This is especially true if the Fed decides to taper its reinvestment policy and this leads to a tightening of financial conditions • The Fed is currently reinvesting proceeds from its maturing securities keeping its balance sheet stable • Altering this reinvestment policy would equate to a monetary policy tightening - Fed can stop, or more likely taper reinvestments - Opposite effect to QE, i.e., higher long-term rates • As such, the decision and the tightening of financial conditions it would bring about may affect the Fed's assessment of the pace of rate hikes - At $300-500bn per year through 2019, the amount of maturing securities is considerable • The Fed has so far given little guidance on when or how this will happen - Fed would like to be confident that economy is weathering rate hikes well • We expect Fed to begin reducing its reinvestment some time in the second half of 2016 Deutsche Bank Res:sap:A, 1.5.7e! The size of the Fed's balance sheet is currently kept constant via the reinvestment of maturing assets 41. Some: Never Anelpics. Deutsche Bank Research NIBS Treasu Iles 41, Nt* Nc) ti~ rt9. A wave of maturities from the Fed's portfolio could put upward pressure on long-term rates when the Fed stops reinvesting $bn Fixed elm Annual maturities (Is) income market will have 600 to absorb a tot more when Fed -Cumulative maturities (rs) ‘Atl:.9s reinvestment 400 200 I 1.. -I 20153016 2017 2018 2019)2020 2021 2022 2023 2024 2025 Note: projections based on a speech by the Fed's Stankry Fischer in February 2015 Source: Fischer (2015). FRBNY. Deutsche Bank Research $bn - 4,000 3,000 2,000 1,000 0 10 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL SDNY_GM_00265441 DB-SDNY-0 119257 EFTA01459047