jan/1

5

Ap

r/15

Jul/1

5

Oct/1

5

Jan/1

6

Ap

r/16

Jul/1

6

Oct/1

6

CPI DB forecast

Current level 5Y B/Es Current level 10Y B/Es

5.0

5.5

6.0

6.5

7.0

7.5

Jan/1

4

Feb/1

4

Mar/1

4

Ap

r/14

May/1

4

Jun

/14

Jul/1

4

Au

g/14

Sep/1

4

Oct/1

4

No

v/14

Dec/1

4

5Y B/E 10Y B/E


Danelee Masia, (+27) 11 775 7267 / Christian Wietoska, (+44) 20 754 52424

Turkey – how can you not like linkers...at least in the medium term...

Inflation update December CPI surprised noticeably to the downside at 8.2% YoY, the lowest reading since Feb-14. The softening was broad based with all main components either decreasing or recording lower rises over the month. The most notable declines were seen in transport and clothing. The former showed the impact of favorable global energy prices as petrol, liquid petroleum gas and diesel prices dropped further. After having edged up by an average 0.8% per month in the preceding 6 months, food prices remained unchanged this time as food exporters shifted some products to the domestic markets following the recent turmoil in Russia.

Inflation outlook Absent any sharp and lasting currency weakness from current levels, headline inflation is expected to decelerate this year, particularly in the first half, and temporarily reach levels close to the Bank’s 5% target around mid-year, on the back of favorable base effects, continued mean reversion in


IL Bonds

(SACPI)Coupon

Amount

in Rand

Amount

in USD

Time to

Maturity

B/E

Inflation

SACPI 2 1/2 01/31/17 2.50 17.5 1.5 2.03 4.96

SACPI 2 3/4 01/31/22 2.75 22.8 2.0 7.03 5.26

SACPI 5 1/2 12/07/23 5.50 33.2 2.9 8.87 5.39

SACPI 2 01/31/25 2.00 24.3 2.1 10.03 5.60

SACPI 2.6 03/31/28 2.60 25.9 2.2 13.19 6.00

SACPI 3.45 12/07/33 3.45 35.3 3.1 18.87 6.50

SACPI 2 1/4 01/31/38 2.25 27.6 2.4 23.03 6.72

SACPI 2 1/2 03/31/46 2.50 13.5 1.2 31.19 7.09

SACPI 2 1/2 12/31/50 2.50 22.2 1.9 35.94 7.04


CPI Details in Turkey

CPI Details Turkey YoY Weighting Latest Previous3m

Average2014 2013 LT

core CPI 8.7% 9.0% 8.9% 9.2% 6.3% 6.9%

CPI 8.2% 9.2% 8.8% 8.9% 7.5% 8.4%

Food and Non-alcoholic Beverages 24% 12.7% 14.4% 13.2% 12.6% 9.1% 9.3%

Transport 18% 2.1% 5.1% 4.7% 9.9% 6.8% 8.3%

Housing, Water, Electricity 17% 6.8% 7.6% 7.5% 5.7% 7.2% 9.8%

Furnishings, HH Eqpt 7% 8.1% 8.1% 8.0% 8.3% 4.9% 6.1%

Clothing and Footwear 7% 8.4% 9.7% 9.0% 7.9% 6.4% 4.7%

Restaurants and Hotels 6% 14.0% 14.3% 14.2% 13.3% 9.3% 11.6%

Alcoholic Beverages and Tobacco 5% 7.7% 4.8% 5.5% 4.1% 15.2% 14.4%

Communication 5% 1.6% 1.6% 1.5% 1.0% 5.2% 2.0%

Miscellaneous Goods and Services 4% 9.7% 8.8% 9.2% 7.2% 5.0% 9.7%

Recreation and Culture 3% 5.7% 5.9% 6.5% 7.3% 2.5% 5.1%

Health 2% 8.6% 9.3% 9.3% 8.4% 2.7% 3.5%

Education 2% 8.3% 8.3% 8.2% 9.1% 7.1% 8.5%

Source: Deutsche Bank / Haver Analytics, LT= long term average since 2002

23 January 2015



food prices and global commodity price disinflation. We expect annual CPI growth to average around 6.5% in 2015, versus 8.9% in 2014, before ending the year close to 7% levels. Around 1.0pp of the 2.4pp decline emanates from a nearly one-third drop penciled in for the lira-denominated oil prices this year. Softer food prices, meanwhile, should account for 1.2pp of the difference.

B/E overview: While over the course of 2014 B/Es traded quite volatile with 10Y B/E within a 6.00%-7.50% range, B/Es so far in 2015 have seen a persistent grind lower. In fact, supported by the rally in nominals, the CBT’s recent rate cut and the downside surprise to the Dec-inflation print, B/Es have literally collapsed by ~125bp across the curve.

B/E recommendation: Overweight I/L-bonds in the long end best expressed in May-24 and Sep-24 – target 6.50%. Rationale In our 2015 outlook, we recommended to moderately overweight I/L-bonds in the belly and long end of the curve. We argued that despite the downside risks in the near term due to an expected drop in spot inflation in early 2015 and the possibility of additional global disinflation shocks, spot inflation should remain well above CBT inflation target while the medium term “sticky” component to overall inflation - which our economist forecast at ~6.0-6.5% - should further support B/Es. While B/Es moved in our favour in the first couple of weeks with B/Es rallying by 60bp to levels above 7.0%, sentiment in recent weeks has not been favourable and the sell-off in B/Es was more aggressive than we anticipated, with the rally in nominals outweighing the impact of FX weakness YTD.

Having said this, we believe the recent sharp sell-off in B/Es is not justified by the inflation outlook and, in EMEA, we see Turkey as the most attractive market to position for a correction in the medium term and recommend to overweight I/L-bonds. While global disinflation will certainly continue to weigh on sentiment, we believe that a major part of this is already priced into B/Es and current valuation in I/L-bonds looks historically cheap. In fact, comparing the current level in B/Es vs. DB-forecasts for the next two years we see that the current levels are not expected to be reached once over the next 24 months. Also, further out our economists expect higher, not lower inflation prints. No other market in EMEA shows this persistent divergence between DB forecasts and B/Es. Last but not least, the positive external environment could lead to more aggressive easing by the CBT than justified by the inflation prints in the near term, which in turn would generate higher medium-term inflation pressures. Combined with the relatively weak Lira, we see upside risks to the market’s medium term inflation expectations, currently priced into B/Es.

CPI profile relative to current B/E levels Sharpe decrease in B/Es since start of the year

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

CPI YoY



4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

Jan/1

4

Feb/1

4

Mar/1

4

Ap

r/14

May/1

4

Jun

/14

Jul/1

4

Au

g/14

Sep/1

4

Oct/1

4

No

v/14

Dec/1

4

Jan/1

5

2Y B/E 10Y B/E


Kubilay Öztürk, (44) 20 754 58774 / Christian Wietoska, (+44) 20 754 52424


Inflation

linked bondsCoupon

Amount

in Lira

Amount

in USD

Time to

Maturity

B/E

Inflation

TURKGB 4 04/29/15 4.00 7.2 3.0 0.27 5.75

TURKGB 2 1/2 05/04/16 2.50 2.5 1.0 1.28 4.76

TURKGB 3 1/2 02/20/19 3.50 8.1 3.4 4.08 5.19

TURKGB 4 04/01/20 4.00 7.7 3.3 5.19 5.57

TURKGB 3 01/06/21 3.00 7.5 3.2 5.96 5.72

TURKGB 3 07/21/21 3.00 7.2 3.1 6.49 5.75

TURKGB 3 02/23/22 3.00 9.8 4.2 7.09 5.70

TURKGB 2 10/26/22 2.00 10.2 4.4 7.76 5.55

TURKGB 1 05/03/23 1.00 5.6 2.4 8.28 5.35

TURKGB 3 08/02/23 3.00 8.1 3.4 8.53 5.25

TURKGB 2.8 11/08/23 2.80 5.5 2.4 8.79 5.12

TURKGB 2.4 05/08/24 2.40 5.7 2.4 9.29 4.85

TURKGB 2 09/18/24 2.00 5.0 2.1 9.66 4.64


23 January 2015



DB Inflation Forecasts

Euro area France UK

Headline HICP HICP excl. tobacco HICP xefat* CPI excl. tobacco RPI

Index % m/m % y/y Index % m/m % y/y Index % m/m % y/y Index % m/m % y/y Index % m/m % y/y

Mar-14 118.0 0.9 0.47 117.39 1.0 0.38 113.2 1.5 0.7 126.29 0.5 0.5 254.8 0.2 2.5

Apr-14 118.2 0.2 0.72 117.57 0.2 0.63 113.5 0.3 1.0 126.24 0.0 0.6 255.7 0.4 2.5

May-14 118.1 -0.1 0.49 117.44 -0.1 0.42 113.4 -0.1 0.7 126.27 0.0 0.6 255.9 0.1 2.4

Jun-14 118.2 0.1 0.50 117.57 0.1 0.43 113.5 0.1 0.8 126.22 0.0 0.3 256.3 0.2 2.6

Jul-14 117.4 -0.7 0.38 116.78 -0.7 0.34 112.6 -0.8 0.8 125.81 -0.3 0.4 256.0 -0.1 2.5

Aug-14 117.6 0.1 0.37 116.91 0.1 0.33 112.9 0.3 0.9 126.38 0.5 0.4 257.0 0.4 2.4

Sep-14 118.1 0.4 0.31 117.43 0.4 0.27 113.5 0.5 0.8 125.88 -0.4 0.2 257.6 0.2 2.3

Oct-14 118.0 -0.1 0.38 117.35 -0.1 0.33 113.6 0.0 0.7 125.92 0.0 0.4 257.7 0.0 2.3

Nov-14 117.8 -0.2 0.28 117.12 -0.2 0.22 113.5 -0.1 0.7 125.70 -0.2 0.3 257.1 -0.2 2.0

Dec-14 117.7 -0.1 -0.16 117.01 -0.1 -0.23 113.9 0.4 0.7 125.81 0.1 0.0 257.5 0.2 1.6

Jan-15 116.0 -1.5 -0.53 115.22 -1.5 -0.61 111.9 -1.7 0.8 124.60 -1.0 -0.4 255.6 -0.7 1.2

Feb-15 116.2 0.2 -0.60 115.49 0.2 -0.68 112.3 0.3 0.6 124.84 0.2 -0.7 256.9 0.5 1.1

Mar-15 117.6 1.1 -0.40 116.84 1.2 -0.47 114.1 1.6 0.8 125.76 0.7 -0.4 257.8 0.4 1.2

Apr-15 117.7 0.1 -0.41 117.01 0.1 -0.48 114.3 0.2 0.7 125.80 0.0 -0.3 259.1 0.5 1.3

May-15 117.8 0.1 -0.21 117.10 0.1 -0.29 114.4 0.0 0.9 125.93 0.1 -0.3 259.7 0.2 1.5

Jun-15 117.9 0.1 -0.24 117.20 0.1 -0.31 114.5 0.1 0.8 126.10 0.1 -0.1 259.9 0.1 1.4

Jul-15 117.1 -0.7 -0.25 116.40 -0.7 -0.33 113.5 -0.8 0.9 125.69 -0.3 -0.1 259.8 0.0 1.5

Q1 15 116.6 -1.1 -0.5 115.9 -1.1 -0.6 112.8 -0.8 0.7 125.1 -0.6 -0.5 256.8 -0.3 1.1

Q2 15 117.8 1.1 -0.3 117.1 1.1 -0.4 114.4 1.4 0.8 125.9 0.7 -0.2 259.6 1.1 1.4

Q3 15 117.4 -0.3 -0.2 116.7 -0.3 -0.3 113.9 -0.4 0.8 125.9 0.0 -0.1 260.8 0.5 1.5

Q4 15 118.1 0.6 0.2 117.4 0.6 0.2 114.7 0.7 0.95 126.1 0.2 0.3 262.6 0.7 2.0

Q1 16 117.8 -0.3 1.0 117.0 -0.3 1.0 113.9 -0.7 0.97 126.4 0.2 1.1 264.1 0.6 2.9

Q2 16 119.1 1.1 1.1 118.3 1.1 1.0 115.4 1.4 0.9 127.3 0.7 1.1 267.4 1.2 3.0

2013 117.2 1.4 116.6 1.3 112.1 1.1 125.4 0.7 250.1 3.0

2014 117.7 0.4 117.1 0.4 113.0 0.8 125.9 0.4 256.0 2.4

2015 117.5 -0.2 116.8 -0.3 113.9 0.8 125.8 -0.1 259.9 1.5

2016 118.9 1.2 118.1 1.2 115.1 1.0 127.2 1.1 267.9 3.1

Next release Jan (flash): 30-Jan Jan: 19-Feb Jan: 17-Feb *HICP excluding energy, food, alcohol and tobacco Source: Deutsche Bank

23 January 2015




US Japan Sweden Australia

CPI-U nsa Core CPI CPI CPI

Index % m/m % y/y Index % m/m % y/y Index % m/m % y/y Index % m/m % y/y

Mar-14 236.29 0.6 1.5 100.8 0.3 1.3 312.7 0.0 -0.6

Apr-14 237.07 0.3 2.0 103.0 2.2 3.2 313.9 0.4 0.0

May-14 237.90 0.3 2.1 103.4 0.4 3.4 314.1 0.1 -0.2

Jun-14 238.34 0.2 2.1 103.4 0.0 3.4 314.7 0.2 0.2

Jul-14 238.25 0.0 2.0 103.5 0.1 3.4 313.7 -0.3 0.0

Aug-14 237.85 -0.2 1.7 103.5 0.0 3.1 313.4 -0.1 -0.2

Sep-14 238.03 0.1 1.7 103.5 0.0 3.0 313.9 0.2 -0.4

Oct-14 237.43 -0.3 1.7 103.6 0.1 2.9 314.0 0.1 -0.1

Nov-14 236.15 -0.5 1.3 103.4 -0.2 2.7 313.6 -0.1 -0.2

Dec-14 234.81 -0.6 0.8 314.1 0.2 -0.3

Jan-15 233.18 -0.7 -0.3 310.2 -1.2 -0.4

Feb-15 233.45 0.1 -0.6 311.8 0.5 -0.3

Mar-15 234.19 0.3 -0.9 313.3 0.5 0.2

Apr-15 235.30 0.5 -0.7 314.2 0.3 0.1

May-15 235.94 0.3 -0.8 314.7 0.2 0.2

Jun-15 236.32 0.2 -0.8 315.1 0.1 0.1

Jul-15 236.49 0.1 -0.7 314.6 -0.2 0.3

Q1 15 233.6 -1.1 -0.6 311.8 -0.7 -0.2

Q2 15 235.9 1.0 -0.8 314.7 0.9 0.1

Q3 15 236.8 0.4 -0.5 315.3 0.2 0.5

Q4 15 236.6 -0.1 0.2 317.5 0.7 1.2

Q1 16 237.6 0.4 1.7 316.8 -0.2 1.6

Q2 16 240.0 1.0 1.8 319.7 0.9 1.6

2013 233.0 1.5 100.1 0.4 314.1 0.0

2014 236.7 1.6 102.6 2.6 313.5 -0.2

2015 235.7 -0.4 314.8 0.4

2016 239.9 1.8 319.9 1.6

Next release Jan: 26-Feb Dec: 29-Jan Jan: 17-Feb Source: Deutsche Bank

23 January 2015




Hong Kong Korea Thailand

CPI CPI CPI

Index % m/m % y/y Index % m/m % y/y Index % m/m % y/y

Mar-14 118.5 -0.3 3.9 109.0 0.2 1.3 106.9 0.2 2.1

Apr-14 119.3 0.7 3.7 109.1 0.1 1.5 107.5 0.5 2.5

May-14 119.2 -0.1 3.7 109.2 0.2 1.7 107.9 0.4 2.6

Jun-14 119.3 0.1 3.6 109.1 -0.1 1.7 107.8 -0.1 2.4

Jul-14 120.5 1.0 4.0 109.3 0.1 1.6 107.7 -0.1 2.2

Aug-14 117.6 -2.4 3.9 109.5 0.2 1.4 107.6 -0.1 2.1

Sep-14 121.2 3.1 6.6 109.4 -0.1 1.1 107.4 -0.2 1.8

Oct-14 122.9 1.4 5.2 109.1 -0.3 1.2 107.3 -0.1 1.5

Nov-14 123.1 0.2 5.1 108.8 -0.2 1.0 107.2 -0.1 1.3

Dec-14 123.4 0.2 4.9 108.8 0.0 0.8 106.7 -0.5 0.6

Jan-15 123.0 -0.3 4.0 109.4 0.5 0.8 106.8 0.1 0.3

Feb-15 123.6 0.4 4.0 110.0 0.6 1.1 107.0 0.2 0.3

Mar-15 123.2 -0.3 4.0 110.2 0.2 1.1 107.4 0.3 0.4

Apr-15 124.1 0.7 4.0 110.3 0.1 1.1 108.0 0.6 0.5

May-15 124.1 0.0 4.1 110.4 0.2 1.1 108.4 0.4 0.5

Jun-15 124.2 0.1 4.1 110.4 0.0 1.2 108.5 0.1 0.7

Jul-15 124.5 0.2 3.3 110.8 0.3 1.4 108.7 0.1 0.9

Q1 15 123.3 0.1 4.0 109.8 0.9 1.0 107.1 0.0 0.3

Q2 15 124.1 0.7 4.1 110.4 0.5 1.1 108.3 1.2 0.6

Q3 15 123.4 -0.5 3.1 111.2 0.7 1.7 108.8 0.4 1.1

Q4 15 126.6 2.5 2.8 111.2 0.0 2.1 108.9 0.1 1.8

Q1 16 126.7 0.1 2.8 112.0 0.7 2.0 109.6 0.6 2.3

Q2 16 127.7 0.7 2.9 112.8 0.7 2.2 110.9 1.3 2.4

2013 115.1 4.3 107.7 1.3 105.3 2.2

2014 120.2 4.4 109.0 1.3 107.3 1.9

2015 124.4 3.5 110.6 1.5 108.3 0.9

2016 128.4 3.2 113.0 2.1 110.8 2.4

Next release Jan: 23 -Feb Jan: 3- Feb Jan: 2- Feb Source: Deutsche Bank

23 January 2015



CPI data calendar

Date Time (GMT) Country Indicator Forecast Consensus Previous

28-Jan 00:30 Australia CPI Q4, % mom 0.5

CPI Q4, % yoy 2.3

29-Jan 09:30* Belgium CPI Jan, % mom -0.1

CPI Jan, % yoy -0.4

29-Jan 23:30 Japan Natl CPI, Dec, % mom -0.1

Natl CPI, Dec, % yoy 2.4

29-Jan 23:30 Japan Natl CPI ex food, energy, Jan, % mom -0.1

Natl CPI ex food, energy, Jan, % yoy 2.3

29-Jan 13:00 German HICP, Jan, % m/m -1.0

30-Jan 08:00 Spain HICP flash estimate, Jan, % yoy -1.7 -1.5 -1.1

30-Jan 10:00 Euro Area HICP flash estimate, Jan, % yoy -0.5 -0.5 Source: Deutsche Bank

No Central bank events scheduled for the week

23 January 2015



Inflation linked bonds auction calendar

Date Country Bond Volume

Week Starting 26-Jan UK UKTI - 03/58

27-Jan-15 IT BTPei - 09/18 & 09/41 EUR 1.0 – 2.0 bn

04-Feb-15 UK UKTI – 03/24

05-Feb-15 SE SGBi SEK 1 bn

05-Feb-15* ES SPGBei

10-Feb-15 DE OBLi/DBRi

10-Feb-15 AU ACGBi

19-Feb-15 US 30y TIPS

19-Feb-15 SE SGBi

19-Feb-15 FR OATi/OATei

24-Feb-15 IT BTPSi

05-Mar-15* ES SPGBei

05-Mar-15 SE SGBi

10-Mar-15 DE OBLi/DBRi

11-Mar-15 CA 30Y RRB

12-Mar-15 UK UKTI – 11/37

19-Mar-15 US 10y TIPS

19-Mar-15 SE SGBi

19-Mar-15 FR OATi/OATei

26-Mar-15 IT BTPSi

07-Apr-15 DE OBLi/DBRi

09-Apr-15* ES SPGBei

16-Apr-15 SE SGBi

16-Apr-15 FR OATi/OATei


Gross sovereign inflation supply

US UK France Germany Italy Japan Spain Sweden Australia Canada

USD, bn GBP, bn EUR, bn EUR, bn EUR, bn JPY, bn EUR, bn SEK, bn AUD, bn CAD, bn

2007 65 14.5 18 6 16.1 3040 - 5 0 2.2

2008 62 16.1 15.5 7 18 2095 - 2.6 0 2.2

2009 59.4 28.2 12.3 5 17.3 0 - 3 4.3 2.2

2010 87.8 30.7 20.4 11 16.3 0 - 7.7 3.9 2.2

2011 134.6 33 20 8 15.5 0 - 6 1.8 2.2

2012 135.8 27.2 17.1 9 9.9 0 - 6.5 0.50 1.5

2013 155 32.6 16.8 10.0 10.8 344 - 11.5 4.6 2.2

2014 155 29.3 17.6 11 14.5 1657.4 12.4 16.8 4.1 2.2

2015 ytd 15 1.04 1.5 1 0 559.1 0 1 0 0

2015 fcst Source: Deutsche Bank * indicates respective fiscal year estimates. Figures are either official debt advisory or management agencies’ estimates or DB forecasts. All figures indicate nominal amount issued.

*As per Spanish Treasury, Indexed Linked bonds could be auctioned on these dates.

23 January 2015



USD inflation-linked bonds

size price risk real-yield breakeven ASW

Local bn

real clean

nom dirty

mod durat

dv01 spot %

1W bp

1M bp

spot %

1W bp

1M bp

Net- prcds

z sprd

z-sprd diff

Rich-ness

comparator

US CPI Urban NSA

TIIApr 0.50 Apr-15 21.2 98.9 108.0 0.2 0.2 5.67 12 123 -5.63 -14 -126 T 2.50 Apr-15

TIIJul 1.88 Jul-15 17.0 100.3 122.0 0.5 0.6 1.26 -7 15 -1.16 5 -23 T 4.25 Aug-15

TIIJan 2.00 Jan-16 17.0 101.6 121.0 1.0 1.2 0.38 -8 -8 -0.15 7 -5 T 4.50 Feb-16

TIIApr 0.13 Apr-16 38.4 100.1 107.2 1.2 1.3 0.04 -8 -26 0.23 7 8 T 2.00 Apr-16

TIIJul 2.50 Jul-16 20.0 104.5 122.4 1.5 1.8 -0.55 -6 -29 0.92 7 7 -19 -20 2 2 T 4.88 Aug-16

TIIJan 2.38 Jan-17 17.2 105.4 123.6 1.9 2.4 -0.36 -5 -31 0.90 7 7 -17 -18 4 5 T 4.63 Feb-17

TIIApr 0.13 Apr-17 44.4 100.8 105.0 2.2 2.3 -0.24 -4 -35 0.86 6 6 -13 -13 10 10 T 0.88 Apr-17

TIIJul 2.63 Jul-17 14.0 108.0 123.2 2.4 3.0 -0.57 -4 -40 1.29 6 9 -17 -18 3 4 T 4.75 Aug-17

TIIJan 1.63 Jan-18 16.4 105.7 119.4 2.9 3.5 -0.30 -2 -40 1.21 6 9 -9 -9 6 10 T 3.50 Feb-18

TIIApr 0.13 Apr-18 50.0 100.9 103.2 3.2 3.3 -0.14 -3 -40 1.10 7 4 -2 -2 15 15 T 0.63 Apr-18

TIIJul 1.38 Jul-18 15.0 106.0 116.2 3.4 4.0 -0.34 -2 -40 1.34 4 6 -4 -4 14 12 T 4.00 Aug-18

TIIJan 2.13 Jan-19 14.7 109.0 120.1 3.8 4.6 -0.14 0 -43 1.31 3 5 -3 -3 11 11 T 2.75 Feb-19

TIIApr 0.13 Apr-19 50.0 100.7 101.6 4.2 4.3 -0.04 -1 -45 1.25 2 2 0 0 14 13 T 1.63 Apr-19

TIIJul 1.88 Jul-19 15.2 109.2 121.0 4.3 5.2 -0.18 -1 -45 1.45 3 5 -1 -1 11 14 T 3.63 Aug-19

TIIJan 1.38 Jan-20 19.0 107.0 117.0 4.8 5.6 -0.04 -2 -44 1.36 4 1 -1 -1 14 14 T 3.63 Feb-20

TIIJul 1.25 Jul-20 32.4 107.3 116.3 5.3 6.2 -0.08 -3 -43 1.53 5 -1 0 0 10 13 T 2.63 Aug-20

TIIJan 1.13 Jan-21 36.7 106.3 114.9 5.8 6.7 0.07 -4 -39 1.45 5 -5 4 4 12 12 T 3.63 Feb-21

TIIJul 0.63 Jul-21 35.8 103.8 108.9 6.4 6.9 0.03 -5 -39 1.56 6 -6 5 5 13 14 T 2.13 Aug-21

TIIJan 0.13 Jan-22 41.3 100.0 104.4 6.9 7.2 0.13 -5 -38 1.49 5 -6 5 5 16 16 T 2.00 Feb-22

TIIJul 0.13 Jul-22 41.0 100.2 103.0 7.4 7.7 0.10 -5 -37 1.57 5 -7 8 8 19 19 T 1.63 Aug-22

TIIJan 0.13 Jan-23 41.0 99.6 102.0 7.9 8.1 0.17 -5 -37 1.53 4 -7 9 8 20 20 T 2.00 Feb-23

TIIJul 0.38 Jul-23 41.0 102.0 103.6 8.3 8.6 0.14 -5 -38 1.60 4 -7 10 9 20 21 T 2.50 Aug-23

TIIJan 0.63 Jan-24 41.0 103.6 105.0 8.7 9.2 0.22 -5 -37 1.55 3 -7 11 10 22 22 T 2.75 Feb-24

TIIJul 0.13 Jul-24 41.0 99.6 99.2 9.4 9.3 0.17 -5 -38 1.64 3 -7 10 9 20 21 T 2.38 Aug-24

TIIJan 2.38 Jan-25 28.0 121.1 151.9 9.0 13.7 0.23 -5 -37 1.53 3 -8 11 12 24 23 T 7.63 Feb-25

TIIJan 2.00 Jan-26 20.0 118.5 141.2 10.0 14.1 0.29 -5 -36 1.58 3 -8 16 16 24 24 T 6.00 Feb-26

TIIJan 2.38 Jan-27 16.5 123.6 144.9 10.6 15.4 0.36 -5 -32 1.56 2 -12 22 22 29 29 T 6.63 Feb-27

TIIJan 1.75 Jan-28 15.6 117.2 132.3 11.8 15.6 0.39 -5 -30 1.58 2 -13 23 22 28 29 T 6.13 Nov-27

TIIApr 3.63 Apr-28 16.8 141.8 208.8 11.0 23.0 0.38 -5 -29 1.63 2 -14 19 20 25 28 T 5.50 Aug-28

TIIJan 2.50 Jan-29 14.2 128.4 141.5 12.1 17.2 0.40 -5 -29 1.62 2 -13 23 23 27 29 T 5.25 Nov-28

TIIApr 3.88 Apr-29 19.5 147.8 214.1 11.6 24.8 0.41 -5 -29 1.63 2 -13 21 22 26 29 T 5.25 Feb-29

TIIApr 3.38 Apr-32 5.0 147.4 197.6 13.9 27.5 0.50 -5 -30 1.58 1 -13 26 27 32 34 T 5.38 Feb-31

TIIFeb 2.13 Feb-40 15.2 136.0 149.7 20.3 30.4 0.58 -4 -28 1.73 -1 -17 32 30 24 20 T 4.63 Feb-40

TIIFeb 2.13 Feb-41 24.0 137.3 149.2 21.0 31.3 0.58 -4 -29 1.70 -1 -16 32 30 27 24 T 4.75 Feb-41

TIIFeb 0.75 Feb-42 23.1 103.0 108.1 24.4 26.4 0.63 -4 -29 1.72 -3 -19 41 33 27 22 T 3.13 Feb-42

TIIFeb 0.63 Feb-43 23.0 100.0 103.1 25.6 26.4 0.63 -4 -29 1.75 -3 -19 41 33 24 19 T 3.13 Feb-43

TIIFeb 1.38 Feb-44 23.0 120.2 122.6 24.4 29.9 0.61 -4 -30 1.75 -3 -17 38 32 24 19 T 3.63 Feb-44

valuation date: 23-Jan-15

*Net-prcds is the net proceeds ASW margin vs 3M Libor in bp; z-sprd is the z-spread of the linker vs 3M Libor in bp; z-sprd diff is the z-spread of the linker and that of its nominal comparator; richness is the ‘CPI swap richness or the cheapness (+) or richness (-) of the linker relative to the underlying nominal government bond curve Source: Bloomberg Finance LP, Deutsche Bank

23 January 2015



EUR inflation-linked bonds


Local bn

real clean

nom dirty

mod durat

dv01 spot %

1W bp

1M bp

spot %

1W bp

1M bp

Par/ par

z sprd

z-sprd diff

Rich-ness

comparator

euro-zone HICP ex-tob

DBRei 1.50 Apr-16 15.0 100.7 118.3 1.2 1.4 0.93 -4 16 -1.12 4 -26 DBR 3.50 Jan-16

OBLei 0.75 Apr-18 15.0 103.4 110.4 3.2 3.5 -0.29 -31 -19 0.12 29 9 -26 -17 6 4 DBR 4.00 Jan-18

DBRei 1.75 Apr-20 15.0 112.2 124.3 5.0 6.2 -0.55 -24 -16 0.48 23 5 -24 -14 11 10 DBR 3.25 Jan-20

DBRei 0.10 Apr-23 16.0 107.2 110.9 8.2 9.1 -0.74 -26 -30 0.88 19 7 -31 -22 8 7 DBR 1.50 Feb-23

DBRei 0.50 Apr-30 5.0 117.7 119.2 14.8 17.6 -0.61 -30 -45 1.21 22 13 -17 -10 11 6 DBR 6.25 Jan-30

OATei 1.60 Jul-15 11.6 100.4 120.9 0.5 0.6 0.78 -11 24 -0.95 8 -37 OAT 3.50 Apr-15

OATei 0.25 Jul-18 10.4 102.6 107.1 3.5 3.7 -0.50 -29 -30 0.45 30 24 -6 2 15 14 OAT 4.00 Apr-18

OATei 2.25 Jul-20 20.0 116.0 143.5 5.2 7.5 -0.61 -26 -38 0.70 28 23 -3 4 15 15 OAT 3.50 Apr-20

OATei 1.10 Jul-22 17.1 113.6 124.2 7.3 9.0 -0.66 -31 -45 0.94 28 24 -7 0 9 9 OAT 3.00 Apr-22

OATei 0.25 Jul-24 9.0 107.9 110.4 9.4 10.4 -0.55 -29 -45 1.03 21 15 2 9 16 15 OAT 2.25 May-24

OATei 1.85 Jul-27 9.9 129.7 140.2 11.4 16.0 -0.46 -32 -51 1.14 22 14 13 15 13 9 OAT 3.50 Apr-26

OATei 0.70 Jul-30 3.9 116.2 117.7 14.8 17.4 -0.32 -38 -54 1.30 25 8 27 27 17 16 OAT 2.50 May-30

OATei 3.15 Jul-32 9.6 161.9 202.8 14.5 29.5 -0.32 -35 -53 1.36 22 5 50 31 18 16 OAT 5.75 Oct-32

OATei 1.80 Jul-40 9.4 150.1 174.5 21.6 37.7 -0.13 -31 -53 1.42 17 3 64 40 19 16 OAT 4.00 Oct-38

BTPei 2.10 Sep-16 9.1 102.6 110.6 1.6 1.8 0.50 -22 -13 -0.24 13 -12 39 43 19 20 BTP 3.75 Aug-16

BTPei 2.10 Sep-17 13.8 105.1 123.0 2.5 3.1 0.14 -43 -41 0.24 28 13 39 40 7 7 BTP 3.50 Nov-17

BTPei 1.70 Sep-18 10.0 105.7 107.9 3.5 3.8 0.12 -36 -57 0.41 26 27 47 53 9 12 BTP 4.50 Aug-18

BTPei 2.35 Sep-19 17.3 110.4 123.1 4.4 5.4 0.10 -41 -46 0.53 27 13 67 64 18 17 BTP 4.25 Sep-19

BTPei 2.10 Sep-21 16.4 111.2 122.1 6.2 7.6 0.38 -42 -55 0.77 28 20 97 98 20 23 BTP 3.75 Aug-21

BTPei 2.60 Sep-23 16.5 118.9 136.8 7.8 10.6 0.37 -49 -61 0.98 32 19 122 100 13 11 BTP 4.75 Aug-23

BTPei 2.35 Sep-24 8.2 117.1 119.5 8.7 10.4 0.53 -40 -69 0.97 24 22 119 112 17 21 BTP 3.75 Sep-24

BTPei 3.10 Sep-26 6.6 126.8 136.3 9.9 13.6 0.70 -44 -63 0.99 23 11 154 127 23 21 BTP 4.50 Mar-26

BTPei 2.35 Sep-35 13.1 126.6 152.3 16.7 25.5 0.93 -61 -65 1.46 20 12 230 151 9 -1 BTP 5.00 Aug-34

BTPei 2.55 Sep-41 6.9 130.0 144.2 20.2 29.1 1.23 -59 -81 1.43 19 22 258 174 17 17 BTP 5.00 Sep-40

SPGei 0.55 Nov-19 5.0 103.2 103.5 4.8 5.0 -0.11 -38 -45 0.74 30 23 37 44 -2 -1 SPG 4.30 Oct-19

SPGei 1.80 Nov-24 7.4 115.4 116.1 9.1 10.6 0.22 -36 -51 1.13 21 14 84 81 3 6 SPG 2.75 Oct-24

French CPI ex tob

BTANi 0.45 Jul-16 12.1 101.5 106.5 1.5 1.6 -0.53 -34 -42 0.39 34 32 OAT 3.25 Apr-16

OATi 1.00 Jul-17 20.2 104.0 118.2 2.5 2.9 -0.60 -27 -40 0.50 27 32 -8 0 13 13 OAT 3.75 Apr-17

OATi 1.30 Jul-19 10.8 109.3 117.0 4.4 5.2 -0.73 -26 -36 0.74 28 24 6 12 25 25 OAT 4.25 Apr-19

OATi 0.10 Jul-21 5.9 105.8 106.7 6.5 7.0 -0.77 -27 -40 0.93 26 20 4 11 22 22 OAT 3.75 Apr-21

OATi 2.10 Jul-23 12.9 124.6 137.8 7.9 10.9 -0.70 -30 -39 1.10 23 11 13 16 25 24 OAT 4.25 Oct-23

OATi 3.40 Jul-29 8.0 158.1 199.8 12.3 24.5 -0.47 -32 -45 1.34 20 2 51 32 25 24 OAT 5.50 Apr-29

CADESi 1.85 Jul-17 2.0 105.8 118.4 2.4 2.9 -0.48 -30 0.43 29 CADES 4.13 Apr-17

CADESi 1.85 Jul-19 2.4 111.0 128.8 4.3 5.6 -0.57 -25 0.65 27 CADES 4.00 Oct-19

CADESi 1.50 Jul-21 3.3 114.0 120.3 6.2 7.5 -0.61 -26 0.82 25 CADES 3.38 Apr-21


*Par/par is the par/par ASW margin vs 6M Libor in bp; z-sprd is the z-spread of the linker vs 3M Libor in bp; z-sprd diff is the z-spread of the linker and that of its nominal comparator; richness is the ‘CPI swap richness or the cheapness (+) or richness (-) of the linker relative to the underlying nominal government bond curve Source: Bloomberg Finance LP, Deutsche Bank

23 January 2015



GBP inflation-linked bonds


Local bn

real clean

nom dirty

mod durat

dv01 spot %

1W bp

1M bp

spot %

1W bp

1M bp

Net- prcds

z sprd

z-sprd diff

Rich-ness

comparator

UK RPI

UKTi8 2.50 Jul-16 7.9 328.4 328.4 1.5 4.9 -1.39 10 19 1.72 -18 -34 -9 1 35 34 UKT 4.00 Sep-16

UKTi8 2.50 Apr-20 6.6 368.9 371.0 5.0 18.4 -1.34 5 -3 2.31 -13 -31 11 22 35 34 UKT 4.75 Mar-20

UKTi8 2.50 Jul-24 6.8 351.9 352.1 8.7 30.7 -1.07 2 -14 2.52 -10 -25 23 36 31 30 UKT 5.00 Mar-25

UKTi8 4.13 Jul-30 4.8 349.4 349.5 12.8 44.9 -1.01 -2 -21 2.80 -9 -25 27 41 22 21 UKT 4.75 Dec-30

UKTi8 2.00 Jan-35 9.1 243.1 243.1 17.6 42.7 -1.00 -6 -27 3.02 -5 -20 37 45 13 10 UKT 4.25 Mar-36

UKTi 1.25 Nov-17 11.8 108.0 143.7 2.8 4.0 -1.51 -2 -6 2.05 -7 -17 0 9 37 36 UKT 1.00 Sep-17

UKTi 0.13 Nov-19 8.2 107.7 111.0 4.8 5.4 -1.42 0 -11 2.33 -9 -21 4 14 30 26 UKT 3.75 Sep-19

UKTi 1.88 Nov-22 15.7 125.2 157.1 7.4 11.6 -1.19 3 -14 2.47 -11 -23 16 28 30 29 UKT 1.75 Sep-22

UKTi 0.13 Mar-24 13.1 111.2 118.0 9.1 10.8 -1.04 2 -16 2.49 -9 -22 24 33 29 27 UKT 5.00 Mar-25

UKTi 1.25 Nov-27 14.2 130.9 173.9 12.1 21.0 -1.01 -1 -20 2.64 -7 -23 31 41 28 26 UKT 4.25 Dec-27

UKTi 0.13 Mar-29 14.2 116.5 126.3 14.1 17.8 -0.96 -3 -24 2.75 -7 -22 37 43 24 24 UKT 4.75 Dec-30

UKTi 1.25 Nov-32 12.8 144.6 171.6 16.5 28.2 -1.02 -6 -27 2.90 -5 -20 34 41 17 12 UKT 4.25 Jun-32

UKTi 0.75 Mar-34 14.6 136.3 151.3 18.2 27.5 -0.97 -6 -28 2.93 -4 -19 40 44 15 10 UKT 4.50 Sep-34

UKTi 1.13 Nov-37 12.1 154.7 197.0 20.9 41.2 -1.00 -7 -31 3.04 -3 -16 42 45 12 6 UKT 4.75 Dec-38

UKTi 0.63 Mar-40 12.4 146.3 174.2 23.8 41.4 -0.99 -8 -33 3.09 -2 -15 45 45 8 2 UKT 4.25 Dec-40

UKTi 0.63 Nov-42 11.9 152.6 184.9 26.2 48.5 -1.01 -9 -33 3.10 -1 -14 47 45 9 2 UKT 4.50 Dec-42

UKTi 0.13 Mar-44 15.7 136.9 145.3 28.9 42.0 -0.97 -9 -34 3.11 -1 -14 54 47 8 1 UKT 3.25 Jan-44

UKTi 0.75 Nov-47 11.7 168.0 208.2 30.3 63.1 -1.00 -9 -34 3.11 -1 -14 49 45 8 4 UKT 4.25 Dec-46

UKTi 0.50 Mar-50 12.2 162.6 196.3 33.2 65.1 -0.99 -10 -34 3.09 0 -14 51 44 9 5 UKT 4.25 Dec-49

UKTi 0.25 Mar-52 12.0 155.2 165.1 36.1 59.5 -0.98 -11 -35 3.10 0 -14 55 44 7 3 UKT 3.75 Jul-52

UKTi 1.25 Nov-55 10.2 213.7 286.4 35.4 101.4 -1.00 -11 -35 3.08 0 -14 48 43 9 8 UKT 4.25 Dec-55

UKTi 0.13 Mar-58 5.0 158.6 159.6 42.5 67.8 -0.97 -11 -35 3.06 0 -14 61 45 11 10 UKT 4.00 Jan-60

UKTi 0.38 Mar-62 12.5 181.8 198.6 44.7 88.7 -0.98 -11 -35 3.08 0 -14 61 44 10 8 UKT 4.00 Jan-60

UKTi 0.13 Mar-68 9.8 177.4 182.9 52.2 95.5 -0.98 -11 -35 3.10 0 -14 70 46 10 8 UKT 3.50 Jul-68


*Net-prcds is the net proceeds ASW margin vs 6M Libor in bp; z-sprd is the z-spread of the linker vs 3M Libor in bp; z-sprd diff is the z-spread of the linker and that of its nominal comparator; richness is the ‘CPI swap richness or the cheapness (+) or richness (-) of the linker relative to the underlying nominal government bond curve Source: Bloomberg Finance LP, Deutsche Bank

23 January 2015



Other inflation-linked bonds


Local bn

real clean

nom dirty

mod durat

dv01 spot %

1W bp

1M bp

spot %

1W bp

1M bp

Net- prcds

z sprd

z-sprd diff

Rich-ness

comparator

JPY CPI

JGBi 0.50 Jun-15 54.8 101.1 105.3 0.4 0.4 -2.40 -3 9 2.40 4 -2 JGB 1.30 Jun-15

JGBi 0.80 Sep-15 61.5 102.0 106.1 0.6 0.7 -2.37 -3 2 2.37 4 3 JGB 1.40 Sep-15

JGBi 0.80 Dec-15 93.8 102.7 106.3 0.9 0.9 -2.24 -2 3 2.24 2 2 JGB 1.50 Dec-15

JGBi 0.80 Mar-16 52.5 104.1 108.0 1.1 1.2 -2.83 -3 -3 2.82 5 7 JGB 1.60 Mar-16

JGBi 1.00 Jun-16 203.4 105.2 109.2 1.4 1.5 -2.73 -3 -3 2.73 5 7 JGB 1.90 Jun-16

JGBi 1.10 Sep-16 141.3 106.2 110.0 1.6 1.8 -2.65 -2 -2 2.64 4 6 JGB 1.70 Sep-16

JGBi 1.10 Dec-16 249.4 107.0 110.3 1.9 2.1 -2.56 -2 -2 2.53 2 4 JGB 1.70 Dec-16

JGBi 1.20 Mar-17 128.3 108.7 112.7 2.1 2.4 -2.78 -2 -3 2.77 4 6 JGB 1.70 Mar-17

JGBi 1.20 Jun-17 277.4 108.6 112.8 2.4 2.7 -2.33 -1 -1 2.32 4 3 JGB 1.80 Jun-17

JGBi 1.30 Sep-17 113.0 109.6 113.6 2.6 2.9 -2.24 -1 -1 2.23 2 2 JGB 1.70 Sep-17

JGBi 1.20 Dec-17 381.3 109.7 113.1 2.9 3.2 -2.06 -1 0 2.04 1 0 JGB 1.50 Dec-17

JGBi 1.40 Mar-18 134.3 111.2 114.4 3.1 3.5 -2.06 -1 0 2.05 2 0 JGB 1.30 Mar-18

JGBi 1.40 Jun-18 431.3 111.2 114.2 3.3 3.8 -1.82 0 0 1.81 1 -1 JGB 1.80 Jun-18

JGBi 0.10 Sep-23 646.7 105.8 109.5 8.6 9.4 -0.56 2 -3 0.71 -3 -5 JGB 0.80 Sep-23

JGBi 0.10 Mar-24 821.7 105.9 108.9 9.1 9.9 -0.53 2 -2 0.71 -3 -6 JGB 0.60 Mar-24

JGBi 0.10 Sep-24 1091.8 106.3 106.4 9.6 10.2 -0.54 2 0 0.76 -3 -9 JGB 0.50 Sep-24

SEK CPI

SGBi 3.50 Dec-15 23.3 126.2 126.9 0.8 1.1 -0.16 -15 -19 0.18 11 12 SGB 4.50 Aug-15

SGBi 0.50 Jun-17 38.3 106.1 106.5 2.3 2.5 -0.57 -17 -27 0.48 16 16 SGB 3.75 Aug-17

SGBi 4.00 Dec-20 29.4 162.2 163.0 5.4 8.8 -0.51 -18 -26 0.74 13 4 SGB 5.00 Dec-20

SGBi 0.25 Jun-22 28.8 106.6 106.8 7.3 7.8 -0.53 -19 -29 0.92 12 3 SGB 3.50 Jun-22

SGBi 1.00 Jun-25 15.8 115.4 116.1 9.9 11.5 -0.47 -20 -35 1.13 11 5 SGB 2.50 May-25

SGBi 3.50 Dec-28 43.4 191.0 191.7 11.8 22.6 -0.42 -20 -36 1.50 10 -3 SGB 2.25 Jun-32

CAD CPI

CANi 4.25 Dec-21 5.2 132.5 201.1 6.1 12.3 -0.42 -27 -60 1.36 4 4 CAN 9.75 Jun-21

CANi 4.25 Dec-26 5.3 151.7 217.7 9.9 21.6 -0.09 -21 -55 1.65 5 4 CAN 8.00 Jun-27

CANi 4.00 Dec-31 5.8 163.6 225.5 13.4 30.3 0.17 -12 -40 1.70 0 -5 CAN 5.75 Jun-33

CANi 3.00 Dec-36 5.9 158.2 193.3 17.4 33.7 0.26 -10 -38 1.71 0 -5 CAN 5.00 Jun-37

CANi 2.00 Dec-41 6.6 143.1 161.7 22.0 35.5 0.32 -9 -37 1.69 0 -4 CAN 4.00 Jun-41

CANi 1.50 Dec-44 7.7 132.6 144.2 25.0 36.0 0.35 -9 -37 1.68 0 -3 CAN 3.50 Dec-45

CANi 1.25 Dec-47 2.9 127.6 127.8 27.7 36.1 0.36 -8 -37 1.67 0 -3 CAN 3.50 Dec-45

AUD CPI

ACGBi 4.00 Aug-15 1.2 176.4 177.7 0.6 1.0 1.41 4 2 1.03 -7 -2 ACG 6.25 Apr-15

ACGBi 1.00 Nov-18 3.8 104.5 104.7 3.7 3.9 0.52 2 -5 1.56 -3 -14 ACG 3.25 Oct-18

ACGBi 4.00 Aug-20 5.0 192.2 193.4 5.0 9.7 0.46 5 -10 1.71 -6 -15 ACG 4.50 Apr-20

ACGBi 1.25 Feb-22 4.3 112.6 112.9 6.8 7.6 0.45 7 -14 1.93 -8 -17 ACG 5.75 Jul-22

ACGBi 3.00 Sep-25 5.5 145.0 145.4 9.3 13.5 0.46 10 -22 2.09 -11 -13 ACG 3.25 Apr-25

ACGBi 2.50 Sep-30 3.3 143.3 143.6 13.3 19.1 0.63 12 -27 2.12 -12 -12 ACG 3.25 Apr-29

ACGBi 2.00 Aug-35 2.7 128.9 129.3 17.3 22.3 0.73 10 -30 2.02 -11 -8 ACG 3.25 Apr-29

Source: Bloomberg Finance LP, Deutsche Bank

23 January 2015



TIPS forwards

Real yield Breakeven

spot carry (bp) spot B/E protection (bp)

(%) 02-Feb 1M 02-Mar 2M 3M 6M 9M (%) 02-Feb 1M 02-Mar 2M 3M 6M 9M

US CPI-U NSA

TIIApr15 5.67 -10 -112 -141 -5.63 -9 -107 -135

TIIJul15 1.26 -23 -135 -158 -344 -1.16 -23 -134 -157

TIIJan16 0.38 -13 -67 -78 -149 -170 -28 108 -0.15 -13 -68 -78 -151 -172 -34 122

TIIApr16 0.04 -11 -55 -63 -119 -134 -42 -3 0.23 -11 -56 -64 -120 -137 -49 -1

TIIJul16 -0.55 -10 -49 -56 -104 -120 -63 -65 0.92 -10 -50 -58 -107 -124 -73 -73

TIIJan17 -0.36 -7 -35 -40 -74 -83 -35 -26 0.90 -7 -37 -42 -78 -88 -48 -42

TIIApr17 -0.24 -6 -30 -35 -63 -70 -26 -15 0.86 -6 -32 -37 -67 -75 -39 -32

TIIJul17 -0.57 -6 -29 -33 -60 -67 -32 -29 1.29 -6 -31 -35 -64 -74 -46 -48

TIIJan18 -0.30 -5 -23 -26 -47 -52 -20 -12 1.21 -5 -25 -29 -52 -59 -35 -34

TIIApr18 -0.14 -4 -20 -23 -42 -45 -14 -6 1.10 -5 -23 -26 -46 -52 -29 -26

TIIJul18 -0.34 -4 -20 -22 -41 -44 -17 -11 1.34 -4 -22 -25 -45 -51 -32 -32

TIIJan19 -0.14 -3 -17 -19 -35 -38 -12 -5 1.31 -4 -19 -22 -39 -45 -27 -26

TIIApr19 -0.04 -3 -15 -17 -31 -33 -9 -2 1.25 -4 -18 -20 -36 -40 -24 -23

TIIJul19 -0.18 -3 -15 -17 -31 -33 -11 -5 1.45 -4 -17 -20 -35 -40 -26 -26

TIIJan20 -0.04 -3 -13 -15 -27 -29 -8 -2 1.36 -3 -15 -18 -31 -35 -22 -22

TIIJul20 -0.08 -2 -12 -14 -25 -26 -8 -2 1.53 -3 -14 -16 -29 -33 -21 -22

TIIJan21 0.07 -2 -11 -12 -22 -23 -5 0 1.45 -3 -13 -15 -26 -30 -19 -19

TIIJul21 0.03 -2 -10 -11 -20 -21 -5 0 1.56 -2 -12 -14 -24 -27 -18 -19

TIIJan22 0.13 -2 -9 -10 -18 -19 -4 1 1.49 -2 -11 -12 -22 -25 -16 -16

TIIJul22 0.10 -2 -8 -10 -17 -18 -4 0 1.57 -2 -10 -12 -21 -23 -15 -16

TIIJan23 0.17 -2 -8 -9 -16 -16 -3 1 1.53 -2 -10 -11 -19 -22 -14 -15

TIIJul23 0.14 -2 -7 -8 -15 -16 -3 1 1.60 -2 -9 -10 -19 -21 -14 -15

TIIJan24 0.22 -1 -7 -8 -14 -15 -3 1 1.55 -2 -9 -10 -18 -20 -13 -14

TIIJul24 0.17 -1 -7 -7 -13 -14 -3 1 1.64 -2 -8 -9 -17 -19 -13 -14

TIIJan25 0.23 -1 -7 -8 -14 -14 -2 2 1.53 -2 -9 -10 -17 -20 -13 -14

TIIJan26 0.29 -1 -6 -7 -12 -13 -2 2 1.58 -2 -8 -9 -16 -18 -12 -13

TIIJan27 0.36 -1 -6 -6 -11 -12 -1 2 1.56 -2 -7 -8 -15 -17 -12 -12

TIIJan28 0.39 -1 -5 -6 -10 -11 -1 2 1.58 -1 -7 -8 -13 -15 -11 -12

TIIApr28 0.38 -1 -5 -6 -11 -11 -1 2 1.63 -1 -7 -8 -14 -16 -11 -11

TIIJan29 0.40 -1 -5 -6 -10 -10 -1 2 1.62 -1 -6 -7 -13 -15 -10 -11

TIIApr29 0.41 -1 -5 -6 -10 -11 -1 2 1.63 -1 -7 -8 -13 -15 -10 -11

TIIApr32 0.50 -1 -4 -5 -9 -9 -1 2 1.58 -1 -6 -6 -11 -13 -9 -10

TIIFeb40 0.58 -1 -3 -3 -6 -6 0 2 1.73 -1 -4 -4 -8 -9 -7 -7

TIIFeb41 0.58 -1 -3 -3 -6 -6 0 2 1.70 -1 -4 -4 -8 -9 -7 -7

TIIFeb42 0.63 0 -2 -3 -5 -5 0 2 1.72 -1 -3 -4 -7 -8 -6 -7

TIIFeb43 0.63 0 -2 -3 -5 -5 0 2 1.75 -1 -3 -4 -6 -7 -6 -7

TIIFeb44 0.61 0 -2 -3 -5 -5 0 2 1.75 -1 -3 -4 -7 -8 -6 -7


23 January 2015



EUR/FRF forwards




euro-zone HICP ex-tob

DBRei16 0.89 -1 -3 -8 -137 -129 57 39 -1.08 -1 -2 -6 -134 -124 70 77

OBLei18 -0.40 -1 -5 -7 -54 -52 -8 -31 0.22 -1 -4 -6 -53 -51 -6 -28

DBRei20 -0.68 -1 -3 -5 -34 -34 -8 -23 0.62 -1 -3 -5 -34 -34 -8 -24

DBRei23 -0.85 0 -2 -3 -21 -21 -6 -15 1.00 -1 -2 -3 -21 -21 -7 -17

DBRei30 -0.64 0 -1 -2 -11 -11 -2 -7 1.27 0 -2 -2 -12 -12 -6 -12

OATei15 0.78 -4 -12 -24 -439 -0.95 -3 -4 -15

OATei18 -0.58 -1 -5 -6 -50 -49 -10 -32 0.53 -1 -5 -6 -49 -49 -11 -34

OATei20 -0.70 -1 -3 -4 -33 -32 -8 -22 0.81 -1 -3 -5 -33 -33 -10 -25

OATei22 -0.72 -1 -2 -3 -24 -23 -6 -15 1.00 -1 -3 -4 -24 -24 -8 -20

OATei24 -0.63 0 -2 -2 -18 -17 -4 -11 1.10 0 -2 -3 -19 -19 -7 -16

OATei27 -0.50 0 -1 -2 -15 -14 -2 -8 1.18 0 -2 -3 -16 -16 -7 -14

OATei30 -0.37 0 -1 -1 -11 -11 -1 -5 1.35 0 -2 -2 -12 -12 -6 -12

OATei32 -0.32 0 -1 -1 -11 -11 -1 -5 1.36 0 -2 -2 -13 -13 -6 -12

OATei40 -0.18 0 -1 -1 -7 -7 0 -3 1.46 0 -1 -2 -9 -9 -5 -9

BTPei16 0.50 -1 -5 -8 -103 -97 20 -11 -0.27 -2 -6 -10 -106 -102 5 -43

BTPei17 0.14 -1 -4 -6 -64 -61 2 -20 0.24 -1 -5 -8 -67 -65 -8 -38

BTPei18 0.00 -1 -3 -5 -46 -44 -1 -17 0.48 -1 -5 -6 -49 -48 -11 -33

BTPei19 0.10 -1 -2 -4 -36 -34 1 -11 0.53 -1 -4 -5 -39 -38 -9 -26

BTPei21 0.27 0 -1 -2 -25 -23 2 -5 0.77 -1 -3 -4 -28 -28 -8 -21

BTPei23 0.37 0 -1 -2 -20 -18 2 -3 0.98 -1 -3 -3 -23 -23 -8 -19

BTPei24 0.43 0 -1 -1 -17 -16 2 -2 1.02 -1 -2 -3 -20 -20 -7 -17

BTPei26 0.64 0 -1 -1 -15 -13 3 0 1.01 0 -2 -3 -18 -18 -7 -15

BTPei35 0.93 0 0 0 -8 -7 3 1 1.46 0 -2 -2 -11 -12 -7 -13

BTPei41 1.16 0 0 0 -7 -6 3 2 1.44 0 -1 -2 -9 -10 -6 -11

SPGei19 -0.13 -1 -3 -4 -34 -32 -2 -14 0.72 -1 -4 -5 -37 -36 -10 -28

SPGei24 0.19 0 -1 -2 -17 -16 1 -4 1.12 0 -2 -3 -20 -20 -7 -17

French CPI ex-tob

BTANi16 -0.53 -2 1 -1 -69 -68 -8 -5 0.39 -2 2 0 -68 -66 -4 1

OATi17 -0.60 -1 0 -1 -40 -39 -6 -6 0.50 -1 1 0 -40 -38 -5 -5

OATi19 -0.73 -1 0 -1 -23 -22 -5 -5 0.74 -1 0 -1 -23 -22 -6 -8

OATi21 -0.77 0 0 -1 -15 -14 -3 -4 0.93 -1 0 -1 -16 -15 -6 -8

OATi23 -0.70 0 0 0 -12 -12 -2 -2 1.10 0 0 -1 -13 -13 -5 -8

OATi29 -0.47 0 0 0 -8 -7 0 0 1.34 0 -1 -1 -9 -9 -5 -7

CADESi17 -0.48 -1 1 0 -40 -38 -3 0 0.43 -1 1 0 -40 -38 -4 -3

CADESi19 -0.57 -1 0 0 -22 -21 -3 -2 0.65 -1 0 -1 -23 -22 -5 -5

CADESi21 -0.61 0 0 0 -15 -14 -2 -2 0.82 0 0 -1 -16 -16 -5 -6


23 January 2015



UKTi forwards




UK RPI

UKTi816 -1.39 1 7 8 13 22 55 107 1.72 2 7 9 15 25 62 123

UKTi820 -1.34 0 2 2 4 6 12 19 2.31 0 1 1 2 3 7 10

UKTi824 -1.07 0 1 2 3 4 9 13 2.52 0 0 0 1 1 3 4

UKTi830 -1.01 0 1 1 2 3 6 9 2.80 0 0 0 0 0 0 0

UKTi835 -1.00 0 1 1 1 2 4 6 3.02 0 0 0 0 0 -1 -1

UKTi17 -1.51 -3 -3 -4 -31 -27 -4 -9 2.05 -3 -3 -4 -31 -28 -5 -10

UKTi19 -1.42 -2 -1 -2 -17 -14 -1 -3 2.33 -2 -2 -3 -19 -17 -6 -11

UKTi22 -1.20 -1 -1 -1 -10 -8 1 1 2.47 -1 -2 -2 -12 -11 -5 -8

UKTi24 -1.04 -1 0 -1 -8 -6 2 2 2.49 -1 -1 -2 -10 -9 -4 -7

UKTi27 -1.01 -1 0 -1 -6 -5 1 2 2.64 -1 -1 -2 -8 -8 -4 -7

UKTi29 -0.96 0 0 0 -5 -4 1 2 2.75 -1 -1 -1 -7 -7 -4 -7

UKTi32 -1.02 0 0 0 -5 -4 1 1 2.90 -1 -1 -1 -6 -6 -4 -7

UKTi34 -0.97 0 0 0 -4 -3 1 1 2.93 -1 -1 -1 -6 -6 -4 -7

UKTi37 -1.00 0 0 0 -4 -3 1 1 3.04 -1 -1 -1 -5 -5 -4 -6

UKTi40 -0.99 0 0 0 -3 -2 1 1 3.09 0 -1 -1 -5 -5 -4 -6

UKTi42 -1.01 0 0 0 -3 -2 1 1 3.10 0 -1 -1 -4 -4 -4 -6

UKTi44 -0.97 0 0 0 -3 -2 1 1 3.11 0 -1 -1 -4 -4 -4 -5

UKTi47 -1.00 0 0 0 -2 -2 1 1 3.11 0 -1 -1 -4 -4 -4 -5

UKTi50 -0.99 0 0 0 -2 -2 1 1 3.08 0 -1 -1 -3 -4 -3 -5

UKTi52 -0.98 0 0 0 -2 -2 1 1 3.10 0 -1 -1 -3 -3 -3 -5

UKTi55 -1.00 0 0 0 -2 -2 1 1 3.08 0 -1 -1 -3 -3 -3 -4

UKTi58 -0.97 0 0 0 -2 -1 0 1 3.06 0 -1 -1 -3 -3 -3 -4

UKTi68 -0.98 0 0 0 -1 -1 0 0 3.10 0 -1 -1 -2 -3 -3 -4


23 January 2015



Zero-coupon swap B/Es

US CPI EUR HICPxt FR CPIxt UK RPI

spot 1D 1W 1M spot 1D 1W 1M spot 1D 1W 1M spot 1D 1W 1M

% bp bp bp % bp bp bp % bp bp bp

level

2 0.90 4 6 0.11 12 4 0.28 14 16 2.19 -9 -11

3 1.24 4 4 0.38 16 11 0.55 20 20 2.47 -9 -15

4 1.41 4 -2 0.60 21 16 0.80 26 25 2.61 -9 -18

5 1.50 4 -5 0.77 23 15 0.97 27 23 2.69 -9 -19

6 1.58 3 -8 0.88 22 11 1.07 24 17 2.74 -9 -19

7 1.66 5 -10 0.98 22 11 1.16 24 14 2.78 -9 -19

8 1.73 4 -11 1.08 22 10 1.27 24 13 2.83 -8 -18

9 1.80 4 -12 1.16 20 7 1.34 23 11 2.86 -8 -19

10 1.85 4 -13 1.23 19 5 1.42 23 11 2.89 -8 -19

12 1.92 3 -14 1.36 20 4 1.53 21 9 2.98 -6 -18

15 1.98 2 -16 1.52 21 6 1.68 21 9 3.11 -5 -16

20 2.03 1 -18 1.65 20 2 1.81 19 5 3.24 -2 -16

25 2.05 -1 -22 1.73 19 1 1.88 19 2 3.30 -1 -17

30 2.07 -2 -22 1.81 19 1 1.93 19 1 3.30 -1 -16



Zero-coupon swap B/Es

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

1 2 3 4 5 6 7 8 9 10 12 15 20 25 30

spot

1W ago

1M ago

ZC swap, EUR HICPxt

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1 2 3 4 5 6 7 8 9 10 12 15 20 25 30

spot

1W ago

1M ago

ZC swap, FRF CPIcxt

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1 2 3 4 5 6 7 8 9 10 12 15 20 25 30

spot

1W ago

1M ago

ZC swap, USD CPI

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1 2 3 4 5 6 7 8 9 10 12 15 20 25 30

spot

1W ago

1M ago

ZC swap, GBP RPI


23 January 2015



Appendix 1

Important Disclosures

Additional information available upon request

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Markus Heider/Alex Li

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23 January 2015



(a) Regulatory Disclosures

(b) 1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

(c) 2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

(d) 3. Country-Specific Disclosures

Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively. Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. In cases where at least one Brazil based analyst (identified by a phone number starting with +55 country code) has taken part in the preparation of this research report, the Brazil based analyst whose name appears first assumes primary responsibility for its content from a Brazilian regulatory perspective and for its compliance with CVM Instruction # 483. EU countries: Disclosures relating to our obligations under MiFiD can be found at http://www.globalmarkets.db.com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of Japan, Japan Investment Advisers Association. This report is not meant to solicit the purchase of specific financial instruments or related services. We may charge commissions and fees for certain categories of investment advice, products and services. Recommended investment strategies, products and services carry the risk of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless "Japan" or "Nippon" is specifically designated in the name of the entity. Malaysia: Deutsche Bank AG and/or its affiliate(s) may maintain positions in the securities referred to herein and may from time to time offer those securities for purchase or may have an interest to purchase such securities. Deutsche Bank may engage in transactions in a manner inconsistent with the views discussed herein. Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation. Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia. United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority.

(e) Risks to Fixed Income Positions

Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that

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23 January 2015



promise to pay fixed or variable interest rates. For an investor that is long fixed rate instruments (thus receiving these cash flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets holding limits for different types of investors), changes in tax policies, currency convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates - these are common in emerging markets. It is important to note that the index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is also important to acknowledge that funding in a currency that differs from the currency in which the coupons to be received are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to the risks related to rates movements.

David Folkerts-Landau Group Chief Economist

Member of the Group Executive Committee

Raj Hindocha Global Chief Operating Officer

Research

Marcel Cassard Global Head

FICC Research & Global Macro Economics

Richard Smith and Steve Pollard Co-Global Heads Equity Research

Michael Spencer Regional Head

Asia Pacific Research

Ralf Hoffmann Regional Head

Deutsche Bank Research, Germany

Andreas Neubauer Regional Head

Equity Research, Germany

Steve Pollard Regional Head

Americas Research

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Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report.

Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst judgement. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Deutsche Bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis. Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.

Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk. The appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax position, their regulatory environment and the nature of their other assets and liabilities and as such investors should take expert legal and financial advice before entering into any transaction similar to or inspired by the contents of this publication. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options," at http://www.theocc.com/components/docs/riskstoc.pdf . If you are unable to access the website please contact Deutsche Bank AG at +1 (212) 250-7994, for a copy of this important document.

The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading losses may be incurred that are greater than the amount of funds initially deposited.

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