Because forwards are currently inverted, clients are able to purchase options with a higher positive roll from forwards to spot than the premium initially paid Overview on current market dynamics: This years USD interest rate curve flattening in 5s10s can be decomposed into three distinct phases: () the market repricing Fed tapering in the 10y sector (ii) China's intervention on USDCNY, building up official foreign reserves (iii) increase of deflation and QE expectations out of Europe Hypothetical PnL at Expiry M Priaturirt 100.00 ( titian! (1.1) 51141f rt 7114,1 E 80.00 60.00 40.00 Profit 20.00 LOA 000 i4)) 60 80 100 120 140 -20.00 0133:a:4E to;:y :at% One 1y10y/10y swap rate vs. 1y5y/5y swap rate (as of 10/07/2014) 1.g 1.1 Nov-10 Apr-12 Aug-13 Dec-14 Positioning research suggests steepeners are less crowded among real money investors 0.03% 0.03% 0.02% 0.02% 0.01% 0.01% 0.0414 kh Crowded 444teners 4.01% ahead efi OE tapenng announorrn•r4 and 4.01% b sup•persrg :come -on% Mor42 us rt. , moray ?elope postortino d •-0 staeperars tflaartaral Sop-12 Mar-13 Crowded steepeners in 04 2013 ahead of Oatteneng Pra.rr. in HI .7/314 Sep-13 Mar-14 Sep-14 (DB GM Research: Global Fixed Income Weekly — 10/03/14) Please note all prices are indicative and subject to change without notice. CONFIDENTIAL — PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0 124758 CONFIDENTIAL SDNY_GM_00270942 EFTA01462280