MARKET MOVER - BNP PARIBAS - Investment Services India

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Market Economics | Interest Rate Strategy | Forex Strategy 23 September 2010
Market Mover
Market Outlook 2-3
Fundamentals 4-17
• US FOMC: Just Doing My Job 4-5
• US: Wealth Fell as Stocks Tanked in 6-7
Q2
• ECB: QE through the Back Door? 8-9
• Eurozone: Reality Bites 10-11
• France: 2011 Budget to Push CPI Up 12-13
• Norway: Cautious Approach 14-15
• Japan: Tankan to Remain Upbeat 16-17
Interest Rate Strategy 18-43
• Global: The Debt/Equity Macro Trade 18
• US: Belly of the Curve is Rich, but… 19-20
• US: A Carry Trade with Extra
21-22
Potential
• MBS: Remain Underweight, GNM 23
CBRs Up
• EUR: Outlook for the Curve 24
• EUR: Re-Enter Flatteners on 5y/10y 25
Segment
• ECB Upcoming Tenders: How
26
Much?
• EGBs: Market Update & Top Trade 27-28
Ideas
• EUR Covered Bonds: Market Update 29-30
• GBP Curve Opportunities Update 31
• Global Inflation Watch 32-35
• Inflation: Bring QE to Europe! 36-37
• Europe iTraxx Credit Indices 38-40
• Technical Analysis 41-42
• Trade Reviews 43
FX Strategy 44-50
• Liquidity-Driven FX Markets 44-47
• Technical Strategy: NOKSEK to 48-49
Extend Downtrend
• Trading Positions 50
Forecasts & Calendars 51-68
• 1 Week Economic Calendar 51-53
• Key Data Preview 54-62
• 4 Week Calendar 63
• Treasury & SAS Issuance 64-65
• Central Bank Watch 66
• Economic & Interest Rate Forecasts 67
• FX Forecasts 68
Contacts 69
• The FOMC statement formalised the bias to ease laid
out in Bernanke’s speech at Jackson Hole.
• The failure to deliver on its dual mandate is prominent
in Fed thinking. More of the same data-wise will open the
door to balance sheet expansion – probably in November.
• Yield curves are back in bull-flattening mode post-
FOMC. New lows for yields will require further weakness in
the data: we look for September’s ISM to fall sharply.
• The Fed’s intentions and those of the ECB look
increasingly divergent, though the latter’s bark may be
worse than its bite. The latest PMI figures suggest the
eurozone is fast losing growth momentum.
• Demand from banks in the eurozone ‘periphery’ is likely
to be strong at the upcoming 3-month ECB tender.
• The JGB market has moved back into bull-flattening
mode, in line with external developments. Volatility in
super-longs has risen but demand should remain robust.
• Global liquidity conditions will continue to drive
currency markets. High-beta and commodity currencies
remain in focus despite signs of softer global growth.
• Elevated inflation is hindering the Bank of England from
following the Fed’s route but there were baby steps
towards more QE in this month’s MPC minutes.
• Against this backdrop, we maintain our EUR/GBP long
and GBP/AUD short positions.
Market Views
Current 1 Week 1 Month
UST 10y T-note Yield (%) 2.52 ↔ ↔
2y/10y Spread (bp) 209 ↔ ↔
EGB 10y Bund Yield (%) 2.29 ↔ ↔
2y/10y Spread (bp) 159 ↔ ↔
JGB 10y JGB Yield (%) 1.04 ↔ ↔
2y/10y Spread (bp) 90 ↔ ↔
Forex EUR/USD 1.3341 ↑ ↓
USD/JPY 84.33 ↓ ↔
www.GlobalMarkets.bnpparibas.com
IMPORTANT NOTICE. Please refer to important disclosures found at the end of
this report. Some sections of this report have been written by our strategy teams
(shown in blue). Such reports do not purport to be an exhaustive analysis and may
be subject to conflicts of interest resulting from their interaction with sales and
trading which could affect the objectivity of this report.

Market Outlook
Fed opens the door to
more stimulus…
…as it fails to deliver on its
mandated objectives
The outcome of the FOMC meeting pretty much matched our expectations,
with the Fed opening the door to “additional accommodation if needed” to
“support the economic recovery” and “return inflation, over time, to levels
consistent with its mandate”. This formalised the bias to ease which had
been laid out in Chairman Bernanke’s speech at Jackson Hole.
We had suggested prior to the FOMC meeting that failure to deliver on its
dual mandate of price stability and maximum sustainable employment would
figure prominently in the Fed’s thinking and so it proved. The change in the
language in the statement with regard to inflation was particularly striking. To
quote: "Measures of underlying inflation are currently at levels somewhat
below those the Committee judges most consistent, over the longer run, with
its mandate to promote maximum employment and price stability”.
If the data continue to paint a picture of sub-par growth, the Fed will continue
to fail to achieve its mandated objectives and additional accommodation will
be required. The bar for action, therefore, is set low: more of the same will
be sufficient to prompt the next phase of balance sheet expansion – which
we continue to believe is most probable at the November FOMC meeting. A
marked improvement in incoming data will be required to forestall the Fed
taking such action.
70
65
60
55
50
45
40
35
30
25
US ISM: Downside Risk?
Manufacturing ISM:
New Orders less Inventories (RHS)
ISM Manufacturing:
Headline
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
30
25
20
15
10
5
0
-5
-10
-15
-20
Source: Reuters EcoWin Pro
Weaker ISM to boost the
case for action
The next key staging post in the assessment of the data is the upcoming run
of business surveys for September, including the ISM for manufacturing at
the end of next week. Our expectation is for a downward surprise relative to
market consensus expectations: we see the headline index forecast sliding
to around 53, its lowest level since early 2009. The gap between the subindices
for new orders and inventories, usually a good leading indicator of
the ‘headline’ ISM index, is pointing to considerable downside potential for
the latter (see chart).
In between times, durable goods orders are likely to have fallen sharply in
August, driven by a drop in aircraft orders. Stripping out the transport sector,
we forecast that orders will rebound but the underlying trend in the ‘core’
data remains weak, indicative of a slowdown in business investment – one of
the better-performing areas of the economy recently.
Ken Wattret 23 September 2010
Market Mover
2
www.GlobalMarkets.bnpparibas.com

ECB on a different page…
…but its bark may be
worse than its bite
BoE shifts towards
additional QE
Yield curves back in bullflattening
mode, with
upcoming data key
High demand from banks
at ECB’s 3-month op
JGB market takes its lead
from elsewhere; superlongs
favoured
Upward pressure on JPY,
downward pressure on
GBP
The Fed’s intentions and those of the ECB look increasingly divergent. While
the ECB’s decision to extend the full allotment procedure for all refinancing
operations until year-end was sensible, it was accompanied in the August
press conference by an assertion from President Trichet that the ECB is still
“in the process of phasing out” its unconventional measures. This was then
followed by comments from Governing Council members highlighting their
discomfort with the “addiction” of some banks to ECB funding.
Will the ECB’s bark be worse than its bite? Given the U-turns which the ECB
has been forced to make before, this is our assumption. The most recent
activity data in the eurozone – most notably the flash PMIs for September –
also signal that the slowdown in growth is gathering momentum. Still, on the
basis of what we hear from the ECB, the risk of a premature exit remains
highest in the eurozone in our view.
The Bank of England MPC, in contrast, seems to be taking some baby steps
towards further easing. That Mr Sentance again voted for a rate rise earlier
this month was not a surprise. But the MPC meeting minutes revealed a
greater concern from more than one member about the increased risk of a
hard landing for the UK economy. There is growing sympathy for further QE
but this has not yet been sufficient to prompt a formal dissent in that
direction.
Unlike the Fed, the Bank of England has its hands tied by elevated inflation
and the risk that this poses to inflation expectations. Our view has been that,
by early 2011, more concrete signs that the downside risks to growth are
materialising and the upside risks to inflation are not would open the door to
additional QE. The MPC minutes, plus recent signs of a lurch downwards in
UK activity, suggest even earlier action is possible.
Yield curves are back in bull-flattening mode post-FOMC. The question is
whether the FOMC statement was the trigger for a new bullish phase or if
further evidence of a US and European slowdown is a precondition for a
lasting rally. In the aftermath of the FOMC, it seems that ‘risk on’ is fizzling
out, reflected in faltering equity markets.
Upcoming data will be pivotal in this respect. Further evidence of slowing
activity and a renewed deceleration in core inflation – both of which we
expect – will be needed for yields to hit new lows.
In the eurozone, keep an eye on the expiry of the ECB’s EUR 225bn of
liquidity provided through 3mth, 6mth and 12mth tenders. Given the origin of
demand at these tenders – mainly banks in the periphery – it is likely that
demand at the 3mth tender at the end of the month will be high from this
source. The upcoming operation will result in a decrease in liquidity but
excess liquidity will persist for a while yet.
The JGB market has moved back into bull-flattening mode, helped by market
developments externally, with the 10-year JGB yield once again approaching
the 1% level and the super-long sector also performing strongly. Volatility
throughout the super-long sector has increased but investor demand is
robust and we expect super-longs to continue to perform well.
Global liquidity conditions will continue to drive currency markets. High beta
and commodity currencies will remain in focus despite increasing signs that
global growth is slowing.
USD/JPY continues to drift lower with commercial JPY buying interest being
the dominant flow. The credibility of Japanese authorities is again likely to be
tested as expectations of Fed action add to pressure for further intervention.
A strong JPY and weak stock prices are particularly unwelcome, given that
the fiscal half-year closing is fast approaching.
With the Bank of England becoming more inclined to further QE, we keep
our EUR/GBP long and GBP/AUD short positions.
Ken Wattret 23 September 2010
Market Mover
3
www.GlobalMarkets.bnpparibas.com

US FOMC: Just Doing My Job
• The FOMC delivered a statement at its
September meeting that formalised a bias
toward easing, largely as expected.
Chart 1: Underlying Inflation “Somewhat
Below” Fed’s Mandate
• It cited its inflation mandate three times,
noting that it is currently falling short.
• We think this sets the bar low for further
action. A failure to accelerate from the current
sub-par growth environment will confirm
something more pervasive than a soft patch and
will lead to further balance sheet expansion as
early as November.
• By proceeding methodically, the FOMC is
building credibility for its policy.
The FOMC delivered a statement at its September
meeting that codified a bias toward easing. The
Committee cited its mandate three times in the
statement, referencing inflation in particular. First, the
statement indicated the Fed is falling short of its
inflation mandate; second, it expressed confidence
that the mandate will be reached over time; and third,
it said the Committee might need to engage in policy
easing in order to achieve the mandate. We think the
take-away is that the data will need to materially
improve from the current sub-par pace of growth to
prevent the Fed from pulling the trigger on further
easing and we continue to see the November FOMC
meeting as the most likely time for the next phase of
balance sheet expansion. The FOMC has no choice;
it is just doing the job Congress mandated it to.
The statement included only modest changes to the
economic paragraph, noting that business
investment is rising "less rapidly than earlier in the
year" but also noting that bank lending continues to
contract "but at a reduced rate”. Clearly, the pace of
deleveraging is being factored into its outlook quite
explicitly and the slower pace of credit contraction is
being considered as a potential positive for growth.
The FOMC continues to cite the slowing in the pace
of hiring and growth, the gradual pace of
improvement in household spending and its
expectation that the economy will see a “a gradual
return to higher levels of resource utilization in a
context of price stability, although the pace of
economic recovery is likely to be modest in the near
term”.
Meanwhile, it strengthened its concerns about
deflationary pressures quite noticeably, saying
"Measures of underlying inflation are currently at
Source: Reuters EcoWin Pro
Chart 2: Rates Falling on Slow Growth,
Prospect of Policy Easing
Source: Reuters EcoWin Pro
levels somewhat below those the Committee judges
most consistent, over the longer run, with its
mandate to promote maximum employment and
price stability”. In other words, as noted in the August
FOMC statement, it is currently failing on its
mandate. The statement goes on to say that inflation
is likely to remain subdued for some time “before
rising to levels the Committee considers consistent
with its mandate”. While the Fed believes it will
succeed in its mandate, the question is how it will do
so. Either the economy will accelerate from here and
resource slack will close over time through organic
propulsion of economic growth or the FOMC will
need to stimulate the economy further through the
printing of more money to prevent a deflationary
dynamic from taking hold. One way or another, the
Fed will get the job done.
The statement also included a new policy paragraph
which indicated that “The Committee will continue to
monitor the economic outlook and financial
Julia Coronado 23 September 2010
Market Mover
4
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developments and is prepared to provide additional
accommodation if needed to support the economic
recovery and to return inflation, over time, to levels
consistent with its mandate”. Here is the easing bias
laid out in Chairman Bernanke’s Jackson Hole
speech formalised in the FOMC statement.
If the data continue to paint a picture of sub-par
growth, the Fed will continue to fail in its mandates
and additional accommodation will indeed be
needed. The bar for action is therefore low; more of
the same will likely lead to policy action in November.
A material improvement in incoming data will be
required to forestall such an easing.
The Fed embarked on the path to policy easing in
June with a more dovish than expected FOMC
statement. This was followed by a discussion of
policy options in July at the Semi-Annual Monetary
Policy Testimony to Congress, a commitment to
reinvest the roll-off from its mortgage portfolio at the
August FOMC meeting, a frank step towards an
easing bias at Jackson Hole and a formalisation of
that bias by the Committee in September. This
methodical progression has helped build credibility
for further action without startling risky asset markets
or scaring investors away from US securities.
Should the data continue to suggest sub-par growth,
it will become clear that the economy is not just in the
midst of a temporary soft patch and the FOMC will
move decisively to address deflationary risks. By
tying policy actions more to its inflation than its
employment mandate, the Fed is more likely to
maintain credibility; monetary policy has a greater
ability to prevent deflation than to lower the
unemployment rate.
Yet a focus on inflation also allows the FOMC to
factor in the broad spectrum of economic and
financial market conditions. For example, if the
unemployment rate continues to rise, the downside
risks to inflation intensify and the Fed can justify
further policy action. We forecast the unemployment
rate will rise to 9.8% in Q4 and the Fed will expand
its balance sheet.
Julia Coronado 23 September 2010
Market Mover
5
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US: Wealth Fell, Deleveraging Continued in Q2
• The latest Flow of Funds accounts indicate
that household wealth fell in Q2, largely in line
with the decline in equity indexes.
Chart 1: Net Worth Fell in Q2
• Total domestic debt increased in the first
half of the year as continued private sector
deleveraging was more than offset by federal,
state and local government borrowing.
• Debt ratios have fallen significantly from
their peaks at the beginning of 2008.
Nevertheless, consumers remain cautious in
their spending, focusing primarily on
necessities.
• The business sector data for Q2 indicate
companies’ persistent caution with regard to
investing in expansion or hiring more workers.
Source: Reuters EcoWin Pro
Chart 2: Total Debt Rose as Governments
Borrowed to Finance Deficits
The Federal Reserve’s Flow of Funds accounts
for Q2 2010 showed a drop in household net
worth on the back of stock market declines
Household net worth declined USD 1.52trn to USD
53.5trn in Q2, driven mainly by capital losses on
equity holdings. Meanwhile, real estate values picked
up slightly in Q2 as tax incentives pushed house
prices higher. Broad equity indexes dropped 11.4%
in Q2 but have advanced 9.1% since then –
suggesting net worth will increase in Q3. As shown in
Chart 1, household net worth as a percent of
disposable personal income declined for the first time
since the troughs reached in Q1 2009 and is now
back below levels seen in 1995 (before the start of
the internet bubble in equity prices). The likelihood of
house prices stagnating in H2 and the possibility of
below-potential GDP growth in the coming quarters
have interrupted the recovery in net worth and
flattened the outlook for consumer spending.
Private sector deleveraging continued in Q2 at
roughly the same pace as the beginning of the
year
The data indicate that private sector deleveraging
continued at a rapid pace in Q2. As shown in Chart
2, expansion in public sector borrowing more than
offset the contraction in private sector credit in Q1
and Q2. Federal, state and local governments
borrowed to finance their massive budget deficits.
Household borrowing contracted 2.3% in Q2, an
acceleration from the 1.7% fall in Q1 as both
mortgage and consumer credit posted sizable
declines. Non-financial corporations increased their
borrowing by 3.8% in Q2 following a 5.2% rise in Q1
2010 as firms tapped the bond market in size.
Source: Reuters EcoWin Pro
However, the noncorporate sector reduced its
borrowing by a similar amount and overall the
business sector was neutral on aggregate borrowing.
The financial sector continued to deleverage at a
much faster pace than other sectors, with net
borrowing declining 7.1% after a 7.5% drop the prior
quarter (the pace of decline has nonetheless slowed
from over 10% in 2009).
Debt ratios have fallen significantly from their
peaks at the beginning of 2008. Nevertheless,
consumers remain cautious in their spending,
focusing primarily on necessities
Consumers continued to reduce their debt, largely by
defaulting on their credit cards and mortgages. In
fact, the quarterly government data on commercial
banks suggest charge-off rates on credit cards
reached their all-time highs in Q2, rising to 10.7% of
banks’ average loan balance. The Federal Reserve
Financial Obligation Ratio (FOR), which includes
automobile lease payments, rental payments on
tenant-occupied property, homeowners' insurance
Yelena Shulyatyeva 23 September 2010
Market Mover
6
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and property tax payments, dropped to levels last
seen in 2000. In the meantime, the ratio of total
household debt to annual disposable personal
income declined in Q2 to 1.2, below its peak of
above 1.3 at the beginning of the last recession
(Chart 3). Both measures suggest consumers
improved their balance sheets and could be closer to
returning to their previous spending habits. However,
the Financial Obligation Ratio probably overstates
the improvement as it assumes consumers can
refinance all their debt at current low rates, which we
know is not the case owing to tight credit and
underwater mortgages. Indeed, recent surveys
indicate consumer optimism remains at levels
historically associated with recession (Chart 4).
According to the latest Beige Book report,
consumers’ “emphasis [is] on necessities and lowerpriced
goods”. Given that equity and house prices
are unlikely to appreciate much in the near term
(indeed, we expect house prices to decline at least
5% from current levels), we expect US consumers’
cautious stance to continue until at least the end of
2012. At that point, the deleveraging that has been
weighing so heavily on growth will have progressed
significantly further.
The Flow of Funds data in Q2 for the nonfinancial
corporate business sector show companies’
persistent caution with regard to investing in
expansion or hiring more workers
Recent incoming data have confirmed that the
recovery continues, although at a very moderate
pace. Apart from consumers’ reluctance to spend,
economic growth has been dampened by
businesses’ reluctance to reinvest their fast-growing
profits. The Q2 Flow of Funds data for the
nonfinancial corporate business sector indicate that
the ratio of liquid assets to short-term liabilities is little
changed at 49.8%, down only slightly from 50.8% at
the end of last year. Meanwhile, employment growth
has slowed to a pace below that required to absorb
population growth, also a reflection that businesses
are loath to expand. In addition, the latest Beige
Book report indicated that capacity utilisation remains
below pre-recession levels. While we saw doubledigit
growth in equipment and software investment
earlier this year, “capital spending plans for
manufacturers and firms in other industries generally
indicate little change or modest increases in coming
months”. While the longest recession since the Great
Depression officially ended in June 2009 according
to the National Bureau of Economic Research, the
latest Flow of Funds accounts suggest businesses
and consumers have yet to regain their confidence.
We therefore see below-trend growth for another
Chart 3: Debt Ratios Continued to Fall
Source: Reuters EcoWin Pro
The FOR includes automobile lease payments, rental payments on tenantoccupied
property, homeowners' insurance and property tax payments.
Chart 4: Consumers Remain Cautious
Source: Reuters EcoWin Pro
Chart 5: Companies Cautious to Invest
Source: Reuters EcoWin Pro
year as the most likely outcome even factoring in
significant monetary stimulus. Monetary easing is
expected to largely offset the drag on growth from
fiscal tightening over the next two years and the pace
of any acceleration in growth will be driven in large
part by the state of the deleveraging cycle.
Yelena Shulyatyeva 23 September 2010
Market Mover
7
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ECB: QE through the Back Door?
• We suspect that the apparent contradiction
between the phenomenon of wider peripheral
spreads but good peripheral government
auction results could be reconciled by local
banks being the marginal buyers at auctions,
with financing coming from the ECB.
• While some of the effects of this are likely to
be similar to that under QE, we would argue that
this is not QE through the back door, not least
because the scale will likely be small compared
with QE proper.
• Meeting a potential funding gap through
commercial banks is less unpalatable to the
ECB than the ECB buying peripheral debt on its
own account and the EFSF looks as though it
was not meant to be drawn upon. What is
happening is the ‘least worst’ option.
Chart 1: ECB Government Bond Purchases
18
16
14
12
10
8
6
4
2
0
Source: ECB
ECB Purchases under the
Securities Markets Programme (EURbn)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Weeks from the Start of the Programme
Chart 2: Portuguese and Irish 10y Bond
Spreads to Bund (bp)
• The practice may make the ECB’s exit
strategy a bit trickier than otherwise
There has rightly been a lot of attention about the
Fed’s throwing the door open to QE in its latest
statement. The market finally seems to have realised
that the deflation warning bells are ringing (we’ve
been banging on about the danger of this for nearly
two years).
But the ECB has eschewed QE and has only bought
a small quantity of peripheral bonds (EUR 61.6bn in
total, Chart 1) for explicitly fiscal/market stability
reasons rather than as a monetary policy initiative.
There is more than one way to skin a cat and there is
more than one way to QE. Let’s examine what’s been
happening.
First, in the bond markets, Ireland’s 10y bond spread
to bunds reached 408bp recently – well above its
high of around 310bp in May. Portugal’s spread has
gone to 396bp compared with a high of 385bp in May
(Chart 2). This suggests rather a low level of demand
for the debt of these countries (some investors have
withdrawn from buying these countries’ debt, others
have scaled back a lot after having been burnt). At
the same time, the auctions for peripheral debt seem
to have been going remarkably well, suggesting good
demand.
Simultaneous signs of poor demand for a country’s
debt in the secondary market but good take-up at
auctions seem in conflict. How to square the circle?
One hypothesis is that the people buying in the
auctions are not the same bunch as those holding
the stock. In particular, there are strong suspicions
Source: Reuters EcoWin Pro
that a lot of bids in the auctions are coming from local
banks. The portion of combined liabilities of the
periphery (Greece, Ireland, and Portugal) funded with
the central bank reached 10.1% in July. That
compares with 7% in January and an average of
1.8% between 2001 and 2007 (Chart 3). The lower
volatility of the 5y CDS spread also supports this
conclusion. The latest monetary statistics from the
ECB relate to July and do not show the big increase
in credit to governments that our hypothesis about
the auctions would suggest. However, we put this
down to local banks’ buying increased amounts of
local debt being a relatively recent phenomenon.
How are the banks financing these purchases?
Probably by repoing the securities with the ECB. This
is where the claim of QE by the back door comes in.
If the ECB lends funds to banks and the banks use
those to purchase govvies, isn’t this akin to QE by
the back door or through an agent, rather than acting
Paul Mortimer-Lee 23 September 2010
Market Mover
8
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directly to effect outright purchases as the Bank of
England has done?
We would argue, yes and no.
On the yes side:
• There is increased demand for govvies;
• This is financed ultimately by an expansion of the
central bank balance sheet (full allotment tenders
give control of the size of the ECB’s balance
sheet to the private sector);
• Broad money supply rises as does narrow
money; and
• There should be a price effect on the govvies
bought.
On the no side:
• The scale will be massively short of the scale of
QE proper (13% of GDP in the UK’s case);
• The exit for the central bank is easier – it does
not have to sell debt but merely scale back
money market assistance or alter its terms;
• The risks faced by the central bank are smaller
because the commercial banks’ capital is the first
line of defence against markdowns in the values
of government securities;
• The motivation is not monetary easing (though
the effect may be that) but fiscal support;
• It is a less overt form of QE so its effects on
asset markets and the exchange rate may be
smaller; and
• It targets portions of the EUR govvie market, not
the whole of it and so is more akin to ‘credit
easing’.
Overall, while there are similarities to QE proper, we
would see the scale and targeted nature of the
operation as ruling out the operations being seen as
QE proper.
It has a number of implications:
• It intertwines more closely the fate of the local
banks and the government;
• It reduces the appetite (low in the first place) for
the EU institutions to allow restructuring by a
sovereign as the ECB could suffer losses if the
collateral was written down (only true if the bank
pledging the collateral goes under, we admit);
Chart 3: Liabilities Funded with Central Bank
(% of Total)
20
18
Gr
16
14
12
10
8
Irl
6
4
Pt
2
Sp
0
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Source: Reuters EcoWin Pro
• It could risk crowding out private sector access to
bank credit;
• It may make the ECB’s exit from extraordinary
measures a bit trickier as it would have to
contemplate the effects on govvie markets as
well as money markets of the exit;
• When it comes to normalising rates some way
down the road, govvie markets may not perform
well, so the ECB would risk damaging the capital
of banks in struggling peripheral countries – also
giving it pause for thought.
Should the ECB be happy to see its facilities being
used in this way? We can speculate that it might not
like the principle of it effectively financing
governments through an agent. However, as long as
the collateral requirements are being met, why
should it worry? Its facilities are there to be used.
This is one way credit and money supply can be
boosted.
Furthermore, what are the alternatives? If institutional
demand falls short of supply, there could be a
renewed crisis in sovereign markets. The ECB is
reluctant to buy on its own account and the EFSF
appears to us as an institution that the eurozone
countries never want to be used. So local bank
buying of govvie debt, while relatively unpalatable to
the ECB, may be the least unpalatable practical
proposition.
Paul Mortimer-Lee 23 September 2010
Market Mover
9
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Eurozone: Reality Bites
• The slowdown in the manufacturing sector
is gathering momentum, evident in both surveys
and ‘hard’ activity data recently.
• The latest PMI figures also showed weaker
service sector activity, supporting our forecast
of a marked slowdown in GDP growth.
When global economic growth is slowing, there is
often a period of uncertainty when, due to the lagged
impact of this slowdown, the eurozone seems to be
defying gravity – prompting speculation that it will be
largely unaffected by the global downturn. This is
usually followed by a reality check as the eurozone
economy belatedly starts to weaken. The latter now
seems to be occurring.
Manufacturing loses momentum
The eurozone 'flash' PMI figures for September came
in much weaker than was initially expected, with the
weakness broad based across sectors. The PMI for
manufacturing dropped from 55.1 to 53.6, the fourth
month in the past five to register a decline and the
lowest level for the index since January.
The sub-index of new orders fell from 55.3 to 52.8, its
weakest level for a year and a long way down on the
cycle peak of almost 60 in March this year. It is not
just the surveys which are faltering. The m/m fall in
industrial orders in July, of 2.4%, was the biggest
since early 2009 i.e. in the aftermath of the collapse
in activity post-Lehman. After a record-breaking 8%
q/q surge in industrial orders in Q2, Q3’s
performance will be much less impressive: an
unchanged level of orders in the next two months
would deliver a modest 0.5% q/q increase in Q3
overall.
The deterioration in the manufacturing PMI figures is
already indicative of a pronounced slowdown in the
y/y growth rate in actual orders (Chart 1) and the
breakdown of the manufacturing PMI suggests that
the weakness has further to go.
When the PMI figures are released, we always keep
a particularly close eye on the relationship between
the sub-indices for new orders and stocks of finished
goods. This can often be a good guide to the future
path for the ‘headline’ PMI in the sector. In the US
and UK, the differential between orders and stocks
had fallen sharply in the past few months, pointing to
a further deterioration in the ISM and CIPS surveys
for manufacturing in the period ahead.
Chart 1: Eurozone Orders & Manufacturing PMI
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30
25
97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Manufacturing PMI:
New Orders (Lagged 2Mths)
Industrial Orders
(% y/y, Smoothed RHS)
Chart 2: Eurozone Manufacturing PMI Breakdown
1.4 Manufacturing PMI:
Ratio of New Orders to Stocks of Finished Goods
1.3
1.2
1.1
0.9
0.9
0.8
0.7
0.6
0.5
97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Manufacturing PMI: Headline (RHS)
Chart 3: Eurozone Composite PMI & Growth
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Composite PMI:
Output
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98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
GDP % (q/q, RHS)
The decline in the eurozone equivalent had, until the
latest month’s data, been much less pronounced. We
suspected that this was merely a result of lags and
the September PMI data support our view: the orders
to stocks ratio has fallen sharply, signalling further
downward pressure on the PMI (Chart 2).
15.0
5.0
-5.0
-15.0
-25.0
-35.0
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30
1.5
1.0
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-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
Ken Wattret 23 September 2010
Market Mover
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Services also on the slide
The ‘flash’ PMI for the eurozone service sector also
fell much more sharply than expected in September,
sliding from 55.9 to 53.6 – the weakest reading since
February. The deterioration was particularly striking
as the services PMI had fared comparatively well in
the prior few months, supported by developments in
the German economy. The new business sub-index
slumped to 52.5, its lowest level since February.
A rare bright spot in the data was the improvement in
the expectations sub-index for services. It rose to its
highest level since April but, as the improvement in
August’s expectations sub-index did not translate into
a pick-up in activity in the sector in September, we do
not see the rise as very significant.
Weaker H2
The composite PMI’s output index merges activity in
the manufacturing and service sectors and, with the
exception of the period after the intensification of the
financial crisis, it has been a decent real-time guide
to eurozone growth trends.
Having fallen in three of the four months to August,
the composite PMI's output index declined again in
September, to 53.8 from 56.2. This represents the
biggest m/m fall since November 2008 at the height
of the panic over the financial crisis. The current level
of the index is indicative of q/q GDP growth in the
eurozone of less than 0.5% (Chart 3): our forecasts
for Q3 and Q4’s q/q growth rates in eurozone GDP
are 0.5% and 0.3%, respectively, and we appear to
be on track to hit those estimates.
Germany not immune
The star performer of the eurozone growth-wise has
been Germany but there too the 'flash' PMI data fell
much further than expected in September. The PMI
for manufacturing fell from 58.2 to 55.3, its lowest
level since January, with the new orders sub-index
down from 57.6 to 53.0. This is the lowest level since
July 2009 and is twelve points down on its cycle peak
in March.
The orders to stocks ratio of the manufacturing PMI
in Germany also fell sharply, suggesting further falls
in the PMI lie ahead (Chart 4). If past relationships
hold, it suggests that the PMI for manufacturing will
head towards the 50 expansion/contraction
threshold.
The services PMI for Germany, which had done very
well recently, also lost more ground than expected in
September, sliding to 54.6 from 57.2, a seven-month
low. The composite PMI’s output index tumbled to
54.8 from 58.4, indicative of a much reduced rate of
growth in German GDP (Chart 5). The new business
Chart 4: German Manufacturing PMI Breakdown
1.4
1.2
1.0
0.8
0.6
Manufacturing PMI:
Ratio of New Orders to Stocks of Finished Goods
Manufacturing PMI:
Headline (RHS)
0.4
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Chart 5: German Composite PMI & Growth
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Composite PMI:
Output (RHS)
GDP (% q/q)
sub-index is down by almost five points in the last
two months alone (to 52.6).
One of the principal uncertainties over the German
outlook has been the extent to which the slowdown in
the manufacturing and export sectors would damage
the improvement in domestic conditions. The latest
PMI figures suggest that the service sector may not
be so resilient. We will watch closely the upcoming
Ifo business climate index for the retail sector which,
like the services PMI, had performed surprisingly well
over the summer months.
Best of the rest
September’s ‘flash’ composite output index in France
was down by just one point relative to the August
level, at a still elevated 58.5, helped by a rise in the
manufacturing PMI to its strongest level since May. It
remains indicative of solid growth, though other
surveys are less robust, and we continue to expect a
gradual slowing of GDP growth in France after the
0.6% q/q increase in Q2.
As usual, we will have to wait until early next month
for the full national breakdown of the PMI data. Top
of the list for scrutiny will be the data on the Spanish
service sector. The PMI in that sector has already
fallen back below 50, supporting our expectation of a
double dip in Spain.
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Ken Wattret 23 September 2010
Market Mover
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France: 2011 Budget to Push CPI Up
• The 2011 budget will be presented next
week. We expect the government to revise down
its estimate of the 2010 deficit-to-GDP ratio, to a
still-conservative 7.8% or so.
• Measures aimed at reducing the deficit to
6.0% of GDP next year will push inflation higher
by between 0.16pp and 0.35pp, depending on
the index.
0.7
0.6
0.5
0.4
0.3
0.2
Contribution to
Headline CPI
Inflation (pp)
Chart 1: Tobacco Prices
Tobacco Price Index
(2000 = 100, RHS)
225
200
175
150
125
100
We now expect the public deficit to come in at 7.5%
of GDP this year, the same as in 2009. Indeed, the
government is likely to revise down the official target
of 8.0% when it presents the 2011 budget next week.
In order to reduce further the deficit next year, to
6.0% of GDP, a number of new measures will be
implemented either at the central government level
(to cut the deficit to an expected EUR 96bn) or to
social security. While some of these measures will
result in higher inflation, the impact will vary
considerably between indices.
0.1
0.0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Sources: Eurostat, INSEE, Reuters EcoWin Pro
Chart 2: Core HICP vs. Underlying CPI
2.50
2.25
Underlying CPI (% y/y)
Core HCPI (% y/y)
2.00
1.75
1.50
75
50
Duty increase…at least on tobacco
The first measure is an increase in the duty on
tobacco (a EUR0.30 hike on a packet of 20
cigarettes). This should lead to a rise in retail tobacco
prices of about 6%, similar to last year’s 5.7% when
prices were raised in November. The date for the
increase is still undecided, 4 October, 8 November or
3 January being the most likely. The hike in duty will
contribute 0.1pp to headline inflation (0.10pp to the
domestic index, where tobacco has a 1.75%
weighting and 0.11pp to the HICP, where the
weighting is 1.91%), although the base effect will
mitigate this impact; the date when it becomes
effective may cause some short-term volatility.
Other duties could also be increased, but this is not
our base scenario. Diesel fuel would be next in line,
in our view, with any rise likely to come on 1 January.
VAT rules on communication services
The government has said it aims to close tax
loopholes in the amount of EUR 10bn in the 2011
budget (with the financial impact being visible either
in 2011 or 2012). Amongst these measures, some
changes will affect VAT and thus inflation. The ISPs
that currently offer triple-play services (phone,
internet and cable TV, usually for EUR 29.90 a
month) will have to apply the normal 19.6% VAT rate
from January 2011. The 5.5% reduced VAT rate that
applies to pay-TV (as a cultural service) will remain
1.25
1.00
0.75
0.50
0.25
0.00
98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
VAT Cut
(home repair)
VAT Cut
(restaurants)
only for pure players. To date, the highly popular
triple-play offers have been taxed half at the normal
rate and half at the reduced rate, something the
European Commission has complained about. The
same applies for mobile phone contracts that include
access to mobile TV as well as for the emerging
quadruple-play (which also includes mobile phone
service). This tax change will mechanically add
6.26% to the price. Although the market is highly
competitive, ISPs say they will pass on the VAT hike
in the final bill (i.e. EUR 1.87/month). We estimate
this will add 0.13pp to headline and ex-tobacco CPI
inflation, a little more to HICP. Given that mobile
phone operators (often the same players as the
ISPs) also have to pay a new tax on antennae, they
may raise prices a little more than the impact of the
VAT hike alone would warrant.
The VAT increase will also add some 0.20pp to core
HICP. However, since the domestic underlying
Dominique Barbet 23 September 2010
Market Mover
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inflation rate is calculated excluding taxes on
consumption, the rise should have no impact on this
measure of inflation (unless providers raise their
prices beyond the VAT tax hike).
Most other measures taken to reduce tax loopholes
will affect household income tax, taxes on savings or
social contributions – none of which are included in
the CPI.
Reducing the health care deficit…
None of the measures included in the pension reform
has a direct impact on inflation. The other major
cause of the deficit is health care, since the share of
health care in total household consumption is on the
rise in France (as elsewhere). Health care costs
amounted to EUR 2,724 per person last year, the
bulk of which was financed by social security (75.5%,
Chart 3). Public financing of health care amounts to
6.5% of GDP.
In order to reduce the social security deficit, further
tightening of rules on health care reimbursement will
be implemented next year, according to reports in the
media. The changes should generate EUR 2.5bn in
2011, which compares to a projected social security
deficit of EUR 12bn for 2010. The economic
slowdown has reduced the pace of increase in health
care expenditure (as some people have cut back on
poorly reimbursed, non-urgent spending such as
dentistry or glasses).
The prices of some goods (medicines) and services
(especially biological tests and radiological
examination) will be cut but the reductions will be
partially offset by an increase in the standard price of
a doctor's examination (from EUR 22 to EUR 23 on
1 January 2011). Overall, the measures will push CPI
inflation down by about 0.06pp. These measures will
be implemented progressively over the course of
2011, as has been the case this year.
The share of standard health services reimbursed by
social security (i.e. excluding hospital or care for
chronic and severe diseases) will be reduced from
70% to 69.5%. The share paid by private insurers will
thus rise from 30% to 30.5%. It is likely that drugs
which are currently reimbursed at 35% by social
security will be reimbursed at 30% only. The HICP,
unlike the CPI, does not capture the full price of
health goods and services but only the proportion
which is not reimbursed by social security. As a
result, the HICP will not benefit as much from lower
prices for health goods and services as the CPI (this
is the main source of divergence between the two
measures of inflation).
Higher contribution rates for social security,
especially for accidents and sickness that occur in
13.8%
Chart 3: Health Care Financing in 2009
9.4%
Source: Le Figaro
1.3%
75.5%
State
Soc. Sec.
Priv. Ins.
the workplace, will result in a EUR 0.8bn increase in
receipts. This will come on top of the natural increase
in social contributions paid by private companies;
these should reach about EUR 3.0bn in 2011, up
from about EUR 2.0bn this year on the back of
increases in employment and wages.
…will also increase the cost of private insurance
A significant share of the social security savings will
result in higher costs for private health insurers,
which cover about 60% of the expenditure not
reimbursed by the public system. However, this
should be compensated by lower prices for some
goods and services.
Nevertheless, private insurance companies will have
to raise their prices (partly paid by employers in large
corporations). A favourable tax regime has been
available for private health insurance, with most
players taking advantage of it. This is one of the tax
loopholes that will disappear in 2011, adding
EUR 1.1bn to insurers’ fiscal burden (and to CADES
income). Overall, private health insurers may have to
hike their rates by 5-8% next year. This would add
around 0.09pp to headline CPI (private health
insurance has a 1.05% weighting in 2010 and this
will rise over time), or 0.10pp to the HICP (where the
weighting is 1.14%).
Altogether, the new measures should result in a
0.26pp contribution in headline CPI inflation in 2011,
raising it from 1.13% to 1.39%. The increase should
be limited to 0.16pp for ex-tobacco CPI, which would
reach 1.32%. The fiscal impact on the headline HICP
is more important at 0.35pp. The 1.5% harmonised
inflation rate we expect would nevertheless be one
tenth below that of the eurozone, which also
incorporates the inflationary impact of fiscal policies
in different countries and higher contribution of food
prices.
Hh
Total:
EUR 162.4bn
Dominique Barbet 23 September 2010
Market Mover
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Norway: Cautious Approach
Chart 1: Policy Rates (%)
• The Norges Bank kept its policy rate at
2.00% at its September meeting, in line with
market expectations.
• The statement accompanying the decision
had a slightly dovish tone compared to the last
one, with inflation described as “low”.
• In terms of external developments, the Bank
flagged up weaker growth expectations for the
US and eurozone.
• We believe the chances of a rate increase in
December have fallen. We now expect the next
hike in Q1 2011.
Source: Reuters EcoWin Pro
Chart 2: Real GDP (% y/y)
Rates on hold
The Norges Bank kept its policy rate at 2.00% at its
September meeting, consistent with its projections
back in June. The statement accompanying the
decision had a slightly dovish tone compared to the
one in August. In the opening paragraph, the Norges
Bank acknowledged that inflation is low and although
activity is increasing, there is “still some spare
capacity in the economy”. The fact that interest rates
are low in other advanced economies also motivated
the Norges Bank to keep the policy rate unchanged
this time round.
Cautious on external developments
In terms of external developments, although the
Bank mentioned stronger than expected growth in its
main trading partners in H1, it also noted that:
• “growth prospects in the US have been lowered”;
and
• “slightly slower growth is also likely in the euro
area ahead”.
Uncertainty regarding the global economic outlook
remains a cause of concern for the Norges Bank. In
August, the statement merely stated that the outlook
for the US economy is “more uncertain”. The recent
assessment showed that the Norges Bank is more
sure that growth will weaken in the US while its
expectations for the eurozone are not so perky
either.
Lower rates justified
One interesting addition to the statement was the
Norges Bank’s assessment of household debt and
house prices. It noted that “the low interest rate level
in Norway has not triggered an increase in household
Source: Reuters EcoWin Pro
debt growth so far and the rise in house prices is
moderate”. We believe this is one of the reasons the
statement had a somewhat dovish tone compared to
the previous release. Given they were singled out in
the statement, developments in household debt and
house prices will be important to watch, to help
gauge the likely action of the Norges Bank in the
coming months.
In the in-depth assessment, there were also some
interesting details. The Norges Bank noted that “new
information may indicate that inflation in the coming
months will be slightly lower than projected in June”.
We believe this is a hint that a downward revision in
the inflation forecasts will come in the new Monetary
Policy Report in October. But in terms of the outlook
for growth, the assessment was that “overall activity
in the Norwegian economy seems to be expanding
approximately in line with the projections” made three
months ago.
What next?
Overall, although the Norges Bank once again noted
that the interest rate should be “gradually brought
Gizem Kara 23 September 2010
Market Mover
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closer to a more normal level” to guard against the
risk of future financial imbalances, the statement did
not give any hint that this is to be done soon. In its indepth
assessment, where the Norges Bank laid out
its arguments for why interest rates should be kept
low, it said that expectations that interest rates in
other countries will “remain low for a prolonged
period” also “point in this direction”.
Recent economic releases suggest growth will
accelerate in the quarters ahead. Positive
developments on the consumer side suggest a pickup
in consumer spending in the coming quarters.
Consumer confidence has continued to build and the
downward trend in retail sales seems to have turned
(Chart 3).
On the production side, manufacturing output has
strengthened. Still-loose financial and monetary
conditions are supportive for investment and
therefore production. Although a weak start to the
year suggests contraction in overall investment in
2010, we expect it to gradually increase in the
second half of the year.
Given the key policy rate is still low compared to
what a ‘neutral’ rate should be in Norway, we expect
further rate hikes. But, despite a more positive
domestic outlook, the expected slowdown in the
global economy will limit any acceleration in growth.
We previously expected the next hike to be
delivered, at the earliest, at the end of this year. Back
in June, the Norges Bank’s quarterly policy rate
projections suggested the next rate hike would come
in December, with a 50% probability.
Chart 3: Private Consumption & Retail Sales
Source: Reuters EcoWin Pro
Chart 4: Manufacturing Confidence & Mainland
Investment (% y/y)
Source: Reuters EcoWin Pro
Overall, the September statement was slightly more
dovish than we had expected. Given moderate
growth in Norway, our expectation of a slowdown in
its main trading partners and policy rates likely
remaining low for an extended period in the US,
eurozone and UK, we believe the chances of a rate
hike in December have fallen. We expect the next
increase to come in Q1 2011.
Gizem Kara 23 September 2010
Market Mover
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Japan: Tankan to Remain Upbeat
• The September Tankan will likely show that
the corporate sector continued to recover in Q3,
albeit at a slower pace than in Q2. We expect the
current conditions DI of large manufacturers to
rise by 6 points to 7, with that for large
manufacturers picking up 4 points to -1.
• Despite the pressure from the strong yen on
margins, corporate profits probably continued
to increase in Q3 due to the ongoing recovery in
sales volume.
• We expect capex plans (FY 2010) of large
firms to be little changed, with projections of a
3.0% increase for manufacturers (3.3% in June)
and a 2.6% rise for non-manufacturers (2.4%).
Capex is on the mend, but it is hard to expect
businesses to adopt a more aggressive stance
in the near term due to global uncertainties and
yen appreciation.
Improvement in business confidence continues
The September Tankan, due out on Wednesday 29th,
should show that business sentiment continued to
improve, albeit at a slower tempo compared to the
previous survey, with the current conditions diffusion
index (DI) rising to 7 for large manufacturers (1 in the
June survey), -1 for large non-manufacturers (-5), -14
for small manufacturers (-18) and -23 for small nonmanufacturers
(-26). The DI for the corporate sector
as a whole should improve to -11 (-15).
Neutralising strong yen
With the yen having substantially appreciated since
the last survey, attention will be on how much fallout
the currency will have on business confidence this
time around. Even after the intervention by the
Japanese government, the dollar-yen rate is still
running about 5 yen stronger than what firms, on
average, had expected for the second half of FY
2010 in the June survey. This naturally squeezes the
earnings of exporters, inflicting particular damage on
small manufacturers as they have less resistance to
currency appreciation. Besides casting shadows over
profit forecasts, it is also likely that the strong yen will
adversely impact business spending plans to some
degree, as the drop in share prices triggered by yen
appreciation is eroding corporate sentiment.
That said, manufacturers’ sales in Q3 likely
continued to expand solidly, as exports carried on
growing, and the termination of domestic subsidies
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-10
-20
-30
-40
-50
-60
-70
Chart 1: Business conditions DI,
Large Enterprises
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: BoJ, BNP Paribas
Non-manufacturers
Manufacturers
*Q3 2010 figure is BNP Paribas' forecast.
for buying eco-friendly cars triggered a rush in lastminute
demand. (The yen on a real effective basis –
an indicator of international competitiveness – is still
weak compared with its average of the past 20
years). We judge that corporate profits continued to
grow in Q3 as sales growth more than offset the
impact of the stronger yen on margins. Incidentally,
manufacturers’ sentiment continued improving in the
first half of 1995 when the yen was significantly
stronger than it is now. Thus, while the rate of
improvement in current conditions DI will likely be
slower than that of the June Tankan, the direction
should still be one of improvement, confirming that
the recovery in the corporate sector is on track.
Uncertainties to weigh on outlook
Of course, there are still strong uncertainties about
the direction of the global economy, to say nothing
about the unstable FX market. In Japan, there are
concerns about what might happen to the economy
when the programmes stimulating consumer
spending end, coupled with fears of policy paralysis
owing to the chaotic political scene (divided Diet,
disunity within the ruling DPJ). As all of these factors
are negative for business sentiment, the DIs for
future business conditions will likely be generally
weak. But even if the DIs for future business
conditions deteriorate, it does not necessarily follow
that the actual Tankan in December will follow suit.
Improvement in manufacturers’ mood slows
As indicated above, we expect the squeeze on profits
from yen appreciation will be the main reason why
business sentiment of large manufactures will
improve just 6 points compared to the very robust 15-
Ryutaro Kono/ Hiroshi Shiraishi 23 September 2010
Market Mover
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point advance in the June Tankan. Production and
sales likely expanded solidly in Q3. True, the
production forecast index points to output growth in
Q3 of just 0.2% q/q, well off the 1.5% q/q tempo
posted in Q2 (and 7.0% q/q in Q1). However,
distortions in the METI’s seasonally-adjusted data –
both the production index and forecast index – cause
readings to have an upward bias in Q4 and Q1 and a
corresponding downward bias in Q2 and Q3.
Excluding such distortions (using a seasonal factor
that pre-dates the Lehman shock), our calculations
suggest that production in Q2 expanded 3.7% q/q
and the outturn for Q3 could be around 4% q/q.
Non-manufacturing sentiment still on mend
Among non-manufacturers, sectors that are direct
beneficiaries of higher manufacturing output and
shipments – such as transport and wholesale –
should show signs of continued improvement in
sentiment. Profits in these sectors should also benefit
over the short term from the yen’s appreciation in
terms of lower energy costs and reduced input prices.
Sentiment should also continue improving in the
retail trade and other consumption-related sectors
thanks to (i) personal consumption remaining firm on
the back of stimulative programmes: (ii) the steady
recovery in household income; and (iii) the boost in
real purchasing power from the strong yen. This
summer’s record-breaking heat wave will probably
not have much overall impact, as the weather was a
boon to some areas but a bane to others. Meanwhile,
sentiment might not improve for construction owing
to the government’s cuts to public works expenditure.
Spending plans largely unchanged from June
We expect the FY 2010 capital spending plans to be
little changed for large firms, namely a 3.0% increase
for large manufacturers (3.3% in June) and a 2.6%
increase for large non-manufacturers (2.4%). [Note:
Comparisons here are with the June Tankan’s
reference series under the new lease accounting
standard that will become the official data series from
the September 2010 Tankan.] Cuts in the spending
plans of small manufacturers will likely be revised to
-1.2% (-7.3% in June), while that of small nonmanufacturers
should be revised to -25.0% (-30.8%).
On an all-enterprises basis, spending plans should
be marked up to a modest -0.9% (-2.3% in June).
That said, upward revisions in the plans of small
companies are normal as these firms do not usually
draw up investment plans at the start of the fiscal
year but gradually rachet their spending up as the
year progresses. Although corporate profits continue
to pick up, albeit at a slower pace, global
uncertainties and the strong yen make it hard to
Chart 2: Real Effective Exchange Rate, JPY
(Sep.1985=100)
180
170
160
Average since 1990
Strong yen
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140
130
120
110
100
90
80
70
Weak yen
60
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Source: BoJ, BNP Paribas
140
130
120
110
100
90
80
Chart 3: Real Exports (2005=100)
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04 05 06 07 08 09 10
Source: MOF, BoJ, BNP Paribas
expect businesses to adopt a more aggressive
stance on capex in the near term.
It is widely felt that the yen’s appreciation has made
manufacturers curb domestic investment and focus
more on beefing up/shifting production overseas.
Certainly, that is one reason why investment
continues to recover more slowly than corporate
earnings. But expansion overseas is due more to the
robustness of Asian economies than to the yen’s
strength. Needed structural changes (termination of
unprofitable production lines, shifting overseas etc.)
that should have proceeded gradually were put on
hold by the yen’s super-weak tone in 2006-2007. The
correction of that super-weak tone now is prompting
manufacturers to resume their suspended overseas
expansion plans. Meanwhile, non-manufacturers
have also given greater weight to investing overseas,
especially in the emerging economies of Asia, due to
the strength of overseas sales. Thus, there is little
prospect that capex will become a key growth engine
for a while.
Ryutaro Kono/ Hiroshi Shiraishi 23 September 2010
Market Mover
17
www.GlobalMarkets.bnpparibas.com

Global: The Debt/Equity Macro Trade
• Analysis of speculative positioning does not
support a long equity / short bonds trade.
• STRATEGY: Equity and debt performance is
likely with rates frozen and unconventional
policy in place.
Chart 1: Speculative US Equity Positioning
100000
50000
0
-50000
-100000
Anecdotal evidence suggests that the "long equity /
short bonds" trade is one of so-called smart money's
big macro trades into year-end. Let's dig into the data
to see what the facts are.
Chart 1 shows the net positioning of non-commercial
players (speculators) in futures and options on the
S&P 500, Nasdaq-100 and Russell 2000. CFTC data
tell us that specs are actually net short the big board
and the Russell, while exposure in tech stocks is
neutral. Note the negative trend in S&P positioning
since 2008!
Chart 2 gives us some clues as to non-commercial
positioning in US government bonds (again, futures
and options). Specs have recently gone net short 2y
Notes, thus reversing the big 2009 roll-down
strategy. On the other hand, we have neutral
positioning in 10y Notes (from aggressive shorts at
the start of this year) and slightly short positioning in
Bonds (but again, big reversal from huge shorts in
2009 and in Q1 2010).
Analysis of speculative flows does not confirm either
a current positioning in or a tendency towards a "long
equity / short bonds" macro strategy. Of course,
we're just looking at a limited window of the global
investment spectrum. So, why the discussion about
this macro trade? Look at Chart 3: not only has
S&P's earnings yield outpaced 10y yields since 2002,
but the gap has even widened during the crisis
(currently, the S&P 500 generates a 6.85% yield on
earnings, while 10y Notes yield about 2.60%). Some
argue that on a risk/reward basis the equity trade
does not make sense. In Chart 4, we show a longterm
series of equity vol (VIX) and bond vol (realised
6m weekly 10y US govt bonds). True, bond vol has
dropped from the 2008/2009 excess, but equity vol
has also dropped substantially, while still generating
more yield than bonds.
Conclusion: Do we really believe the Fed is going to
kill stocks? Do we really believe the Fed is going to
kill the Treasury? The answer is a double no. With
rates frozen and unconventional policy in place, a
period of equity and debt performance lies ahead.
-150000
S&P500 net spec positioning
-200000
Nasdaq100 net spec positioning
-250000 Russell2000 net spec positioning
-300000
2003 2004 2005 2006 2007 2008 2009 2010
Source: CFTC
Chart 2: Speculative US Govvie Positioning
800000
650000
TY net spec positioning
TU net spec positioning (RHS)
US net spec positioning (RHS)
250000
150000
500000
50000
350000
200000
-50000
50000
-150000
-100000
-250000
-250000
-400000
-350000
2003 2004 2005 2006 2007 2008 2009 2010
Source: CFTC
Chart 3: Equity vs Bond Valuation Measures
11.0%
10Y Treasury yield
10.0%
S&P500 earnings yield
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
1987 1990 1993 1996 1999 2002 2005 2008
180
90
160
10Y TSY vol (6M, bp)
VIX (%, RHS)
80
140
70
120
60
100
50
80
40
60
30
40
20
20
10
0
0
1990 1993 1996 1999 2002 2005 2008
Source: BNP Paribas
Alessandro Tentori 23 September 2010
Market Mover, Non-Objective Research Section
18
www.GlobalMarkets.bnpparibas.com

US: Belly of the Curve is Rich, but…
• The flattening rally extended the richness
in the belly of the curve. As a result, 2s5s10s is
at an all-time low while 10s30s is close to its
steepest ever.
• These valuations could become even more
extended if rates briskly drop further but a
correction should ensue once rates begin to
stabilise as investors move out along the curve
to grab yield.
• STRATEGY: Once the rally shows signs of
running out of steam, consider the following
trades either in swap or Treasuries: (i) long the
2s5s10s fly (short the belly) and (ii) 10s30s
flattener. Alternatively, initiate conditional bullflatteners,
struck OTM, to ensure that they kick
in only if rates drop further and stay there.
0.8
0.6
0.4
0.2
Chart 1: 2s5s10s Is at an All-Time Low, and
10s30s (Almost) as Steep as Ever
0
-0.2
-0.4
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
Source: BNP Paribas
2s5s10s swap
10s30s swap (RHS)
Chart 2: The 5y Is Rich, but Not to the Same
Extent as in August
1.2
1
0.8
0.6
0.4
0.2
0
-0.2
The FOMC articulated its intention to provide further
accommodation if needed, laying the groundwork for
a new round of asset purchases. First, in anticipation
of the Fed’s nod toward easing, and later in response
to the confirmation of it, the Treasury market rallied,
at times even in the face of stronger equities. With
this rally, and the attendant flattening, the 5y rate has
made a new low and the 10y is within shouting
distance of one.
bps
30
20
10
0
-10
Current 6m ago 6w ago
Cheap
Rich
The belly of the curve has come out as the clear
outperformer in the rally, with 2s5s10s reaching a
new all-time low (see Chart 1). However, despite all
appearances, the belly has not eclipsed the wings to
the same extent it did in the August rally. We say this
because PCA indicates that the rich/cheap signals
are nowhere near the levels seen at the time. For
example the 5y, while rich on the curve, is only about
12bp rich and the 10y actually looks fair (see Chart
2), whereas six weeks ago they were rich by as
much as 25bp and 10bp, respectively. Therefore, it
would not be unprecedented for the 5y and 10y
sectors to extend their valuations in the event of a
further rally. In other words, if we get a brisk rally
from here, there is the risk that 2s5s10s could
tighten, and 5s10s as well as 10s30s could steepen
further.
So, what’s one to do? Our take on this is the
following: 2s5s10s and 10s30s would start to
“correct” once rates find a new (lower) range and
begin to stabilise. This is because investors will likely
extend out the curve in their search for yield once 5s
runs out of juice, similar to what happened with 2s.
-20
-30
1y 2y 3y 5y 7y 10y 15y 20y 30y
Source: BNP Paribas
Table 1: Cost of Carry is Not Punitive in Long
2s5s10s Fly and 5s10s/10s30s Flatteners
SWAP TSY
Source: BNP Paribas
2s5s10s 5s10s 10s30s
1m -0.9 0.0 -0.8
3m -1.5 0.6 -2.2
6m -2.5 1.2 -4.5
1m -0.7 -0.1 -0.9
3m -2.5 -0.3 -2.5
6m -5.2 -0.7 -5.1
With the 5y Treasury yielding somewhere around
1.3% already, we may not be too far from levels that
would prompt this move out on the curve anyway.
Indeed, the 5s10s curve has been flattening since
last Friday. Given that 2s and to a lesser extent 5s
Bulent Baygun 23 September 2010
Market Mover, Non-Objective Research Section
19
www.GlobalMarkets.bnpparibas.com

are more or less hitting a brick wall, 5s10s will dictate
what happens with 2s5s10s, i.e. a flatter 5s10s will
likely widen 2s5s10s.
Applying a similar thought process, we expect the
back end of the curve to flatten as rates settle down.
Treasury 10s30s is trading at 118bp, some 6bp shy
of the all-time high of 124bp in August. In swaps, the
corresponding figures are 79bp (current) vs 89bp,
respectively.
Table 1 shows the carry of these positions. The
2s5s10s fly and 10s30s flatteners carry negatively
but not excessively so. For example, the Treasury
10s30s has a 2bp cost of carry over three months.
On the other hand, 5s10s has positive carry for
Treasuries and negligible carry for swaps.
So, just wait until rates settle down and then act?
Easier said than done, we know. What should we
take as the signal that the rally is running out of
steam and a new range is being established?
Unfortunately, there is no magic formula here. To
circumvent that rather inconvenient challenge, we
make these trades contingent on rates remaining low
for some time (i.e. stability). More specifically, we
recommend conditional bull-flatteners using receivers
struck OTM, indeed below spot levels. This ensures
that we get into the flatteners if rates drop further and
stay there for some time. To state the obvious, the
conditional trade does not protect against a
steepening scenario at low rates.
5s10s is trading at 103bp spot, and 99bp 3m forward
as of this writing, indicating that the carry/rolldown
effect is 4bp against a flattener. Furthermore, ATMF
gamma vol on 10y tails is more expensive than 5y
tails, and receiver skew on 10s is higher, which
means that there is an additional cost to be paid for
doing the trade in conditional form. As an example,
let’s suppose we choose the 5y and 10y strikes 30bp
below the forwards for a 3m bull-flattener. The
breakeven in this case is about 4bp below the
forwards, i.e. the curve has to flatten by 4bp relative
to the current forwards (8bp in total, relative to spot)
to recoup the premium paid upfront. This translates
to a 5s10s spread of around 95bp. For reference, at
the end of August, 5s10s traded in the 91-95bp area
for a brief period once 5s stuck around their lows.
In other words, the conditional flattener lends itself to
the scenario we are depicting in which rates drop and
stay low, establishing a new range and prompting
duration extension trades.
Bulent Baygun 23 September 2010
Market Mover, Non-Objective Research Section
20
www.GlobalMarkets.bnpparibas.com

US: A Carry Trade with Extra Potential
• After the FOMC statement, the question
arises once again about a Japan-like scenario.
• We explore a carry trade with a few added
kickers in case the swap and vol curves start
to evolve the way they did during the
beginning of Japan’s experience.
• STRATEGY: Buy 4y1y vs selling 2y1y
receivers, both 50bp OTM and equal notionals.
Holding period is up to one year.
As the front end continues to richen, the carry on
offer keeps getting compressed. What should one
do, since the latest FOMC statement reinforces the
idea that this strategy can still be profitable?
One approach would be to analyse various different
long positions and hunt down the best carry or alpha.
Another approach we explore here is to find a
rolldown strategy that has a few added kickers in
case the vol surface and swap curve start to evolve
the way they did during the beginning of Japan’s
experience.
Rather than simply buying receivers, the trade is to
buy 4y1y vs selling 2y1y receivers (both 50bp OTM,
same notionals). This way, one can capitalise on
the spread between these two forward rates and
also the vol ratio, if we stay mired in the low rate
environment for a while. As we show later, this is
where we see the asymmetric risk that helps the
trade when considering the beginning of Japan's
experience.
Table 1 shows the exact trade details and greeks.
The current entry cost is 27.5c and after one year
the position gains 40% (see Chart 1 for PnL
profile). The rolldown is partly due to positive theta,
but mainly due to the 2y1y leg having a steeper vol
rolldown than the 4y1y. Chart 2 shows that the
2y1y/4y1y vol ratio of around 90% drops sharply to
70% after one year. In Japan, the ratio is 50%.
Since the 4y1y rate is currently 10-20% more volatile
than 2y1y, this makes the position trade like a long
on the market since the 4y1y receiver leg will move
more. Another feature which makes the trade
directional is that the vol ratio tends to fall in a rally –
helping the position – while rising in a selloff (see
Chart 3 for relationship).
250%
200%
150%
100%
50%
0%
Chart 1: PnL Profile Under Rate Shifts
1y Holding
Instantaneous
-50%
-75 -50 -25 0 25 50 75
Change in 5y Rate (with beta-implied curve movement)
Source: BNP Paribas
Chart 2: Sharp Rolldown in Vol Ratio over 1y
140%
130%
120%
110%
100%
90%
80%
70%
2y1y over 4y1y USD Vol Ratio
1y1y over 3y1y USD Vol Ratio
60%
Jan-06 Dec-06 Nov-07 Oct-08 Oct-09 Sep-10
Source: BNP Paribas
Chart 3: Vol Ratio has been Directional to Rates
110%
105%
100%
95%
90%
85%
Jan-10 Feb-10 Apr-10 May-10 Jul-10 Sep-10
Source: BNP Paribas
2y1y over 4y1y USD Vol Ratio
4y1y USD Rate (right scale)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
Suvrat Prakash 23 September 2010
Market Mover, Non-Objective Research Section
21
www.GlobalMarkets.bnpparibas.com

We are comfortable with the directional exposure
given our bullish view into year-end, although one
could buy less notional in 4y1y to account for this.
We choose to use receivers rather than straddles
because this helps the position trade ‘conditional’ on
a scenario of low rates. The position would still be
underwater in a near-term selloff, although the
sensitivity of the position would drop. Finally, we
choose to strike the receivers 50bp below the
forwards so that after one year the strikes are closer
to the forwards, making it easier from a liquidity
standpoint to get out of the position.
The additional features that make us favour this
position stem from the asymmetric risks we see in
the yield spread and relative realised vol between the
two rates. Simply put, if we stay around these rate
levels or go lower, then the closer forward rate
runs out of room to rally and the further-out
forward rate performs relatively better. Chart 4
shows that the 2y1y/4y1y spread is near the top end
of its historical range and so the risk from this
perspective is tilted toward a tightening.
The Japan experience (or at least the beginnings of
it) can provide a useful historical perspective. The
BoJ cut rates to 0% for the first time in 1999, after
which the 1y1y rate soon bottomed out and traded
sideways for several years. Meanwhile, the 3y1y rate
continued to rally and the spread compressed (see
Chart 5).
Another way to look at it is from a vol performance
perspective. While the 1y1y rate in Japan was
trading sideways, the ratio of 3y1y realised vol over
1y1y steadily picked up (see Chart 6).
Chart 4: 2y1y/4y1y Rate Spread Near the Highs
200
150
100
50
0
2y1y vs 4y1y USD Rate Spread
-50
Jan-99 May-01 Sep-03 Jan-06 May-08 Sep-10
Chart 5: After Japan Cut Rates to 0%, the 3y1y
Continued to Rally While 1y1y Went Sideways…
2.5
2.0
1.5
1.0
0.5
0.0
Jan-96 May-97 Sep-98 Feb-00 Jun-01 Nov-02
2.5
1y1y JPY Rate
Spread of 1y1y/3y1y JPY Rates (right scale)
Chart 6: …Meaning That 3y1y Realised Vol
Vastly Outperformed 1y1y
1y1y JPY Rate
250
200
150
100
50
0
600%
2.0
1.5
1.0
0.5
3y1y Realized Vol over 1y1y
Realized Vol (right scale)
500%
400%
300%
200%
100%
0.0
Jan-96 May-97 Sep-98 Feb-00 Jun-01 Nov-02
0%
All Charts Source: BNP Paribas
Table 1: Trade Details and Greeks
Structure Strike Notional ($) PV ($) PV01 ($) Vega ($) Gamma ($) Theta ($)
Sell 2y1y Rec F-50bp (100,000,000) (220,000) (3,854) (35,996) (251) 385
Buy 4y1y Rec F-50bp 100,000,000 495,000 4,082 63,014 187 (348)
Net 275,000 228 27,017 (64) 36
Source: BNP Paribas
Suvrat Prakash 23 September 2010
Market Mover, Non-Objective Research Section
22
www.GlobalMarkets.bnpparibas.com

MBS: Remain Underweight, GNM CBRs Up
• Given our macro view of lower rates, we
remain underweight mortgages as they are
trading with shorter durations and are likely to
underperform in a rally.
• The August GNMA Delinquency Report
showed that 30- and 60-day delinquencies were
up, and CBRs increased dramatically for pools
issued by BofA, Citi and GMAC.
The direction of mortgage spreads continues to hinge
on the rates market. Dollar price compression due to
prepayment concerns keeps performance in check in
a rally while a lack of substantial rate lock associated
origination keeps prices from falling too much in a
selloff. Given the statement from the Fed on
Tuesday, which laid the groundwork for further
liquidity easing, we remain bullish on the rates
market. With that view, we also remain negative on
mortgages.
GNMA Delinquency Report
The GNMA Delinquency report for August showed an
increase in 60-day delinquencies for GNMAs across
all products from 1.49 to 1.58; by issuer, we saw
similar results. For instance, BofA 60 day
delinquencies increased from 1.53% to 1.7%, Chase
increased from 1.6% to 1.69%, Citi increased from
1.66% to 1.74%, Wells increased from 1.1% to
1.16%, GMAC increased from 2.22% to 2.34% and
TBW increased from 5.03% to 5.24%. We also saw
increases in 30-day delinquencies from 3.94% to
4.11% across all products. The increases in 30- and
60-day delinquencies are in line with our view that
seasonals and home tax credit were behind the
improved delinquencies earlier in the year; with the
end of these effects, delinquencies have risen.
Overall, 90+ day delinquencies declined from 1.27%
to 1.18%, while CBRs increased from 4.02% to
6.84%. The decline in 90+ day delinquencies and
increase in CBRs was led by BofA, Citi and GMAC.
BofA 90+ delinquencies declined from 1.09% to
0.630% and CBRs increased from 0.06% to 10.52%,
and that was one of the reasons why CPRs on BofA
loans increased substantially in August in addition to
borrowers responding to lower rates. We had
mentioned in our most recent prepayment
commentary that BofA CBRs had declined sharply in
July and the significant increase in CPRs in August
might be due to them catching up after taking a
month off from buying out delinquent loans, and the
delinquency report confirmed this assumption. Citi
Chart 1: Empirical vs Trader Hedge Ratios to
10y Swaps
70%
60%
50%
40%
30%
20%
10%
0%
4.0s Empr 4.0s Trader 4.5s Empr 4.5s Trader
5.0s Empr 5.0s Trader 5.5s Empr 5.5s Trader
14-Jun-10 5-Jul-10 26-Jul-10 16-Aug-10 6-Sep-10
Source: BNP Paribas
Chart 2: 30,60 and 90+ Day Delinquencies by
Issuer
BOA CHASE CITI GMAC
Wells
30 60 90+ 30 60 90+ 30 60 90+ 30 60 90+ 30 60 90+
Aug-10 4.28 1.70 0.63 4.89 1.69 0.77 4.60 1.74 0.86 4.66 2.34 5.46 3.22 1.16 0.16
Jul-10 4.04 1.53 1.09 4.67 1.60 0.74 4.34 1.66 1.27 4.60 2.22 5.32 2.96 1.10 0.17
Jun-10 4.24 1.52 0.59 4.78 1.54 0.79 4.36 1.62 1.23 4.72 2.15 5.28 3.10 1.13 0.19
May-10 4.10 1.42 0.57 4.60 1.56 0.77 4.18 1.58 1.15 4.50 2.18 5.21 2.98 1.06 0.19
Apr-10 3.59 1.34 0.56 3.83 1.44 2.20 3.68 1.43 1.12 4.01 1.89 5.14 2.55 0.96 0.19
Mar-10 3.77 1.47 0.56 3.89 1.50 2.27 3.80 1.50 1.13 4.05 1.99 5.00 2.64 1.12 0.23
Feb-10 4.13 1.64 1.12 4.46 1.66 2.53 4.61 1.76 1.25 4.33 2.06 4.93 3.08 1.28 0.27
Jan-10 4.33 1.95 2.22 5.14 2.14 2.56 5.06 2.07 1.27 4.71 2.28 4.71 3.54 1.49 0.38
Dec-09 4.36 1.96 1.72 5.00 2.16 2.40 4.67 2.00 1.32 4.55 2.21 4.40 3.41 1.54 0.64
Nov-09 4.45 1.94 5.32 5.22 2.14 2.36 4.72 2.09 1.31 4.61 2.16 4.28 3.65 1.52 0.96
Oct-09 3.91 1.83 4.87 5.01 2.17 2.16 4.33 2.14 5.71 4.23 2.08 3.87 3.42 1.51 1.27
Sep-09 4.19 1.91 4.54 5.33 2.22 2.30 4.58 2.17 5.50 4.29 2.07 3.70 3.81 1.61 1.43
Aug-09 4.15 1.81 4.61 5.66 2.16 2.16 4.50 2.09 5.29 4.47 1.98 3.30 3.76 1.53 1.86
Jul-09 3.79 1.70 4.47 5.27 2.08 3.33 4.19 1.95 5.07 4.22 1.73 3.05 3.27 1.47 1.71
Jun-09 4.08 1.74 4.45 6.11 1.99 2.75 4.44 1.98 4.84 4.26 1.74 2.86 3.64 1.42 1.59
May-09 3.86 1.68 4.37 5.27 1.75 2.03 4.57 1.99 4.71 3.95 1.70 2.68 3.48 1.32 2.06
Apr-09 3.67 1.64 4.21 4.89 1.61 1.35 4.24 1.92 4.49 3.61 1.59 2.53 3.15 1.27 2.57
Mar-09 3.76 1.69 4.21 4.87 1.55 0.79 4.20 1.78 4.25 3.91 1.63 2.66 3.12 1.26 2.84
Feb-09 4.25 1.83 4.34 5.37 1.70 0.90 4.59 2.07 4.33 4.06 1.77 2.70 3.42 1.46 3.11
Jan-09 4.93 2.22 4.48 6.20 2.08 0.98 5.19 2.32 4.37 4.60 1.96 2.59 3.95 1.71 3.19
Source: BNP Paribas
1 Month CBRs
-
50
45
40
35
30
25
20
15
10
5
Chart 3: CBRs by Issuer
Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10
Source: BNP Paribas
BOA
CHASE
CITI
GMAC
Wells
90+ delinquencies declined from 1.27% to 0.86%,
while CBRs increased from 6.6% to 12.25%. GMAC
CBRs also saw a substantial increase from 3.97% to
6.1%; however, their 90+ delinquencies remains
above 5%, actually increasing from 5.32% to 5.46%.
Olurotimi Ajibola / Anish Lohokare 23 September 2010
Market Mover, Non-Objective Research Section
23
www.GlobalMarkets.bnpparibas.com

EUR: Outlook for the Curve
• The Fed has clearly opened the door for
QEII. QEI was favourable for govvies and
mortgages but also for equities as the liquidity
bonanza supported risk appetite.
Chart 1: QEI Supported Stocks and Bonds
• Things are different this time, with
significant implication for the curve – especially
after the recent sell-off.
• STRATEGY: Short the curve on the 5-10y
segment.
The prospect of more liquidity
The latest FOMC statement made it clear: the Fed is
on the verge of resuming quantitative easing. It is
worth noting that when the Fed conducted QEI in
2009, this allowed both bond and stock markets to
perform well. Indeed, in addition to direct purchases
of debt by the Fed, easier and larger liquidity
supported risk appetite, boosting risky assets such
as commodities and equities. One can therefore
regard the prospect of QEII as providing firm support
for all classes of assets. Of course, the size of
purchases matters when it comes to the impact of
QE. The Fed will have to buy a lot in order to bring
about lower yields and tighter spreads. In the
eurozone, the ECB is only extending non-standard
conditions for tenders and continues to buy small
quantities of sovereign bonds. But the outlook for
coming months is that liquidity will remain ample.
Big difference with 2009
The backdrop for QEI was very different from the
current one. When the Fed started purchases in
2009, the economic outlook was for recovery and
reflation. This is far from the current situation. Signs
of pronounced weakness in the US economy are
mounting, and the euro area is not protected against
a slowdown. In addition, in both areas, the outlook for
inflation is to the downside. Upcoming data should
confirm that core inflation continues to ease. As a
result, upcoming quantitative easing may be less
favourable for riskier classes of assets, in particular
stock markets. This will have major implications for
the curve, particularly after the recent sell-off.
The curve in coming weeks
The strong rally that occurred during the first two
months of summer was almost completely led by the
back end of the curve. Strong receiving interest
dominated, leading to lower long-term yields and a
flatter curve. The sell-off that took place during the
first half of September was more broadly based
across the curve. Indeed, the short end suffered
Source: BNP Paribas
Chart 2: Market Direction and the Curve
Source: BNP Paribas
significantly, preventing the curve from resteepening
strongly. The question is now whether or not the
resumption of a bullish tone will trigger flattening
pressures.
The sell-off at the short end of the benchmark curve
was linked to risk appetite, which favoured stocks
and weighed on short-dated sovereign debt. Against
this backdrop, if the bullish tone in EGBs goes along
with solid equities, the curve will flatten from the 2y
area as risk appetite will prevent the short end from
rallying. But if upcoming data point to worsening
economic conditions, stock markets will suffer and
the short end will enjoy a decent rally as well. Near
term, we consider the latter situation as more likely.
As a result, we see the bullish tone developing along
with flattening pressures starting only from the belly
of the curve (5y area).
Strategy: Short the curve on the 5-10y.
Patrick Jacq 23 September 2010
Market Mover, Non-Objective Research Section
24
www.GlobalMarkets.bnpparibas.com

EUR: Re-Enter Flatteners on 5y/10y Segment
• Eur 5y/10y segment is lagging red/green
Euribor flattening.
• RV inputs point to a spread on swaps in the
mid-50s.
• STRATEGY: We re-entered flatteners after
the dovish FOMC meeting
Eur 5y/10y segment is lagging Euribor red/green
spreads
Chart 1 shows Eur 5y/10y segment and 4 th / 8 th
generic Euribor spread over the past decade. Not
surprisingly – with the exception of some short
periods of time – the series have moved very closely.
However, with the richening of the belly of the Euro
curve (see our desknote on Eur 2y/5y/10y swap fly),
the Eur 5y/10y segment on swaps has dramatically
lagged the flattening of red/green Euribor spreads
materialised by the 4 th /8 th generic spread (the most
correlated one).
Chart 1: Eur 5y/10y Segment & Euribor 4 th /8 th
Calendar Spread
120
100
80
60
40
20
0
-20
Sep-99 Mar-01 Sep-02 Mar-04 Sep-05 Mar-07 Sep-08 Mar-10
Eur 5y/10y spread
Source: BNP Paribas
60
40
4th/8th generic Euribor spd (R.H.S)
Chart 2: Eur 5y/10y Spread Hedged with
4 th /8 th Euribor Spread
Eur 5y/10y too steep
200
150
100
50
0
-50
That lag is confirmed through the regression of Eur
5y/10y segment versus red/green spreads gauged by
the 4 th /8 th generic spread. Using that variable since
1999, the regressed 5y/10y segment is trading
almost 2.5 standard deviations above its long-run fair
level, a gap not seen since June 2003!
20
0
-20
-40
Eur 5y/10y too flat
Conditional distribution strengthens traditional
approach results
The excessive steepness of the Euro 5y/10y
segment is also highlighted by a non-parametric
approach such as conditional distribution. Chart 3
represents the distribution of the Euro swap segment
conditional to red/green Euribor spread. The spread
is trading on the far right of its distribution, quite far
from the peak in the mid-50s.
The main risk for Euro flatteners was a disappointing
FOMC meeting on Tuesday. The outcome was
ultimately quiet dovish but the flattening mainly
focused on the 2y/5y segment the following day while
5y/10y marginally moved.
Strategy: We entered flatteners on Wednesday
afternoon on 5y/10y futures at 77.5bp (ctds) targeting
a 65bp level, which is equivalent to the 55/57 area on
swaps. Pure RV players could play the box versus
long Sep 11/Sep 12 Euribor (40k 5y/10y vs 25K
Euribor).
-60
Sep-99 Mar-01 Sep-02 Mar-04 Sep-05 Mar-07 Sep-08 Mar-10
Source: BNP Paribas
Chart 3: Distribution of Eur 5y/10y Spread
versus Euribor 4 th /8 th Generic Spread
0.05
0.045
0.04
0.035
0.03
0.025
0.02
0.015
0.01
0.005
EUR swap 5/10 with Euribor 4/8 between 33 & 43
h= 2.947
Peak at 54.9
0
-10 0 10 20 30 40 50 60 70 80 90 100
Source: BNP Paribas
Current level: 67.9
Eric Oynoyan 23 September 2010
Market Mover, Non-Objective Research Section
25
www.GlobalMarkets.bnpparibas.com

ECB Upcoming Tenders: How Much?
• EUR 225bn is expiring next week and there
is good reason to think that liquidity will drop
from current levels.
• However, the sources of demand at tenders
that expire next week point to significant roll,
especially on the 3mth the ECB will conduct.
• STRATEGY: Enter ER1-ER5 steepening
position.
Chart 1: Large Expiry Ahead
1y MRO
6m
3m
35.67
1m
19.08
131.93 23.17
153.77
37.90
96.94
A very large expiry
EUR 225bn is maturing next week: EUR 75.2bn from
the second 1y tender the ECB carried out last year,
EUR 17.9bn from the 6mth tender conducted in
March and EUR 131.9bn from the 3mth tender
conducted at the end of June. It is worth noting that
the 3mth tender was conducted at the end of June
and allowed banks to roll a significant part of the
amount expiring from the first 1y tender
(EUR442.2bn). The total amount expiring is very
large and the current level of liquidity (EUR 591bn
provided through the MRO and LTROs) is exposed
to a decent decrease. However, looking at the source
of demand at old tenders that expire next week, it
seems that a large amount will be rolled.
What can be expected for demand?
A large part of the answer lies in the source of
demand at the tenders that expire next week. The
EUR 75.2bn 1y tender conducted in September 2009
did not attract arbitrage as the 12mth eonia at that
time was 0.69%, well below the refi rate. Demand
therefore came largely from banks with little access
to the market for long-term liquidity. It is reasonable
to think that at least EUR 50bn will be rolled of the
EUR 75.2bn expiring. When it comes to the EUR
17.9bn from the 6mth tender (conducted at the start
of April), it is interesting to note that liquidity provided
in April 2010 with LTROs by the Bank of Greece to
banks based in Greece increased by EUR 18bn. It is
crystal clear that the EUR 17.9bn is in Greece and
there is a good chance of seeing Greek banks rolling
almost all the amount expiring. Finally, the bulk of
next week’s expiry (EUR 131.9bn) comes from the
3mth tender the ECB conducted on 1 July, the day of
the expiry of the famous EUR 442.2bn tender. At that
time, liquidity fell sharply as arbitrage disappeared,
and demand for the 3mth came when the 3mth
Euribor was at 0.78% and the 3mth eonia at 0.47%.
Once again, it is worth noting that despite the fall in
liquidity, the level of liquidity provided by the Bank of
Greece in July thanks to the LTRO was unchanged
17.88
Maturity (days)
75.24
-20 0 20 40 60 80 100 120
Source: BNP Paribas
from June. This means that Greek banks rolled the
expiry of the 1y with the 3mth. LTROs in Ireland fell
almost EUR 20bn in July from June after increasing
by EUR 40bn in June 2009, suggesting that demand
from Irish banks at the 3mth tender in July was a
floor. Given the level of the 3mth Euribor and the
3mth eonia starting on 30 September, respectively
0.90% and 0.54%, it makes sense to see relatively
firm demand as the cost of ECB liquidity is relatively
cheaper than it was three months ago. Against this
backdrop, we see a very large roll of the 3mth expiry,
well above EUR 100bn. As a result, we expect total
demand at next week’s tenders of around EUR
190bn. Two ECB tenders will offer banks the
opportunity to be allotted. The ECB will conduct a
fine-tuning, short-term 6day tender to allow banks to
find liquidity until the next MRO. Given the evolution
of demand at the MRO over many weeks, it appears
that demand for short-term liquidity is roughly stable
in the EUR 150-155bn area. Needs for short-term
liquidity are unlikely to increase next week and we
therefore expect the 6day tender will attract only
moderate demand. Demand at the 3mth will
therefore be very strong.
As a result, with no change in demand at the MRO,
we expect demand for next week’s 3mth tender could
be in the EUR 165bn area and demand at the 6day
close to EUR 25bn. This would lead to a EUR 35bn
drop in liquidity. Given the current level of excess
liquidity, just below EUR 100bn, a drop of EUR 35bn
should not lead to significant upward pressures on
short-term rates. Moreover, the extension of nonstandard
procedures for open market operations
means that there is no rush for very short-term
liquidity. Eonia should remain close to current lows.
This may favour limited resteepening pressures
beyond the 3mth area.
Strategy: Enter ER1-ER5 steepening position.
Patrick Jacq 23 September 2010
Market Mover, Non-Objective Research Section
26
www.GlobalMarkets.bnpparibas.com

EGBs: Market Update & Top Trade Ideas
• Greece is outperforming across peripherals,
Portugal and Ireland are breaking new wides
while Spain and Italy are more resilient than in
the past widening episodes.
• This 3-speed Europe’s periphery has been
with us for over a month now and could persist
for the coming months.
• STRATEGY: Italy remains our favourite pick
among the eurozone periphery. We believe the
Greek curve’s steepening could continue in the
near term. On a risk/return framework, we find
Irish Gilts more attractive than PGBs at current
levels.
The way peripheral Europe trades has changed
fundamentally over the past few weeks. We are not
used to seeing Greece outperforming versus the rest
of the periphery while Ireland and Portugal are
breaking new wides every day. For the first time,
Greece is actually feeling the protection of the
EU/IMF mechanism while the market’s focus has
shifted towards the other two small peripheral
countries, i.e. Ireland and Portugal. Spain has been
trading like Italy since the release of the stress test
results in July and this has led to a 3-speed periphery
of (i) Greece, (ii) Portugal and Ireland and (iii) Italy
and Spain. Chart 1 clearly illustrates this point,
showing the changes in ASW since the beginning of
September.
Starting with Greece, the massive steepening move
in 1/2s and 2/10s has continued in the last few
weeks. The disbursement of the second tranche of
the EU/IMF package has been a catalyst for the rally
in the 2011 GGBs. Beyond that, some positive
rhetoric from EU authorities and a bit of praise for the
tough decisions and the degree of fiscal
consolidation that the Greek government has
achieved in the first eight months of the year have
pushed Greek spreads lower. Of course, we have to
treat this compression with a pinch of salt as it is
taking place in very thin markets. It will take longer to
convince investors that Greece can actually avoid
default or restructuring. Irrespective of this, and in
line with the IMF wording, Greece has made a strong
start on its programme and has slowly started being
rewarded for this in terms of spreads behaviour,
especially at the front end. Chart 2 shows the change
in Greek yields across the curve in September.
Continuing with Ireland and Portugal, we saw a
significant widening ahead of their auctions in the
past week. A combination of negative sentiment
Chart 1: 3-Speed Europe’s Periphery in Sep.
100
50
0
-50
-100
-150
-200
-250
Source: BNP Paribas
ASW Changes of Peripheral Spread in September
2y 5y 10y 30y
Chart 2: The Steepening of the Greek Curve
Source: BNP Paribas
GRE
ITA
SPA
POR
Chart 3: POR & IRE Underperformance in Sep.
70
60
50
40
30
20
10
50
0
-50
-100
-150
-200
-250
-300
-350
-400
-450
3-
2011
8-
2011
Changes in ASW in September
POR
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: BNP Paribas
GGBs Yields Change in September
2012 GGBs Following the Rally
2011 GGBs Massive Rally
5-
2012
5-
2013
1-
2014
8-
2014
8-
2015
Longer-end is more resilient to
the compression move
4-
2017
7-
2018
10-
2019
10-
2022
3-
2026
towards peripherals and the upcoming auctions
amplified the usual pre-auction widening that we see
in smaller peripherals. Chart 3 shows the widening
and the flattening that we have seen on both Irish
and Portuguese curves in September so far. 2013/14
maturity bonds have suffered most of the widening
while the longer end has been the most resilient.
After the auction, we witnessed a short-lived
correction in both countries but this was not enough
to pare back the widening of the last weeks.
IRE
IRE
9-
2040
Ioannis Sokos 23 September 2010
Market Mover, Non-Objective Research Section
27
www.GlobalMarkets.bnpparibas.com

Next we compare Ireland and Portugal and try to
identify the potential threats and opportunities in the
coming months. Starting with the funding needs and
issuance calendar in these countries, Ireland has
already reached 2010’s funding needs and has
actually started pre-funding for 2011. Despite that,
NTMA officials have stated that there is no plan to
skip an auction and thus we could have some more
prefunding in the remainder of the year, most likely
two more auctions (depending on market conditions).
On the other hand, Portugal has completed 90% of
its issuance target (EUR 19bn of EUR 21bn) and we
expect another EUR 2bn before year-end. Hence,
funding pressures will be limited in the remainder of
the year while the main focus will be on the budget
reports and the projections for 2011 funding needs.
In terms of fiscal consolidation, Portugal appears to
be on a weaker path. Chart 4 shows the Portuguese
cash-basis budget balance, where the development
has been disappointing so far according to our
economists. Over the first eight months of this year,
the deficit was EUR 0.5bn larger than over the same
period last year. On the contrary, in Ireland, there
have been many concerns lately with respect to the
massive amount of government guaranteed bonds
that mature in September. This has led to an
acceleration of the widening of Irish spreads in
combination with the developments on ANGIRI. We
don’t think that these redemptions will cause any
significant problem for the Irish banks and we expect
some risk to be priced out of Irish Gilts once
September has passed. The key statistic to watch in
the near term will be the ECB liquidity absorbed by
Irish banks, where we could see a spike in
September’s data. This spike has already taken
place in Portugal: as Chart 5 shows, the dependence
of Portuguese banks on the ECB has exploded since
April. This is a very worrying trend that could create
more pressure on PGBs as the ECB’s exit strategy
has already become a hot topic in the market.
Chart 6 shows the Irish/Portuguese spreads in all
sectors. The 2y IRE/POR spread has widened the
most from August lows but remains the tightest
sector versus the rest. An overshooting can be seen
on the 5y sector but this is also affected by the fact
that there has been no new 5y benchmark in 2010 in
either country. When we look at the non-parametric
conditional distribution of the 2y IRE/POR spread
based on the latest trading range of the 10y spread,
it is clear from Chart 6 (bottom) that 2y spreads are
on the wide side.
All in all, BTPs remain our favourite pick across the
periphery. We prefer Irish Gilts to PGBs, especially
after September and the end of the government
guaranteed bond massive redemptions. However,
Chart 4: Portugal – Cash-Basis Budget Balance
0
-2
-4
-6
-8
-10
-12
-14
-16
Cash Balance
(EURbn)
2010
2009
Consistent with the
Year-End Target
2007
2006
2008
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: BNP Paribas
Chart 5: ECB Liquidity & Portuguese Banks
60
50
40
30
20
10
0
5 5 5 5 5
Jan-09
Feb-09
Mar-09
Apr-09
Source: BNP Paribas
MROs & LTROs
May-09
Bank of Portugal B/S
11 9 9 9 11 12 16 15 15 15 18 36 40 49
Jun-09
Jul-09
Aug-09
Sep-09
excessive volatility makes relative value trades look
too risky as liquidity remains very thin.
Oct-09
Nov-09
+175% Increase
Chart 6: IRE/POR Spreads and Conditional
Distribution of 2y Spreads on 10y Current
Levels
150
100
50
0
-50
-100
-150
-200
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10
0.035
0.03
0.025
0.02
0.015
0.01
0.005
0
10y IRE/POR
2y IRE/POR
Dec-09
Jan-10
Feb-10
Mar-10
15y IRE/POR
5y IRE/POR
-80 -60 -40 -20 0 20 40 60
Source: BNP Paribas
Conditional Distribution of 2y IRE/POR Spreads on current
range of 10y spreads
Apr-10
May-10
Jun-10
Jul-10
At current level they
are on the wide side
Ioannis Sokos 23 September 2010
Market Mover, Non-Objective Research Section
28
www.GlobalMarkets.bnpparibas.com

EUR Covered Bonds: Market Update
• Activity in the primary market has delivered
several good signs: despite the end of the ECB
CBPP, new EUR issuance has soared in
September and the average size is back to
almost EUR 1bn.
• After an easing in ASW around July/August,
mainly due to the summer lull, covered bonds in
peripheral markets have re-widened since late
August.
• STRATEGY: 1) Underweight Irish and
Portuguese covered bonds, which we expect to
widen further; 2) overweight Spanish and Italian
covered bonds which should start compressing
again; and 3) PGB 4y is priced cheaper than
Caixa Geral De Depositos Covered 4y (CXGD)!
CXGD/PGB 4y and BKIR/GILT 5y ASW
differentials should widen by at least 55bp and
44bp respectively.
Chart 1: New Issuance Soared in September
30
25
20
15
10
5
0
Nb. EUR Issues
New EUR Supply (bn)
Total EUR Supply incl. taps (bn)
2006 2007 2008 2009 2010
Source: BNP Paribas, Bond Radar
Chart 2: ASW have Re-Widened in Peripherals
Since Late August
350
350
The activity in the primary market has delivered
several good signs. According to Bond Radar, 23
new EUR covered bonds have been issued so far in
September, bringing monthly supply to EUR 22.4bn,
just EUR 5bn below the September 2009 level (Chart
1). Given that i) Sep 2009 was actually the heaviest
September supply and ii) Sep 2010 is close to those
levels even without the ECB’s buying force, this is
impressive and clearly demonstrates a significant reopening
of the covered bond market despite the end
of the ECB CBPP. Another positive development is
the recent increase in the average size of new
covered bonds. The latest had slumped to EUR
700m in May from EUR 1-1.3bn over the past year,
but is now almost back to EUR 1bn (EUR 974mn).
Furthermore, it is noteworthy that Spanish banks
have been able to re-enter the primary market, slowly
in July and August, and significantly this month with
five new bonds totalling EUR 4.5bn. Italian banks
have also been quite active in September with five
new bonds amounting to EUR 4bn, their heaviest
monthly supply so far this year.
However, the situation is different in Ireland and
Portugal where fiscal concerns and stress over Irish
banks are preventing banks from tapping the market.
Further, let’s remember that the latest Irish covered
bond goes back to November last year while the
latest Portuguese covered bond was issued in
March.
300
250
200
150
100
50
0
Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10
Spanish Cedulas Portugal Covered Italy Covered Ireland Covered
Source: BNP Paribas, iBoxx Covered Indices (4y-6y)
400
350
300
250
200
150
100
-50
Chart 3: PGB 5Y ASW Now Above the iBoxx
Portugal Covered Index ASW
50
0
iBoxx € Portugal Covered
-100
Jul 08 Jan 09 Jul 09 Jan 10 Jul 10
Source: BNP Paribas, iBoxx
PGB 5Y
300
250
200
150
100
50
0
Camille de Courcel 23 September 2010
Market Mover, Non-Objective Research Section
29
www.GlobalMarkets.bnpparibas.com

After an easing in ASW around July/August,
mainly due to the summer lull, the re-widening
trend observed since late August in the
peripheral markets needs to be differentiated. On
one hand, the iBoxx Ireland Covered index was at a
new high for the year (+20bp compared with early
July levels) at the time of writing, reflecting growing
concerns over the current situation, despite the fact
that the Irish government is now funded until the end
of H1 2011. Given that the risks perceived by
investors with relation to both the issuer and
sovereign bonds are the main drivers of ASW in
peripheral covered bonds, we expect further
widening as long as uncertainties over the banks’
situation prevail, and as long as the growth outlook
does not improve significantly.
With respect to Portuguese banks, the iBoxx
Portugal Covered index remains 20bp below early
July levels so far, despite a fiscal lag and
uncertainties weighing on the country. While
Portuguese covered bonds appear more resilient
than Irish covered bonds for the time being, we
expect more widening in ASW given the current
outlook, but also given the recent jump in reliance on
ECB funding by Portuguese banks.
Chart 4: Irish GILT 5Y ASW Now Equal to the
iBoxx Ireland Covered Index ASW
450
400
iBoxx € Ireland Covered Irish GILT 5Y
350
300
250
200
150
100
50
0
-50
-100
Jul 08 Jan 09 Jul 09 Jan 10 Jul 10
Source: BNP Paribas, iBoxx
And at a lesser extent:
2) BKIR 5Y is 46bp cheaper than Irish GILT 5Y, but
compared with historical data, BKIR/GILT 5Y ASW
differential should widen by at least 44bp.
On the other hand, as far as Spain and Italy are
concerned, the re-widening has been quite limited so
far (around +10bp from their trough in August) and
they are slightly below their levels early July. We
view this re-widening as a consequence of heavy
supply that needed to be digested by the market.
Once this is over, we expect some ASW
compression since the outlook in Spain and Italy has
improved and since the share of Spanish banks in
ECB funding has somewhat decreased.
Market abnormality
Because covered bonds tend to lag during spread
movements (compared to their respective banks
senior and government bonds) and because they are
less volatile, the jump in Irish GILT and PGB ASW
has not been followed yet by Irish and Portuguese
covered bonds in some cases. Looking at iBoxx
Portugal and Ireland Covered indices in comparison
with their corresponding govvies (Chart 3 and 4), we
are now in a situation where the govvies ASW has
reached the same level as that of the respective
iBoxx Covered index ASW. In the case of Portugal,
PGB ASW is even wider than the iBoxx Covered
index!
In particular, we have spotted the following distortion:
1) PGB 4y is 25bp cheaper than Caixa Geral de
Depositos (CXGD) Covered 4y! Looking at their
historical ASW differential, CXGD/PGB 4y should
widen by at least 55bp.
Camille de Courcel 23 September 2010
Market Mover, Non-Objective Research Section
30
www.GlobalMarkets.bnpparibas.com

GBP Curve Opportunities Update
• Sterling curve: enter long reds vs. fronts
and greens.
Chart 1: June 11/June 12/June 13 Sterling Fly
• GBP swap curve: keep here 2y/5y/10y GBP
fly, 5y still has to normalise.
• Cross spreads: Get ready to enter 5y/10y
GBP/Eur compression trades.
45
30
15
0
GBP fly cheap vs. Dollar one
Update on key GBP opportunities
September sell-off provided a few opportunities on
the GBP curve. We do an update here of the trades
recommended recently.
Short-Sterling curve: There has been a dramatic
decoupling between the convexity of the Eurodollar
curve and the Short-Sterling one. The box differential
is back on the upper side of its range in the wake of
the 20bp spike on the Sterling fly. The Latest BoE
minutes highlighted the persistent downside risks on
the UK economy, enhanced by massive and
necessary public spending cuts. In such a context,
the protracted BoE status quo is supportive for
front/red Sterling flatteners while red/green spread
should keep some premium as rate hikes will be
gradually moved from 2011 into 2012. This should
push back front/red/green flies towards August lows.
In terms of RV, we found June 11/June 12/June 13
fly the most interesting one (10bp rolldown). We keep
short positions entered at -4, would add at +1.
Target: -18/-20. Stop loss: +5.
GBP Swap curve: Two weeks ago, we highlighted
the extreme expensiveness of the 5y given the shape
of the money market curve. Nonetheless, the fly
disinverted a bit while the steepening of the money
market curve has been more pronounced, which has
pushed the GBP 5y swap fly to more expensive
levels around 3.5 standard deviations from fair value.
In the past, we saw some flies temporarily reaching
four standard deviations such as the Euro one on the
Lehman collapse but the normalisation occurred in
less than a quarter. So far it seems to be the best
trade in terms of reward profile on the GBP swap
curve with a potential of 30bp (see Chart 3).We
entered 2/3 of the position and are ready to add the
rest on a further overshoot.
GBP/Eur 5y/10y swap box: That box is another way
to play the expensiveness of 5y GBP. In contrast, to
the Euro curve, the GBP 5y/10y segment has been
remarkably stable in the mid-90s over the past six
months. The GBP segment is too high vs. the Euro
using the conditional distribution approach. We would
-15
GBP fly expensive
vs. Dollar one
-30
Jan-10 Mar-10 May-10 Jul-10 Sep-10
Source: BNP Paribas
45
35
25
15
5
-5
-15
-25
3/7/11 Sterling fly 3/7/11 Eurodollar fly
Chart 2: Hedged GBP 2y/5y/10y swap fly
Hedged GBP Swap Fly
(1y/2y spread)
5y cheap
5y expensive
-35
Dec-01 Apr-03 Sep-04 Jan-06 Jun-07 Oct-08 Mar-10
Source: BNP Paribas
Chart 3: Distribution of GBP Fly vs. Short-
Sterling Front/Red Spread
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
GBP swap 2/5/10 with GBP 2/6 between 48 & 58
h= 1.716
0
-20 -10 0 10 20 30 40 50 60
Source: BNP Paribas
Peak at 14.4
Current level: -11.4
2009 regime
enter compression trades on any spike to the
28/31bp area.
Eric Oynoyan 23 September 2010
Market Mover, Non-Objective Research Section
31
www.GlobalMarkets.bnpparibas.com

Global Inflation Watch
Eurozone: September HICP Under Focus
Chart 1: German CoL
The figures for the German States, due for release
from Tuesday, and the flash estimate for the
eurozone out on Thursday will provide the first hints
on inflation dynamics in September.
In both cases, following a moderation in August, we
expect energy prices to push the inflation rate higher
over the month together with food. Conversely, core
inflation is forecast to remain broadly stable as some
upward pressures in prices of consumer goods is
offset by subdued dynamics in services.
More specifically in the eurozone, the 1.3% m/m
decline in eurozone energy prices last September will
not be repeated this month, mechanically pushing
energy inflation higher to around 8% y/y, from 6% in
August.
Source: Reuters EcoWin Pro, BNP Paribas
Chart 2: Eurozone HICP
Food inflation should also rise further on the month.
The boost from food price base effects is now past,
but we should increasingly begin to see pass-through
from the recent soft commodity price shock to food
prices in the coming months.
Core inflation, meanwhile, should remain flat for a
second consecutive month at 1.0% y/y. Core inflation
has recovered a little since April’s 0.77% record low,
with both core goods and core services contributing
to the rise. We see scope for core goods inflation to
rise a little further – in part, its strength reflects passthrough
of past euro weakness. But core services
should resume its downward trend given the weak
state of consumer demand and an absence of any
pressure from labour costs. Net, we expect core
inflation to trade flat in September.
Overall, the rise in food and energy will help drive a
rebound in headline inflation to 1.8% y/y, its highest
level since the end of 2008 (ex-tobacco index at
109.79).
Source: Reuters EcoWin Pro, BNP Paribas
Chart 3: GSCI vs. Eurozone Food Alchool and
Tobacco (FAT) Index
Looking beyond August, headline inflation is likely to
trend slightly higher over the remainder of the year,
as some stabilisation in core inflation is combined
with higher inflation in the most volatile components
of the index (Chart 3).
Source: Reuters EcoWin Pro, BNP Paribas
Luigi Speranza/Eoin O’Callaghan 23 September 2010
Market Mover
32
www.GlobalMarkets.bnpparibas.com

Table 1: BNP Paribas' Inflation Forecasts
Eurozone
France
US
Headline HICP Ex-tobacco HICP
Headline CPI
Ex-tobacco CPI
CPI Urban SA CPI Urban NSA
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 Index % m/m % y/y
2009 108.1 - 0.3 107.9 - 0.2 119.3 - 0.1 118.0 - 0.1 214.5 - -0.3 214.5 - -0.4
2010 (1) 109.8 - 1.6 109.5 - 1.5 121.1 - 1.5 119.7 - 1.4 218.3 - 1.7 218.2 - 1.7
2011 (1) 111.5 - 1.6 111.1 - 1.5 122.7 - 1.4 121.3 - 1.3 221.5 - 1.5 221.4 - 1.5
Q3 2009 108.0 - -0.4 107.8 - -0.5 119.4 - -0.4 118.1 - -0.4 215.4 - -1.6 215.7 - -1.6
Q4 2009 108.6 - 0.4 108.4 - 0.3 119.7 - 0.4 118.4 - 0.3 216.8 - 1.5 216.2 - 1.4
Q1 2010 108.6 - 1.1 108.3 - 1.0 120.3 - 1.3 119.0 - 1.2 217.6 - 2.4 217.0 - 2.4
Q2 2010 110.0 - 1.5 109.7 - 1.4 121.3 - 1.6 120.0 - 1.5 217.2 - 1.8 218.1 - 1.8
Q3 2010 (1) 109.9 - 1.7 109.5 - 1.6 121.2 - 1.5 119.8 - 1.5 218.1 - 1.3 218.3 - 1.2
Q4 2010 (1) 110.7 - 1.9 110.4 - 1.9 121.4 - 1.5 120.0 - 1.4 220.0 - 1.5 219.3 - 1.5
Q1 2011 (1) 110.5 - 1.8 110.2 - 1.7 121.8 - 1.2 120.4 - 1.2 220.9 - 1.5 220.4 - 1.5
Q2 2011 (1) 111.6 - 1.5 111.2 - 1.4 122.8 - 1.2 121.3 - 1.1 221.3 - 1.9 222.1 - 1.9
Jan 10 108.1 -0.8 1.0 107.75 -0.8 0.9 119.7 -0.2 1.1 118.32 -0.2 1.0 217.6 0.2 2.7 216.69 0.3 2.6
Feb 10 108.4 0.3 0.9 108.10 0.3 0.8 120.4 0.6 1.3 118.99 0.6 1.2 217.6 0.0 2.2 216.74 0.0 2.1
Mar 10 109.4 0.9 1.4 109.09 0.9 1.3 120.9 0.5 1.6 119.58 0.5 1.5 217.7 0.1 2.4 217.63 0.4 2.3
Apr 10 109.9 0.5 1.5 109.58 0.4 1.4 121.3 0.3 1.7 119.90 0.3 1.6 217.6 -0.1 2.2 218.01 0.2 2.2
May 10 110.0 0.1 1.6 109.71 0.1 1.5 121.4 0.1 1.6 120.04 0.1 1.6 217.2 -0.2 2.0 218.18 0.1 2.0
Jun 10 110.0 0.0 1.4 109.70 0.0 1.3 121.4 0.0 1.5 120.02 0.0 1.4 216.9 -0.1 1.1 217.97 -0.1 1.1
Jul 10 109.7 -0.3 1.7 109.31 -0.4 1.7 121.0 -0.3 1.7 119.68 -0.3 1.6 217.6 0.3 1.3 218.01 0.0 1.2
Aug 10 109.9 0.2 1.6 109.54 0.2 1.5 121.3 0.2 1.4 119.97 0.2 1.3 218.2 0.3 1.2 218.31 0.1 1.1
Sep 10 (1) 110.1 0.2 1.8 109.79 0.2 1.7 121.2 -0.1 1.5 119.85 -0.1 1.5 218.7 0.3 1.3 218.71 0.2 1.3
Oct 10 (1) 110.5 0.3 1.9 110.18 0.3 1.9 121.3 0.1 1.5 119.95 0.1 1.5 219.5 0.4 1.5 219.40 0.3 1.5
Nov 10 (1) 110.6 0.1 1.9 110.25 0.1 1.8 121.4 0.0 1.4 119.93 0.0 1.4 219.8 0.1 1.4 219.25 -0.1 1.4
Dec 10 (1) 111.0 0.4 2.0 110.68 0.4 1.9 121.6 0.2 1.4 120.16 0.2 1.3 220.6 0.4 1.6 219.24 0.0 1.5
Jan 11 (1) 110.0 -0.9 1.8 109.68 -0.9 1.8 121.3 -0.3 1.4 119.84 -0.3 1.3 220.8 0.1 1.5 219.91 0.3 1.5
Feb 11 (1) 110.4 0.4 1.9 110.07 0.4 1.8 121.9 0.5 1.3 120.45 0.5 1.2 220.9 0.1 1.5 220.15 0.1 1.6
Mar 11 (1) 111.1 0.6 1.6 110.74 0.6 1.5 122.2 0.3 1.1 120.78 0.3 1.0 221.1 0.1 1.5 221.08 0.4 1.6
Apr 11 (1) 111.4 0.3 1.4 111.05 0.3 1.3 122.6 0.3 1.1 121.10 0.3 1.0 221.2 0.1 1.7 221.66 0.3 1.7
May 11 (1) 111.6 0.2 1.5 111.25 0.2 1.4 122.8 0.2 1.2 121.36 0.2 1.1 221.3 0.0 1.9 222.23 0.3 1.9
Jun 11 (1) 111.7 0.1 1.6 111.36 0.1 1.5 122.9 0.1 1.3 121.49 0.1 1.2 221.4 0.0 2.1 222.54 0.1 2.1
Updated
Next
Release
Sep 23
Sep Flash HICP (Sep 30)
Sep 23
Sep CPI (Oct 13)
Sep 17
Sep CPI (Oct 15)
Source: BNP Paribas, (1) Forecasts
Chart 4: Eurozone Core HICP (% y/y)
Chart 5: US Core CPI (% y/y)
Source: Reuters EcoWin Pro
Since printing an all-time low in April, core inflation has been a
touch stronger in recent months, reflecting gains in both core
goods and core services inflation. While we expect core services
inflation to head lower, the rebound in core goods has further to
run. We expect a brief interruption to the downward trend in core.
Source: Reuters EcoWin Pro
The downward trend in shelter inflation was recently interrupted
and leading indicators suggest its strength will continue to year
end. The renewed collapse in the housing market should see a
reversion to a downward trend from early next year.
Luigi Speranza/Eoin O’Callaghan
Market Mover
33
23 September 2010
www.GlobalMarkets.bnpparibas.com

Table 2: BNP Paribas' Inflation Forecasts
Japan
UK
Sweden
Core CPI SA
Core CPI NSA
Headline CPI RPI
CPI CPIF
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 Index % m/m % y/y
2009 100.3 - -1.3 100.3 - -1.3 110.8 - 2.1 213.7 - -0.5 299.7 - -0.3 191.2 - 1.9
2010 (1) 99.2 - -1.1 99.3 - -1.0 114.4 - 3.3 223.3 - 4.5 303.0 - 1.1 194.9 - 1.9
2011 (1) 98.6 - -0.6 98.6 - -0.6 117.2 - 2.4 229.9 - 2.9 309.2 - 2.0 197.2 - 1.2
Q3 2009 99.9 - -2.3 100.1 - -2.3 111.3 - 1.5 214.4 - -1.4 299.5 - -1.2 191.6 - 1.6
Q4 2009 99.7 - -1.8 99.9 - -1.8 112.1 - 2.1 216.9 - 0.6 301.3 - -0.4 193.2 - 2.3
Q1 2010 99.7 - -1.3 99.3 - -1.2 112.9 - 3.2 219.3 - 4.0 301.2 - 1.0 194.0 - 2.6
Q2 2010 99.3 - -1.2 99.3 - -1.2 114.4 - 3.4 223.5 - 5.1 302.8 - 1.1 194.9 - 2.1
Q3 2010 (1) 98.8 - -1.1 99.1 - -1.0 114.7 - 3.0 224.3 - 4.6 302.6 - 1.0 194.6 - 1.6
Q4 2010 (1) 99.1 - -0.6 99.3 - -0.6 115.6 - 3.1 226.3 - 4.3 305.4 - 1.4 195.9 - 1.4
Q1 2011 (1) 98.8 - -0.9 98.4 - -0.9 116.1 - 2.8 227.4 - 3.7 305.2 - 1.3 195.2 - 0.6
Q2 2011 (1) 98.6 - -0.7 98.6 - -0.7 117.1 - 2.4 229.5 - 2.7 308.3 - 1.8 197.0 - 1.0
Jan 10 99.6 -0.1 -1.3 99.2 -0.6 -1.3 112.4 -0.2 3.4 217.9 0.0 3.7 299.8 -0.6 0.6 193.0 -0.2 2.6
Feb 10 99.8 0.2 -1.2 99.2 0.0 -1.2 112.9 0.4 3.0 219.2 0.6 3.7 301.6 0.6 1.2 194.2 0.6 2.7
Mar 10 99.8 0.0 -1.2 99.5 0.3 -1.2 113.5 0.5 3.4 220.7 0.7 4.4 302.3 0.2 1.2 194.7 0.3 2.5
Apr 10 99.3 -0.5 -1.5 99.2 -0.3 -1.5 114.2 0.6 3.7 222.8 1.0 5.3 302.4 0.0 1.0 194.8 0.0 2.2
May 10 99.3 0.0 -1.2 99.3 0.1 -1.2 114.4 0.2 3.3 223.6 0.4 5.1 302.9 0.2 1.2 195.0 0.1 2.1
Jun 10 99.2 -0.1 -1.0 99.3 0.0 -1.0 114.6 0.2 3.2 224.1 0.2 5.0 303.0 0.0 0.9 195.0 0.0 1.9
Jul-10 98.9 -0.3 -1.1 99.0 -0.3 -1.1 114.3 -0.3 3.1 223.6 -0.2 4.8 302.0 -0.3 1.1 194.3 -0.3 1.7
Aug 10 (1) 98.8 -0.1 -1.0 99.1 0.1 -1.0 114.9 0.5 3.1 224.5 0.4 4.7 302.1 0.0 0.9 194.3 0.0 1.4
Sep 10 (1) 98.8 0.0 -1.0 99.2 0.1 -1.0 114.9 0.0 3.0 224.7 0.1 4.4 303.6 0.5 1.1 195.2 0.5 1.5
Oct 10 (1) 99.2 0.4 -0.5 99.6 0.4 -0.5 115.2 0.3 3.1 225.6 0.4 4.4 305.0 0.5 1.3 195.9 0.3 1.5
Nov 10 (1) 99.2 0.0 -0.6 99.3 -0.3 -0.6 115.5 0.2 3.1 226.2 0.3 4.4 305.3 0.1 1.4 196.0 0.1 1.5
Dec 10 (1) 99.0 -0.2 -0.7 99.1 -0.2 -0.7 116.2 0.6 3.2 227.2 0.4 4.2 306.0 0.3 1.4 195.9 -0.1 1.2
Jan 11 (1) 98.9 -0.1 -0.7 98.5 -0.6 -0.7 115.8 -0.3 3.1 226.7 -0.2 4.0 303.7 -0.8 1.3 194.4 -0.7 0.7
Feb 11 (1) 98.8 -0.1 -1.0 98.2 -0.3 -1.0 116.2 0.3 2.9 227.5 0.3 3.8 305.1 0.5 1.2 195.2 0.4 0.5
Mar 11 (1) 98.7 -0.1 -1.1 98.4 0.2 -1.1 116.4 0.2 2.5 228.0 0.2 3.3 306.8 0.6 1.5 196.1 0.4 0.7
Apr 11 (1) 98.6 -0.1 -0.7 98.5 0.1 -0.7 116.8 0.3 2.3 228.7 0.3 2.7 307.8 0.3 1.8 196.7 0.3 1.0
May 11 (1) 98.7 0.1 -0.6 98.7 0.2 -0.6 117.2 0.3 2.4 229.5 0.4 2.7 308.3 0.2 1.8 197.0 0.2 1.0
Jun 11 (1) 98.5 -0.2 -0.7 98.6 -0.1 -0.7 117.3 0.1 2.4 230.2 0.3 2.7 308.9 0.2 1.9 197.2 0.1 1.1
Updated
Next
Release
Sep 16
Aug CPI (Oct 1)
Sep 16
Sep CPI (Oct 12)
Sep 16
Sep CPI (Oct 12)
Source: BNP Paribas, (1) Forecasts
Chart 6: Japanese CPI (% y/y)
Chart 7: UK CPI (% y/y)
Source: Reuters EcoWin Pro
Prices are expected to continue falling but the pace of decline is
easing as the economy recovers.
Source: Reuters EcoWin Pro, BNP Paribas
We expect inflation to remain above target for the remainder of the
year, although trending down.
Luigi Speranza/Eoin O’Callaghan
Market Mover
34
23 September 2010
www.GlobalMarkets.bnpparibas.com

Table 3: BNP Paribas' Inflation Forecasts
Canada Norway Australia
CPI Core CPI Headline CPI Core
CPI
Core
Index % q/q % y/y Index % q/q % y/y Index % q/q % y/y Index % q/q % y/y Index % q/q % y/y Index % q/q % y/y
2009 114.4 0.3 113.6 1.8 125.7 2.2 118.4 2.6 167.8 - 1.8 - - 3.7
2010 (1) 116.5 1.8 115.5 1.6 128.6 2.3 120.0 1.4 173.2 - 3.2 - - 2.7
2011 (1) 118.6 1.8 117.1 1.4 130.4 1.4 121.9 1.5 179.0 - 3.4 - - 2.9
Q3 2009 114.7 0.5 -0.9 113.9 1.2 1.6 125.8 0.0 1.8 118.5 0.0 2.4 168.6 1.0 1.3 - - 3.5
Q4 2009 114.9 0.6 0.8 114.4 1.9 1.6 126.6 0.6 1.4 119.3 0.7 2.3 169.5 0.5 2.1 - - 3.3
Q1 2010 115.4 2.0 1.6 114.9 1.6 1.9 128.4 1.4 2.9 119.4 0.1 2.0 171.0 0.9 2.9 - - 3.1
Q2 2010 116.2 2.6 1.4 115.5 2.3 1.8 129.1 0.6 2.6 120.3 0.8 1.5 172.1 0.6 3.1 - - 2.7
Q3 2010 (1) 117.0 2.7 2.0 115.6 0.3 1.5 128.2 -0.7 1.9 120.0 -0.3 1.2 174.1 1.2 3.3 - - 2.6
Q4 2010 (1) 117.4 1.5 2.2 116.0 1.2 1.4 128.8 0.5 1.7 120.5 0.4 1.0 175.4 0.7 3.5 - - 2.7
Q1 2011 (1) 117.9 1.6 2.1 116.4 1.6 1.4 129.1 0.2 0.5 120.7 0.2 1.1 177.0 0.9 3.5 - - 2.7
Q2 2011 (1) 118.3 1.7 1.9 116.9 1.7 1.2 130.4 1.0 1.0 122.0 1.0 1.4 177.9 0.5 3.4 - - 2.8
Updated
Sep 21
Sep 16 Sep 16
Next
Release
Sep CPI (Oct 22)
Sep CPI (Oct 11) Q3 CPI (Oct 27)
Source: BNP Paribas, (1) Forecasts
Chart 8: Canadian Total Versus Core CPI
Chart 9: Australian CPI (% y/y)
Source: Reuters EcoWin Pro, BNP Paribas
Wage pressures appear subdued, suggesting that underlying
inflation should remain close to the BoC's 2% target.
Source: Reuters EcoWin Pro, BNP Paribas
Near-term inflation pressures should be muted but, with the limited
spare capacity in the labour market being eroded, underlying
inflation is likely to settle near the top of the RBA's target range.
CPI Data Calendar for the Coming Week
Day GMT Economy Indicator Previous
BNPP
F’cast
Consensus Comment
Tue 28/09 Germany CPI (Prel) m/m : Sep 0.0% -0.2% -0.1% Energy and food
CPI (Prel) y/y : Sep 1.0% 1.2% 1.3%
HICP (Prel) m/m : Sep 0.1% -0.1% -0.2%
HICP (Prel) y/y : Sep 1.0% 1.3% 1.3%
09:15 Belgium CPI m/m : Sep 0.1% 0.0% n/a
09:15 CPI y/y : Sep 2.3% 2.6% n/a
Wed 29/09 07:00 Spain HICP (Flash) y/y : Sep 1.8% 2.1% 2.1%
Thu 30/09 09:00 Eurozone HICP (Flash) y/y : Sep 1.6% 1.8% 1.8% Energy and food
09:00 Italy CPI (NIC, Prel) m/m : Sep 0.2% -0.1% n/a
09:00 CPI (NIC, Prel) y/y : Sep 1.6% 1.7% n/a
09:00 HICP (Prel) m/m : Sep 0.2% 0.7% n/a
09:00 HICP (Prel) y/y : Sep 1.8% 1.7% n/a
Fri 01/10 23:30 Japan CPI National y/y : Aug -0.9% -0.9% -0.9%
23:30 Core CPI National y/y : Aug -1.1% -1.0% -1.0%
23:30 CPI Tokyo y/y : Sep -1.0% -0.8% -0.8%
23:30
(30/09)
Core CPI Tokyo y/y : Sep -1.1% -1.0% -1.0%
Release dates and forecasts as at c.o.b. prior to the date of publication: See Daily Economic Spotlight for any revision
Source: BNP Paribas
Luigi Speranza/Eoin O’Callaghan
Market Mover
35
23 September 2010
www.GlobalMarkets.bnpparibas.com

Inflation: Bring QE to Europe!
• GLOBAL: Mixed reception to dovish CBs
• EUR: Stay Negative. Keep long EUR/FRF.
• USD: Volatile. Low RY. 5/10y BE flattener.
• GBP: Correction in the Gilt rally. 1y rich.
GLOBAL: Central bank rhetoric from the US and UK
remains very dovish. The FOMC is “prepared to
provide additional accommodation if needed to
support the economic recovery and to return inflation,
over time, to levels consistent with its mandate”. This
has fuelled a rally in bonds although equities are
weaker following their initial positive reaction.
Commodities have not benefited hugely from USD
weakness given struggling risk appetite although
enhanced liquidity should help asset and commodity
markets to perform. Real yields offer more protection
from a depreciating currency and the inflationary
impact of quantitative easing. Indeed, US real yields
have rallied by 30bp in a couple of sessions.
Between 9 and 23 March 2009 – the onset of QE –
we also saw a tremendous rally in real yields and
breakevens did not suffer much as TIPS were
included in the programme whilst BEs rose in the
eventual yield sell-off – Chart 1. The UK issued
550mn UKTi-27 via mini-tender whilst Tesoro will reopen
BTPei-21 for up to EUR 1.5bn. Breakevens
suffered elsewhere and we continue to find EUR and
especially FRF breakevens rich and exposed here.
EUR: Core/peripheral spreads generally remain
under widening pressure, causing disparity in
linker/breakeven performance. BTPeis breakevens
have outperformed core linkers at the front end but
have underperformed materially at 7-15y maturities
with real spreads widening much more than nominal
ones. Supply is partly to blame, with 7y+ BTPeis
suffering on the announcement of EUR 1.5bn BTPei-
21 supply next week. Whilst the BTPei-21 has
underperformed vs. OATei, it has outperformed vs.
BTPei-23. The BTPei-21 may look attractive in the
inflation and ASW discount curve, but it is hit by the
richness of its nominal (BTP Mar-21 and the
cheapness of BTP Aug-23, nominal comparator for
BTPei-23). After adjusting for this, we find the BTPei-
21 no longer looks cheap vs. either OATei or BTPei
curves and we expect a further concession – both
outright and in relative terms ahead of its auction on
Tuesday 28 September. BTPei-21 offers amongst
the highest real ASW on the curve, whilst the bond
does have a closer-to-money inflation floor. OATi
breakevens are underperforming their EUR
counterparts sharply at the front end, as we called
for. Our long OBLei-13/short OATi-13 BE spread has
moved above -40bp from -45bp mid last Friday –
Chart 1: 10y USD RY, NY & BE into/out of QEI
2.50
2.30
2.10
1.90
1.70
1.50
23-Mar
1.30
3.00
1.10
0.90
10y USD Generic Real Yield
2.50
10y USD Generic Breakeven
0.70
06-Mar
10y USD Generic Tsy Yield, Rhs
0.50
2.00
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
Chart 2: Long OBLei-13/Short OATi-13 BE Spd
0
-10
-20
-30
-40
-50
-60
BOBLEI13 / OATI13 Breakeven
EUR_HICP / FRF_CPI m/m (0m lag) Rhs
-70
-2.0
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
All Charts Source: Bloomberg, BNP Paribas
Chart 2. To recap, cumulative inflation (from Aug-
Dec) is expected at 1.30% in EUR compared to
0.75% in FRF and this is not priced with forwards
below the 18m range. We see further potential in this
trade.
USD: Strong rally in real yields post FOMC meeting
although the move is retracing fast on breakevens.
Market felt squeezed (although dealers reported long
on 9-Sep) with 10y real yields at all-time lows and no
supply until end-Oct. Still, Next FOMC is in 6 weeks
and our models find TIPS BEs expensive with poor
seasonals and mixed total return breakevens
dynamics in Q4. Meanwhile, Barcap US Agg Index
story should still add some vol. We expect news from
Friday evening but all depends on the index sponsor,
which is said to be active in the market. Overall we
have no strong opinion near term but are not keen to
short US BEs and expect volatility ahead. We
continue to find the 5y area cheap and 20y area rich.
GBP: Breakevens down sharply (10bp) in the strong
gilt rally. GBP 550mn UKTi-27 mini-tender did not
help although it was digested smoothly (2.2
bid/cover) after concession pre-tender. Real yields
are close to their lower bound and BEs will continue
to experience increased sensitivity to conventionals if
real yields stay this low. We still like selling 1y
inflation swap with a hedge against Dec-10 RPI (via
UKTi-11) and early BoE rate hikes (via the money
market).
5.00
4.50
4.00
3.50
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
Shahid Ladha / Herve Cros 23 September 2010
Market Mover, Non-Objective Research Section
36
www.GlobalMarkets.bnpparibas.com

Table 1: BNP Paribas Carry Analysis
EUR
Pricing Date
23-Sep-10
Term 1
Term 2
3m
6m
12m
Repo Rate
0.47%
0.51%
0.58% 0.70%
0.87%
EUR DRI
109.34900
109.54000
109.79265 110.12671
109.81139
110.88334
FRF DRI
119.71400
119.97000 119.85339
119.94133
119.88290
121.17136
Sett. Date
28-Sep-10
01-Nov-10
01-Dec-10
28-Dec-10
28-Mar-11
28-Sep-11
Real BE Real BE Real BE Real BE Real BE Real BE
OATEI Jul-12 -0.99% 1.68% 2.2 0.8 8.5 6.4 20.0 18.3 -32.3 -31.0 -56.8 -22.0
BTPEI Sep-12 0.12% 1.76% 7.7 0.6 19.0 5.7 35.0 16.3 9.3 -30.1 67.8 -33.0
BOBLEI Apr-13 -0.40% 1.12% 3.9 2.8 10.6 8.7 20.7 18.9 -6.3 -6.8 7.8 20.0
BTPEI Sep-14 1.01% 1.52% 6.1 0.6 13.6 3.2 23.0 8.5 17.5 -11.8 54.5 -9.2
OATEI Jul-15 0.05% 1.54% 3.0 0.5 7.2 2.6 13.0 6.8 2.3 -9.3 15.7 -5.8
BUNDEI Apr-16 0.10% 1.43% 2.7 0.6 6.4 2.6 11.5 6.4 2.5 -6.8 14.1 -2.6
BTPEI Sep-17 1.72% 1.54% 4.6 0.1 9.9 1.4 16.1 4.2 15.7 -8.0 40.9 -7.8
BTPEI Sep-19 2.05% 1.65% 4.1 -0.1 8.6 0.8 13.9 3.0 14.5 -7.0 36.2 -7.0
BUNDEI Apr-20 0.61% 1.62% 2.2 0.1 4.9 1.0 8.3 3.0 4.5 -5.5 14.3 -4.6
OATEI Jul-20 0.85% 1.80% 2.4 -0.1 5.3 0.6 8.9 2.5 5.8 -6.7 17.4 -7.0
BTPEI Sep-21 2.29% 1.60% 3.6 -0.2 7.6 0.4 12.1 2.1 13.2 -6.4 32.1 -7.2
OATEI Jul-22 1.04% 1.72% 2.1 -0.4 4.6 0.0 7.6 1.3 5.5 -6.7 15.5 -8.2
RFFEI Feb-23 1.42% 1.51% 2.5 0.2 5.4 1.2 8.8 3.0 7.7 -3.4 19.8 -2.0
BTPEI Sep-23 2.44% 1.77% 3.3 -0.3 6.9 0.1 11.0 1.5 12.4 -6.5 29.6 -8.4
GGBEI Jul-25 8.49% 1.57% 8.9 -1.8 17.5 -2.6 26.3 -2.4 42.7 -15.2 94.7 -23.4
GGBEI Jul-30 7.14% 3.09% 5.9 -4.5 11.8 -8.1 17.7 -10.5 27.7 -29.5 61.1 -55.0
OATEI Jul-32 1.23% 2.00% 1.5 -0.4 3.2 -0.2 5.3 0.5 4.2 -4.9 11.1 -6.6
BTPEI Sep-35 2.37% 2.38% 1.9 -0.9 4.0 -1.4 6.3 -1.2 6.9 -7.8 16.2 -13.1
OATEI Jul-40 1.26% 2.04% 1.1 -0.4 2.3 -0.4 3.8 0.0 3.0 -4.3 7.9 -6.1
BTPEI Sep-41 2.69% 2.13% 1.8 -0.8 3.8 -1.1 6.0 -0.9 6.9 -6.6 15.9 -10.7
FRF
OATI Jul-11 -1.01% 1.50% 9.5 9.2 -24.7 -23.5 -36.5 -28.6 -214.6 -73.5 - -
OATI Jul-13 -0.54% 1.48% 4.3 2.4 -3.0 -6.3 -3.7 -7.7 -21.0 -27.0 -10.9 -15.5
OATI Jul-17 0.28% 1.82% 2.9 0.3 1.0 -3.8 1.8 -4.9 -1.2 -14.0 11.0 -13.6
OATI Jul-19 0.58% 1.90% 2.7 0.1 1.4 -3.4 2.3 -4.4 1.0 -11.9 12.4 -12.5
OATI Jul-23 0.92% 2.01% 2.2 -0.1 1.6 -2.6 2.4 -3.4 2.2 -8.9 12.1 -9.8
OATI Jul-29 1.09% 2.10% 1.8 -0.2 1.4 -2.3 2.1 -3.1 2.3 -7.9 10.3 -9.2
USD
Pricing Date
23-Sep-10
Term 1
Term 2
3m
6m
12m
Repo Rate
0.20%
0.20%
0.21% 0.23%
0.27%
USD DRI
218.00027
218.31200
218.71229
219.22253
219.73273
222.12726
Sett. Date
24-Sep-10
01-Nov-10
01-Dec-10
24-Dec-10 24-Mar-11 26-Sep-11
Yield BE Real BE Real BE Real BE Real BE Real BE
TIPS Jan-11 0.24% -0.07% 71.6 73.5 271.2 277.0 945.6 964.8 -
TIPS Apr-11 -0.01% 0.24% 26.8 26.3 77.5 76.5 164.3 163.4 - - - -
TIPS Jan-12 -0.27% 0.60% 7.9 7.0 21.6 19.7 42.3 39.9 68.1 63.1 450.4 438.2
TIPS Apr-12 -0.27% 0.60% 6.6 5.7 17.6 15.8 33.9 31.7 52.0 47.3 245.0 235.5
TIPS Jul-12 -0.44% 0.80% 4.5 3.6 13.0 11.3 26.1 23.8 35.8 31.2 147.9 138.3
TIPS Apr-13 -0.43% 0.95% 3.1 1.8 8.8 6.3 17.3 14.0 22.5 15.5 75.4 59.8
TIPS Jul-13 -0.34% 0.92% 3.3 1.8 8.8 6.0 16.9 13.2 22.6 14.9 71.7 54.2
TIPS Jan-14 -0.17% 0.93% 3.4 1.5 8.5 5.0 15.7 11.0 21.8 12.1 64.3 42.2
TIPS Apr-14 -0.19% 1.04% 3.0 1.0 7.6 4.0 14.1 9.2 19.4 9.1 56.3 33.2
TIPS Jul-14 -0.11% 1.03% 3.1 1.0 7.7 3.8 13.9 8.8 19.5 8.7 55.1 30.8
TIPS Jan-15 0.06% 1.06% 3.1 0.8 7.5 3.2 13.3 7.4 19.2 7.0 52.2 25.0
TIPS Apr-15 -0.07% 1.26% 2.6 0.2 6.4 2.0 11.5 5.6 16.0 3.7 43.5 16.6
TIPS Jul-15 0.09% 1.17% 2.9 0.4 6.9 2.4 12.1 6.0 17.5 4.9 46.4 18.6
TIPS Jan-16 0.20% 1.22% 2.9 0.2 6.7 1.9 11.5 5.1 16.9 3.6 44.0 14.7
TIPS Jul-16 0.20% 1.36% 2.7 -0.1 6.2 1.2 10.7 4.0 15.6 1.9 40.2 10.2
TIPS Jan-17 0.35% 1.39% 2.7 -0.1 6.2 1.0 10.5 3.5 15.7 1.4 39.5 8.4
TIPS Jul-17 0.34% 1.52% 2.5 -0.4 5.7 0.5 9.8 2.7 14.5 0.0 36.3 5.0
TIPS Jan-18 0.43% 1.56% 2.4 -0.4 5.5 0.3 9.2 2.3 13.8 -0.4 34.2 3.7
TIPS Jul-18 0.45% 1.66% 2.3 -0.6 5.1 -0.1 8.6 1.5 13.0 -1.5 31.8 0.8
TIPS Jan-19 0.56% 1.70% 2.4 -0.5 5.2 0.0 8.7 1.7 13.3 -1.0 32.2 1.8
TIPS Jul-19 0.60% 1.78% 2.3 -0.7 5.0 -0.3 8.3 1.1 12.7 -2.0 30.5 -0.6
TIPS Jan-20 0.66% 1.76% 2.2 -0.8 4.8 -0.6 7.9 0.7 12.2 -2.5 29.1 -1.7
TIPS Jul-20 0.72% 1.77% 2.1 -0.8 4.6 -0.6 7.6 0.5 11.8 -2.6 28.1 -2.2
TIPS Jan-25 1.15% 1.89% 2.0 -1.0 4.1 -1.2 6.6 -0.6 10.5 -4.0 24.2 -6.3
TIPS Jan-26 1.20% 1.93% 1.9 -0.9 3.9 -1.2 6.2 -0.6 9.9 -3.8 22.7 -5.9
TIPS Jan-27 1.25% 1.92% 1.8 -0.9 3.8 -1.1 6.0 -0.6 9.7 -3.7 22.2 -5.8
TIPS Jan-28 1.28% 1.96% 1.7 -1.0 3.5 -1.4 5.6 -1.0 9.0 -4.3 20.5 -6.9
TIPS Apr-28 1.33% 1.97% 1.9 -0.7 4.0 -0.8 6.2 -0.2 10.1 -2.7 22.9 -3.8
TIPS Jan-29 1.30% 2.04% 1.7 -0.9 3.6 -1.1 5.6 -0.6 9.1 -3.5 20.6 -5.6
TIPS Apr-29 1.37% 1.97% 1.9 -0.7 3.9 -0.8 6.1 -0.2 9.9 -2.7 22.4 -3.8
TIPS Apr-32 1.39% 2.04% 1.6 -0.9 3.4 -1.1 5.3 -0.7 8.6 -3.6 19.3 -5.8
TIPS Feb-40 1.54% 2.15% 1.3 -0.9 2.6 -1.2 4.0 -1.1 6.6 -3.7 14.7 -6.5
GBP
Pricing Date
23-Sep-10 Term 1 Term 2
3m
6m
12m
Repo Rate
0.55%
0.55%
0.55%
0.61%
0.70%
Sett. Date
24-Sep-10
01-Nov-10 01-Dec-10 24-Dec-10
24-Mar-11
26-Sep-11
Yield BE Real BE Real BE Real BE Real BE Real BE
UKTi Aug-11 -0.33% 0.82% 9.2 10.9 52.7 56.7 79.7 87.0 - - - -
UKTi Aug-13 -1.63% 2.53% -2.2 -3.9 5.3 2.3 7.8 3.7 7.8 -0.1 12.5 -1.8
UKTi Jul-16 -0.30% 2.41% 1.4 -1.7 7.3 1.6 10.2 2.5 16.8 1.4 34.7 2.6
UKTi Nov-17 -0.07% 2.60% 4.2 0.8 5.0 -1.0 8.8 0.7 16.1 -0.3 31.7 -2.1
UKTi Apr-20 0.30% 2.66% 1.7 -1.6 6.0 0.0 8.2 0.2 14.1 -2.1 28.3 -4.8
UKTi Nov-22 0.53% 2.73% 3.2 0.1 4.2 -1.5 6.8 -0.7 12.6 -2.5 24.7 -6.1
UKTi Jul-24 0.60% 2.93% 1.4 -1.5 4.7 -0.6 6.5 -0.7 11.2 -3.1 22.4 -6.6
UKTi Nov-27 0.66% 3.06% 2.3 -0.4 3.1 -1.8 5.0 -1.5 9.3 -3.7 17.9 -8.5
UKTi Jul-30 0.60% 3.29% 1.1 -1.3 3.7 -0.7 5.1 -0.8 8.8 -2.9 17.4 -6.3
UKTi Nov-32 0.64% 3.26% 1.8 -0.6 2.4 -2.0 3.9 -2.0 7.2 -4.5 13.9 -9.9
UKTi Jan-35 0.62% 3.35% 0.9 -1.4 2.8 -1.3 3.9 -1.7 6.6 -4.3 13.1 -8.9
UKTi Nov-37 0.59% 3.38% 1.5 -0.7 2.0 -2.0 3.2 -2.1 5.9 -4.6 11.2 -10.1
UKTi Mar-40 0.61% 3.38% 1.3 -0.8 1.7 -2.1 2.8 -2.3 5.2 -5.1 9.8 -10.7
UKTi Nov-42 0.58% 3.41% 1.2 -0.8 1.6 -2.1 2.6 -2.3 4.7 -5.0 9.0 -10.7
UKTi Nov-47 0.54% 3.46% 1.1 -0.9 1.4 -2.1 2.3 -2.3 4.2 -5.0 7.9 -10.5
UKTi Mar-50 0.54% 3.46% 1.0 -0.9 1.3 -2.1 2.1 -2.4 3.8 -5.0 7.1 -10.6
UKTi Nov-55 0.50% 3.48% 0.9 -0.8 1.2 -1.9 2.0 -2.2 3.7 -4.6 7.0 -9.6
JPY
Pricing Date
23-Sep-10
Term 1 Term 2
3m
6m
12m
Repo Rate
0.12%
0.12%
0.12%
0.13% 0.14%
JPY DRI
99.120
99.100
99.200
99.432
98.752 98.600
Sett. Date
28-Sep-10
10-Nov-10
10-Dec-10
28-Dec-10
28-Mar-11
28-Sep-11
Yield BE Yield BE Yield BE Real BE Real BE Real BE
JGBI-1 Mar-14 1.07% -0.89% 3.3 3.1 9.0 8.7 17.1 16.7 5.8 4.9 17.7 16.1
JGBI-2 Jun-14 1.22% -1.03% 3.7 3.4 9.4 9.0 17.1 16.6 8.0 6.8 22.1 19.9
JGBI-3 Dec-14 1.11% -0.87% 2.9 2.5 7.6 7.0 14.1 13.4 5.2 3.6 14.8 11.5
JGBI-4 Jun-15 1.21% -0.94% 2.8 2.4 7.2 6.5 15.4 14.5 5.9 4.0 15.8 11.9
JGBI-5 Sep-15 1.17% -0.88% 2.5 2.1 6.6 5.9 12.2 11.3 4.9 3.1 13.5 9.6
JGBI-6 Dec-15 1.10% -0.79% 2.3 1.9 6.1 5.3 11.3 10.4 4.0 2.0 11.1 7.0
JGBI-7 Mar-16 1.19% -0.86% 2.3 1.9 6.1 5.3 11.2 10.1 4.7 2.5 12.6 8.0
JGBI-8 Jun-16 1.30% -0.94% 2.6 2.0 6.3 5.4 11.3 10.2 5.7 3.3 14.5 9.5
JGBI-9 Sep-16 1.28% -0.90% 2.3 1.8 5.9 5.0 10.7 9.6 5.2 2.7 13.4 8.2
JGBI-10 Dec-16 1.27% -0.85% 2.3 1.7 5.7 4.7 10.3 9.0 4.9 2.2 12.4 6.8
JGBI-11 Mar-17 1.31% -0.87% 2.2 1.6 5.6 4.5 10.0 8.7 5.0 2.2 12.6 6.8
JGBI-12 Jun-17 1.37% -0.90% 2.3 1.7 5.7 4.5 10.0 8.5 3.7 0.8 13.4 7.1
JGBI-13 Sep-17 1.33% -0.82% 2.1 1.4 5.3 4.1 9.4 7.9 4.8 1.7 12.1 5.4
JGBI-14 Dec-17 1.33% -0.78% 2.1 1.3 5.2 3.9 9.1 7.5 4.7 1.3 11.6 4.6
JGBI-15 Mar-18 1.37% -0.78% 2.0 1.3 5.0 3.7 9.0 7.3 4.7 1.3 11.7 4.4
JGBI-16 June-18 1.48% -0.85% 2.2 1.4 5.3 3.9 9.2 7.4 5.4 1.8 13.1 5.3
Source: BNP Paribas
Shahid Ladha / Herve Cros 23 September 2010
Market Mover, Non-Objective Research Section
37
www.GlobalMarkets.bnpparibas.com

Europe ITraxx Credit Indices
• XO/MAIN: we advise to take profit on the
compression trade we recommended last week;
more than 20bp gain. Compression will remain a
major theme in the coming months and we are
now waiting for a better entry level to re-position
it.
• SUB/SEN: the more mixed picture in Bank
Capital instruments –T1 being the sole
exception– should trigger the underperformance
of FIN SUB. Given the recent collapse of the
SUB/SEN ratio, we think it makes sense to take
profit on our compression trade “long risk FIN
SUB / Short risk FIN SEN x1.5” even if further
pressure on GIIPS could further compress the
ratio. Net gain on the trade: 11bp.
• MAIN/CDX: the increase in GIIPS sovereign
risk and decrease in concerns of a double-dip
scenario are making iTraxx MAIN unlikely to
outperform CDX IG. Our trade “long Europe /
short US” which is back to entry level will be
closed as soon as MAIN has retraced from
current oversold levels.
• MAIN 5/10y: the 5/10y is now too steep vs.
the 5y and the forward is very toppish; we
advise to buy the 5y in 5y. Entry levels: 10y:
129; 5y: 119.
• MAIN 3/5y: the 3/5y is steep vs. the 5y and
the forward is high but it has not reached a nobrainer
level. We stay away for now.
• XO 5/10y: we take profit on our 5/10y
steepener in s13 which trades now too steep
given the level of the 5y. The total P&L of the
trade, including carry, is equivalent to a
steepening of 20bp.
Chart 1: 1m correlation MAIN vs. SOVX
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
9/09 10/09 11/09 12/09 1/10 2/10 3/10 4/10 5/10 6/10 7/10 8/10 9/10
Source: BNP Paribas
Correl 1m MAIN / SOVX
Chart 2: XO – 4x MAIN history
300
250
200
150
100
-
50
3/10 4/10 4/10 5/10 5/10 6/10 6/10 7/10 7/10 7/10 8/10 8/10 9/10
Source: BNP Paribas
iTraxx s12: XO - 4 x MAIN
Q1 (6m)
Median (6m)
Q3 (6m)
Chart 3: SUB -1.5x FIN SEN history
30
25
20
15
10
iTraxx s12: SUB - 1.5 x SEN
Q1 (6m)
Median (6m)
Q3 (6m)
XO Tight
XO Wide
SUB Wide
5
Update on Pair-trades:
XO/MAIN:
The compression trend between the High-Yield and
High-Grade cash markets somewhat halted this
week in the context of 1/ still relatively active primary
markets and 2/ end-accounts unwilling to put their
cash into secondary markets. Even in Bank Capital,
flows between buyers and sellers have been more
balanced. On a weekly basis, the BoA-ML High-Yield
index is only tighter by 6bp against the iBoxx High-
Grade Non-financials index wider by 1bp.
-
-5
-10
-15
3/10 4/10 4/10 5/10 5/10 6/10 6/10 7/10 7/10 7/10 8/10 8/10 9/10
Source: BNP Paribas
SUB Tight
In contrast, we have had decent compression in
iTraxx indices and the ratio between XO and MAIN in
Series 13 reached a new low of 4.27x. It has been
partially supported by the dynamics of the roll:
actually, the bid for MAIN s13 has remained alive
with real-money selling decent amounts of roll –
perhaps as a result of the 0.5bp differential of skew
between the two indices – while on XO, hedgers
Pierre Yves Bretonniere 23 September 2010
Market Mover, Non-Objective Research Section
38
www.GlobalMarkets.bnpparibas.com

have been happy to buy the roll to position on the
riskier new index.
In addition to these technical factors, we continue to
think that MAIN trades too wide relative to various
other markets (EUROSTOXX 600 in particular) and
do not rule out a tightening of 5 to 10bp, all other
things being equal. A complete realignment to equity
and volatility indices would imply an outperformance
of about 13bp. It is also worth noting the further drop
in 1-week and 1-month correlations between MAIN
and SOVX; we do not expect the two indices to
completely de-correlate as it is the case for XO but
we see room for MAIN to outperform in the short run.
What’s next? We think compression will remain one
of the main themes in the coming weeks and months
and are now waiting for a new entry point to re-enter
the XO/MAIN trade. In terms of ratio, we would aim
at 4.80x on the new Series, i.e. 110 on MAIN vs. 528
in XO.
SUB/SEN:
With the level of volatility in Ireland CDS and Irish
banks still very elevated – the Sovereign CDS is
80bp wider this week; AIB and BKIR about 120bp
wider – and the level of correlation between SOVX
and FIN SEN still high, we had this week a massive
underperformance of FIN SEN relative to MAIN and
relative to FIN SUB, the latter being perceived as
less systemic. On a weekly basis, FIN SEN and SUB
are respectively wider by 21bp and 26bp; as a result,
the SUB/SEN ratio reached a new 5-month low of
1.47x.
In cash, the momentum has turned much less bullish
for Lower Tier 2, in particular for bullet bonds. We
also saw some profit taking on Tier 1 after the
massive performance of the asset class since the
beginning of the month (120bp in two weeks) but the
tone remains constructive overall, thanks to strong
technicals. Note that the regulatory changes are also
unfolding into the relative performance of Banks in
equity markets and the sector comes as the clear
underperformer on a weekly and monthly basis.
What’s the call?
The more mixed picture in Bank Capital instruments
– T1 being the exception – is making us expect some
underperformance of FIN SUB; given the recent
collapse of the SUB/SEN ratio, we think it makes
sense to take profit on our compression trade “long
risk FIN SUB / Short risk FIN SEN x1.5”, although we
reckon that further pressure on weaker sovereigns
could further compress the ratio. Net gain on the
trade: 11bp01 .
Chart 4: 1m performance by sector (EUROSTOXX 600)
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
STOXX 600
Banks
Financial Services
Insurance
Telecommunications
Media
Technology
Utilities
Oil & Gas
Food & Beverage
Health Care
Retail
Travel & Leisure
Chemicals
Construction & Materials
Basic Resources
Source: BNP Paribas
Chart 5: iTraxx MAIN – CDX IG history
-
20
15
10
5
-5
-10
-15
-20
MAIN vs. CDX IG:
Industrial Goods & Services
Personal & Household
Goods
Automobiles & Parts
3/10 4/10 4/10 5/10 5/10 5/10 6/10 6/10 7/10 7/10 8/10 8/10 9/10 9/10
Source: BNP Paribas
EU MAIN - 1 x US CDX IG (5Y)
Q1 (6m)
Median (6m)
Q3 (6m)
iTraxx MAIN has naturally underperformed CDX IG
this week given the pressure on GIIPS sovereign
debt and European banks. Note that financial
institutions represent 20% of the European basket
and only 12% of the US one, not mentioning the
disproportionate exposure to GIIPS between
European and US financials.
Our trade “long risk MAIN s13 / short risk IG 14
x0.85” is now back to our entry level and is likely to
post losses should the market remain weak and
focussed on GIIPS sovereign debt. This
recommendation initially aimed to perform with the
increase in the likelihood of a double-dip scenario; in
such a scenario, the weaker credit quality of the US
basket relative to the European one would have
ensured the underperformance of the US index. With
these concerns much beyond European sovereign
1 Entry levels: 205 (SUB s13) and 135 (SEN s13);
Closing levels 215.5 (SUB s13) and 149.5 (SEN
s13).
Pierre Yves Bretonniere 23 September 2010
Market Mover Non-Objective Research Section
39
www.GlobalMarkets.bnpparibas.com

isk in market participants’ minds, the trade is highly
unlikely to post strong gains now.
That being said, MAIN trades much too wide when
compared to other risky asset markets; a simple
model based on European equities and equity
volatility is pricing MAIN about 7bp below its current
valuations. In the US, the similar model indicates that
IG is trading fair-value vs. the S&P500 and VIX
indices. With this in mind, we think MAIN could
momentarily outperform IG and we aim at closing the
“Long Europe / Short US” trade as soon as we
achieve 2 or 3bp of outperformance.
What’s the call? Increase in GIIPS sovereign risk
and decrease in concerns of a double-dip scenario
are making iTraxx MAIN unlikely to outperform CDX
IG. We aim at closing our “long Europe / short US” as
soon as MAIN retraced from current oversold levels.
Update on Curves:
steepener recommendation (dated 25-Mar) to take
profit at current levels.
Chart 6: Curves’ levels and changes
5y 3/5y 1W Chg 1M Chg 5/10y 1W Chg 1M Chg
MAIN s13 118 25 11
MAIN s12 112.75 26 +0 +3 14 +1.5 +5
SEN s13 153.5 7
SEN s12 150.5 10 +1 +3
SUB s13 225 5
SUB s12 218 8 +2 +4
HVL s13 177 15
HVL s12 157 20 +5 +11
XO s13 530 80 5
XO s12 470 80 +0 +10 15 +10 +18
Source: BNP Paribas
Chart 7: Fwd 5y in 5y MAIN in past 2y
Main 5/10y: Last week, we believed this curve was
fully discounting the upcoming roll; actually it didn’t
and the curve managed to steepen further from 12.5
to 14 despite the volatile/bearish context. We believe
that this curve is too steep relative to the level of the
5y (chart7).
250
225
200
175
150
125
100
Fwd 5y in 5y
spot 5y
90
130
Given our view that MAIN has overshot, we think the
best way to play the steepness of the curve is to go
long the 5y in 5y which has broken its long-term
resistance.
What’s the call? The 5/10y is now too steep vs. the
5y and the forward is very toppish; we advise to buy
the 5y in 5y. Entry levels: MAIN 10y: 129; MAIN 5y:
119
Main 3/5y: the call on the 3/5y is much less obvious;
yes, the level of the 3/5 looks too steep vs. the 5y but
the strength of the relationship between the outright
and the curve is much weaker than for the 5/10y. The
key decision factor is the level of the forward 2y in 3y
which is quite high but it did not break the 155 level
which will be the buying signal.
What’s the call? The 3/5y is very steep relative to
the 5y and the forward is high but it has not reached
a level where the flattener is a no-brainer. We stay
away for now.
XO 5/10y: in line with our expectations, we had
further steepening of XO 5/10y curves with the roll.
We closed last week our steepener in s12 and kept
the one in s13 to benefit from the last bit of the rally.
We now see little upside in the curve at current levels
– it trades quite steep relative to the outright level of
the 5y - and advise the investors who followed our
75
50
25
0
9/08 11/08 1/09 3/09 5/09 7/09 9/09 11/09 1/10 3/10 5/10 7/10 9/10
Source: BNP Paribas
resistances of the
5y in 5y
Chart 8: Fwd 2y in 3y MAIN in past 2y
250
200
150
100
50
0
9/08 11/08 1/09 3/09 5/09 7/09 9/09 11/09 1/10 3/10 5/10 7/10 9/10
Source: BNP Paribas
MAIN Spot 2y
MAIN Fwd 2y in 3y (rhs)
105
155
resistance levels of
2y in 3y
Note that the level of the forward 5y in 5y has also
significantly increased in the past 2 weeks; it does
not signal a buying signal yet.
What’s the call? We take profit on our 5/10y
steepener in s13 which trades now too steep given
the level of the outright. The total P&L of the trade,
including carry, is equivalent to a steepening of 20bp.
Pierre Yves Bretonniere 23 September 2010
Market Mover Non-Objective Research Section
40
www.GlobalMarkets.bnpparibas.com

Technical Analysis – Interest Rates & Commodities
Bond & Short-Term Contracts
• Europe 10y: Supportive MT bias again within MT falling channel but needs to break below 2.24 to extend fall
• US 10y: Regained a slight MT positive bias below 2.58 but failure to sustain it would rekindle previous bear tone
• Short-term contracts z0: Supportive tone on ED back on its top but still a toppish/consolidative one on Euribor
Equities & Commodities
• WTI (Cl1): Neutral MT between key 70.76/71.39 & key 78.31/40 but weak ST, back on 73.50/74.00 ST support
• Equity markets: Markets remain supportive MT but showing a ST toppish bias which could last
US 10y: Slight move back below 2.58 pivot reopened way for 2.41 first MT Trend: Neutral/down Range: 2.40/2.65
The break above MT falling wedge 2.03 3.03
(2.21/2.58) was negative & triggered a
classic pullback move on key 2.79 (LT
61.8%) area around which it stalled to be
back now below critical 2.58 (ST 61.8% &
MT falling wedge resistance).
That rekindled the MT bullish bias for 2.415
August low initially but a break below it is
needed to strengthen the previous MT
bullish bias towards 2.03 (2008 low).
A renewed break above 2.58 is needed to
turn slightly negative again, key resistance
above being 2.85/86 (last top & ST 61.8%)
which break would turn it negative again MT
for 3% then.
Tech Snapshot
- Back below 2.58 (ST/MT pivot now)
-Still below key LT 61.8% (2.79) for 2.03 low
- Still a weekly bottom reversal
Strategy: Short 2.58/62 stopped 2.53.
Keep long now if you are below 2.58
US/EUR 10y bond: 6.6 will be ST target if we move back below 22.4 low MT Trend: Neutral/down Range: 10.0/30.0
Failure to overcome MT falling channel
-20.9

Germany 10y: Keeping MT bullish bias below 2.50/56. Watch 2.24 now MT Trend: Neutral/down Range: 2.20/2.40
It stalled below critical 2.52/2.56 (MT falling
1.94/1.95 2.84
channel resistance & ST 61.8%) & took the
way down again with 2.44 gap left for a
move towards key 2.24 (61.8%), next
targets being psychological 2% level &
1.94/1.95 ( MT falling channel support + LT
161.8% extension)
Break below 2.24 is now needed to
strengthen the MT bullish scenario for a
return initially to 2.087 low.
If not, the risk will be to regain a ST negative
bias for a move back towards key 2.50/
52/2.56 (last top + MT falling channel resistance
& ST 61.8%). Note such a move
would imply the risk of a negative rising ABC
Tech Snapshot
- Within LT falling wedge/MT falling channel
- ST rising channel break calls for 2.24
Strategy: Short 2.37 covered 2.50. Play
long small only below 2.24 with close S/L
UK 10y: Keeping MT bullish bias below 3.15 but watch 2.95 now MT Trend: Neutral/down Range: 2.85/3.05
Sharp fall within a MT falling channel
2.57 3.37
(2.57/3.15) allowed reaching 2.93 (2009 low)
around which it is now trading.
The MT tone remains rather positive within
this MT falling channel & a break above its
up boundary (3.15) is needed to turn MT
study negative again with 3.25 (ST 61.8%)
then as a bearish confirmation level.
It needs now a break below 2.93/2.95 (2009
low & 61.8%) to strengthen MT positive bias
for 2.79 low initially.
Note a failure to do so would increase risk of
a negative rising ABC scenario developing.
Tech Snapshot
- Within MT falling channel
- Testing 2.95 (61.8%)
Strategy:Play long only below 2.95 with
close S/L. Play short only above 3.15
S&P: Needs now to break above key 1127/1140 to turn positive MT MT Trend: Neutral/Up Range: 1100/1150
Last sharp rebound allowed reaching critical 1053/63 1219/1228
1127/1140 (Bottom Head & Shoulders
neckline & MT 61.8%), which decisive break
would call for crucial 1219/28/45 (April top
+LT 61.8%+ H&S target).
This 1127/40 is now the ST/MT pivot area.
A failure to break it up now would call for a
return below 1100
However, it needs a break below 1153/63
(ST rising channel support & MT 61.8%) to
regain a MT negative study
Tech Snapshot
- Testing critical 1127/1140 resistance area
- Falling ABC may be over & a MT rising
wave “3” starting
Strategy: Tried long on 1050/70 S/L 1110
now for 1200 with ½ sold at 1140
Christian Sené 23 September 2010
Market Mover, Non-Objective Research Section
42
www.GlobalMarkets.bnpparibas.com

Trade Reviews
Options, Money Market and Bond Trades – Tactical & Strategic Trades
This page summarises our main tactical (T) and strategic (S) trades. The former focus on short-term horizons (a few weeks)
allowing one to play any near-term corrections within a defined trend, while the latter rely on a medium-term assumed trend.
For each trade we provide the expected target and the recommended stop loss.
Current* Targets Stop Entry
Existing Strategies
Yield Curves
EUR Flattener Sell OEZ0 Buy RXZ0
We re-enter flatteners after FOMC. 5y/10y offers the best risk/reward profile.
GBP RV Pay GBP 2/5/10Y 3M Sell L H1H2
5y GBP is back at extremly expensive levels. We entered 2/3 of the position.
Cross Markets
USD Spread Flattener Sell 10Y ASW Buy 2Y ASW
Auction analysis suggests 5y spread tends to widen more compared to 10y and 30y
spreads post-auction (from T-5 to T+5). 5s10s spread curve has flattened
consistently in the past eight auctions, by an average of 4.66bp.
Gilt ASW Buy Gilt 2.75% 2015 OIS ASW
Pure RV trade that looks to play the cheapness of the 5y sector.
Linkers
EUR/FRF BE Spread Buy OBLei-13 BE 2.25% Apr-13 Sell OATi-13 BE 2.50%
Jul-13
Front-end EUR/FRF cash BE spreads do not seem to be pricing the carry
differential ahead with 3m fwds below the 18m range.
Money Markets
Sterling Fly Sell L M1M2M3
Fly decoupled from US one and BoE on hold for a while. Enter half now and on a
move to +1.
Eurodollar box Sell EDM1Z1 Buy EDM2Z2
That box is a safer way to play a protracted Fed status quo.
78.0
(S)
-9.0
(T)
-20.5
(T)
23.0
(S)
-36.0
(T)
-11.0
(S)
-13.0
(T)
65.0 82.0 77.5
(22-Sep)
10.0 -13.0 -5.75
(09-Sep)
-24.75 -18.75 -20.75
(23-Sep)
10.0 26.0 29.0
(09-Aug)
Carry
/ mth
-20.0 -49.0 -43.0 0/+10/+2
(17-Sep) 5bp
-18/-20 5.0 -4.0
(22-Sep)
-18/20.0 -3.0 -7.5
(09-Sep)
Options
USD Conditional Bull-Flattener Sell 6M1Y ATMF Rec Buy 6M5Y ATMF Rec +52k 300k -150k 0k
Realized curve move in a rally is attractive in beating the hurdle of paying upfront for
this trade, and 6m fwd curve is 10bp steeper than spot which makes up for the cost
(typically has been the reverse during crisis).
(S)
(03-Sep)
Sterling Put Spread Buy L M1 9825/9875 P/S 1X2
1.0 50.0 0.0 1.0
Cheap hedge vs the SLS expiry.
(T)
(17-Aug)
Euribor Put Spread Buy ERZ0 9875/50 P 1x2
1.0 12.0 -1.0 1.0
Playing the normalisation of liquidity by year end.
(S)
(30-Jul)
USD Payer Spread 1x2 Buy 1Y10Y Pay ATMF+50 Sell 1Y10Y Pay ATMF + -10k 300k -150k 0k
97.5
(S)
(29-Jul)
In the coming months we see the 10y staying under 3.5% as it has since the Euro
debt crisis unfolded, and probably trading closer to 3%.
Beyond that, we expect a normalization to higher rates although it would be a
stretch to look for 5% in 2011. This trade loses money in 1y time only if we selloff by
almost 200bp.
*Tactical (T) and strategic (S) trades. **Risk: vega, gamma for options, or ΔDV01 for futures, bonds and swaps.
Risk**
P/L
(ccy/Bp)
10K/01 EUR -5k
-0.5bp
-2.0 7k/01 GBP -21k
-3bp
10k/01 USD -2.5k
-0.25bp
15k/01 EUR +90k
+6bp
15k/01 EUR
+105k
+7bp
5K/01 GBP +35k
+7bp
17.5k/01 USD +92k
+5.5bp
1k/01 USD
+52k
5k/01 GBP
+0k
25k/01 EUR 0k
0bp
1k/01 USD
-10k
Interest Rate Strategy 23 September 2010
Market Mover, Non-Objective Research Section
43
www.GlobalMarkets.bnpparibas.com

Liquidity-Driven FX Markets
• Global asset markets are set to overshoot as
G4 central banks increase excessive reserves
while local market monetary authorities try to
control the pace at which their currencies
appreciate.
• Consequently, liquidity is seeking out
investment opportunities.
• Meanwhile, global rebalancing remains a
theme. China has become the trend setter for
successful rebalancing, with its improving
domestic demand conditions offering export
opportunities for the country’s trading partners
• Commodity currencies will remain strong.
The EUR will sail in the slipstream of the sharply
rising AUD.
• The CAD will rally should markets convert
the theme of ‘Japanisation’ into a bullish asset
theme.
• GBPSEK shorts are a conservative way to
trade the bullish China story as the UK’s trading
relationship with China is less developed than
Sweden’s.
US money market outflows will keep the USD
under selling pressure
The USD is likely to remain under selling pressure for
the rest of this year as cheap USD liquidity finds its
way into higher-yielding asset classes. Money market
outflows into local market funds have reduced money
market holdings, but with US rates set to stay low in
the years ahead, there will be little incentive to keep
funds in USD-denominated debt. The rebalancing of
the global economy will keep return expectations for
local markets high, but the highly leveraged
economies in the West will have to save in order to
bring down debt ratios. These savings will be partly
stashed in domestic financial instruments, keeping
bond yields low and reducing the attractiveness of
these assets to foreign investors. Reduced inflows
from abroad will put the USD under selling pressure.
Risk of confidence crisis in US assets is small
Hence, the long-term trend of the USD seems locked
to the downside. However, the real effective
exchange rate of the USD has already fallen by 20%
over the past decade. Nonetheless, an undervalued
exchange rate can become even more undervalued
in extreme situations and an extreme situation could
arise should the US face a buyers’ strike with regard
Chart 1: US Private Entities Deposit and Money
Market Fund Holdings (USD trn)
Source: Reuters EcoWin Pro
to funding its external liability position. 10-year
Treasury yields trading near 2.5% do not look
appealing to investors given that their portfolios of
expiring US bonds often provide nominal bond yields
of around 5%. The USD has been the world’s
number-one reserve currency and hence US bond
market dynamics should not be compared to those of
Greece or Ireland; vigilance will nonetheless still be
required. For instance, a clear indication that a
confidence crisis concerning the US debt position
has hit the US would be if bond yields increased at
the time as US shares were selling off and the USD
losing value in FX markets. This is not our main
scenario but we do not ignore this risk.
Risk appetite assessment remains the decisive
factor for the USD trend
The other factor capable of driving the USD for
several months is the USD’s funding currency status.
It is unusual to see a current account deficit currency
used as a funding currency, as deficit countries tend
to show higher yield and rates compared to those
running surpluses. However, this has not been the
case in the US. The US has run current account
deficits since 1994, but as the current account deficit
was widening, foreign investors were keen to buy US
assets even at relatively low yields. This paradox
developed on the back of the Asian crisis. Following
that crisis, Asian central banks kept a tight grip on
their capital accounts, leaving currencies
undervalued even as their current account surpluses
went through the roof. Closed capital accounts
suggested that the recycling of Asia’s current
account surpluses had to occur through currency
reserve managers happily investing in USDdenominated
debt. The liquidity and depth of the US
Hans Redeker 23 September 2010
Market Mover, Non-Objective Research Section
44
www.GlobalMarkets.bnpparibas.com

ond market attracted huge swathes of global
currency reserves, providing a stable inflow of capital
into the US for most of the past decade. Despite
these inflows, the USD remained weak because the
US provided cheap USD liquidity globally via its
powerful banking system. Hence, the funding
position of the USD is key to explaining its reverse
relationship with risk appetite. This relationship,
which is likely to persist, constitutes the reason why
we expect the USD to stay weak for the remainder of
this year. Nonetheless, we see a period of USD
strength again next year when we expect slower
global growth in combination with a potential EMU
bond crisis to hit investor confidence once again. The
USD’s position as a funding currency underlines its
status as a safe haven play at times of financial
market stress.
What drives risk appetite?
The assessment of risk appetite requires analysing
liquidity in the context of economic circumstances.
Within stable economic conditions (inflation not
deviating substantially from the 2% target and real
growth operating around the growth potential of
economies), the relationship between liquidity and
risk appetite is linear. The more liquidity there is in
the market, the better for risk appetite. Liquidity can
come from various sources: central bank liquidity
(narrow money supply); the private sector taking out
loans from banks (credit multiplier); and foreign
liquidity, which itself can be divided into income from
abroad via trade or investment-related flows. At
present, central bank liquidity is the focus, while the
other factors of liquidity generation can be ignored.
This applies especially to the credit multiplier, which
will have to remain slow in the context of deleveraging.
For the next quarter, we see central bank
liquidity continuing to support risk appetite. Also
supportive are:
• Japan intervening on the FX markets, leaving
added reserves unsterilised in the system;
• Other Asian central banks limiting the pace of
currency appreciation causing currency reserve
growth gaining momentum again;
• The Fed interest rate statement released this
week, which was dovish – supporting our projection
that it will increase funding into the system in
November;
• The ECB continuing to allocate unlimited repos;
and
• The likelihood that the BoE will soon rejoin the
club of liquidity-adding central banks.
Chart 2: US Cash Position Relative to Total
Assets (measured by total equity market cap)
Still High
Source: Reuters EcoWin Pro
Chart 3: Dow Jones versus Changes in Global
Currency Reserves
35
30
25
20
15
10
5
0
Apr-05 Apr-07 Apr-09
Y/Y %Change Global Reserves
Source: Reuters EcoWin Pro
14000
13000
12000
11000
10000
9000
8000
7000
DOW Monthly Close (rhs)
While this liquidity creation will support asset prices
in the short term, the longer-term implications are
less clear. There have been very few cases where
the success or failure of quantitative easing can be
evaluated. BoJ President Shirokawa points out that
quantitative easing may be able to stabilise
expectations via rising asset prices, but that
supportive effects on the economy should not be
overestimated. This assessment is probably correct
given that the elasticity of the economy to changes in
interest rates or rate expectations is low when rates
are near zero. Once the asset price boosting effect
has worked into higher prices for shares and other
risky assets, markets will look for new direction. This
direction will come from the assessment of the
economy. Despite our bullish risk and equity market
outlook for the next quarter, we maintain that the
long-term outlook for equity markets does not look
promising should Western economies not pick up
momentum next year. In fact, we see global growth
slowing from 5% in Q2 2010 to 3.7% in Q2 2011.
Currency markets will trade accordingly. While high
Hans Redeker 23 September 2010
Market Mover, Non-Objective Research Section
45
www.GlobalMarkets.bnpparibas.com

eta, yield and commodity currencies will remain firm
this year, the outlook for 2011 is less upbeat.
Successful intervention?
The BoJ intervening on behalf of the MOF has
stabilised JPY markets. But further intervention will
be needed to prevent the JPY from appreciating
again. An analysis of JPY-related flows demonstrates
this. While Japanese institutional investors have
invested heavily in foreign bond markets, betting on
the ‘Japanisation’ of Western economies, these JPY
outflows have all been currency hedged.
Consequently, portfolio flows have been currency
neutral. Since M&A related flows have been
insignificant, we believe that most of the JPY
strength has been caused by commercially related
JPY demand. Japanese exports have been JPY
bidding and, if the semi-official Japanese Postbank
had not quietly offered JPY, the USDJPY decline
seen since March would have been even more
dramatic. Currently, commercial JPY flows are
dominant and intervention will not change Japanese
exporters’ need to buy JPY. Hence, the BoJ will have
to intervene in the amount roughly matching the size
of Japan’s current account surplus. Given that
Japan’s reserve to GDP ratio has over the past six
years risen from 16% to 21%, the BoJ has ample
scope to conduct JPY weakening intervention to
keep USDJPY above 80.00. The coming quarter
should see USDJPY slowly grinding lower, but with
the BoJ in the market, the risk of a sharp move lower
may have been prevented.
ECB repo allocation…
Hence, JPY markets should not dent risk appetite,
allowing us to shift focus to the EUR. EMU
economies show a split performance: Germany is
surprising with its strength, while Spain and other
peripheral economies face a double-dip recession.
However, the market has always believed that
Germany is the trend setter for the eurozone and it
will continue doing so until proven wrong. Indeed,
German export-oriented growth has received a big
boost from booming Asian and Middle Eastern
markets. With Chinese economic statistics showing
domestic demand rising strongly and China allowing
its currency to appreciate at a moderate pace,
exporter optimism in coming surveys could be
buoyed even further. Meanwhile, outstanding ECB
reserves have decreased from EUR 900bn to EUR
600bn, indicating that Europe’s banking sector
overall has become less dependent on ECB liquidity.
Nonetheless, this is the extent of the good news. The
ECB has allocated unlimited repo liquidity at the fixed
1% rate. Some 61% of reserves provided by the ECB
have been absorbed by peripheral banks located in
Spain, Portugal, Greece and Ireland. As long as the
ECB provides unlimited access to central bank
Chart 4: Japan: Current Account Surplus Drives
USDJPY
Source: Reuters EcoWin Pro; Current account (12mths sum) (USD), (Bln)
Chart 5: Excess of Reserves Held by European
Commercial Banks with the ECB Reduced
Source: Reuters EcoWin Pro
liquidity, the solvency of peripheral banks is almost
guaranteed. Peripheral banks can even get access to
short-term private funds. However, once the ECB
begins to exit from the unlimited provision of liquidity,
the outlook will change radically. In this case,
peripheral banks will run short of funds, forcing
sovereigns to step in. The creditworthiness of
peripheral sovereigns has been damaged and, with
bond spreads wide, it is not clear that sovereigns’
fund-raising capabilities are sound enough to deal
with additional liquidity demands from its banking
sector.
…will be important for assessing investment
risks
Indeed, the weak banking sector could easily
undermine EMU credit markets. The successful
Spanish sovereign auctions saw little international
participation, with domestic banks the main investors.
Should the ECB cut banks off from unlimited liquidity,
demand for local bonds will suffer – driving spreads
up. Remember, in November 2009, the ECB’s
Hans Redeker 23 September 2010
Market Mover, Non-Objective Research Section
46
www.GlobalMarkets.bnpparibas.com

warning to Greek banks that it might have to impose
haircuts on Greek bonds used as collateral for ECB
funding triggered what proved to be a significant
widening of Greek bond spreads. Again, the ECB is
now in a very uncomfortable position and can only
hope that growth picks up quickly enough in the
eurozone periphery to reduce balance sheet risks
within its banking sector.
As long as growth is weak, peripheral banks will
remain hooked on ECB liquidity – putting the ECB
between a rock and a hard place with regard to
monetary policy. Providing unlimited liquidity
prevents peripheral banks going down the drain, but
such monetary conditions will become far too loose
for core countries. The inflation-fearing German
people will certainly not like the idea of inflating way
peripheral countries’ problems. Alternatively, letting
unlimited repos expire without replacement will send
shock waves across peripheral bond markets which
could easily lead to another round of EUR weakness.
We expect the ECB to try to win time by keeping
unlimited repos in the market well into 2011. While
this implies keeping the floodgates of monetary
policy open, with the ECB effectively acting as the
‘liquidity provider of last resort for the embattled
peripheral banking sector, banking-related issues will
not be the main focus for currency traders this year.
The ECB’s accommodative monetary conditions
suggest the EUR will underperform against highyielding
currencies. Against the USD, the EUR is
expected to make moderate gains. However, next
year, things may look very different. The ECB will not
be able to keep its current approach indefinitely
without risking its own balance sheet. But should the
ECB be forced to exit its policy of providing unlimited
repos at a time when peripheral Europe still needs
life support, all hell would break loose. In such a
case, the EUR trend would reverse quickly.
Trading themes: CAD may play catch-up
Trading opportunities over the next few weeks and
months will come from projected USD weakness
coming on the back of the Fed preparing for another
round of quantitative easing. Over the past few
weeks, it has been the ‘Japanisation’ theme driving
the relative performance of currencies against the
USD – putting the AUD in an out-performing position.
Lower bond yields globally suggested investors
playing the ‘yield pick-up’ theme, putting yielding
currencies into demand. Although the decline in the
USD was accompanied by commodity prices
breaking higher, the CAD has not benefited from the
USD decline. Rather, AUDCAD has rallied by more
than 15% since June. In the short term, this advance
looks overstretched and will be corrected if the
Japanisation theme converts into an asset theme as
we expect. The CAD should receive support once the
Chart 6: Sweden: Export Structure
Sweden Exports by Destination
Scandinavia
23%
Asia
incl
Japan
3%
UK
9%
Oceania
2%
Canada
2%
Others
12%
EU
39%
US
10%
Pulp &
Paper
20%
Sweden Exports by Type
Motor
19%
Pharmaceuticals
15%
Basic metals
2%
Machinery
29%
Chemicals
14%
Communication
1%
Source: Statistics Sweden Exports in SEK bln, using 2009 totals
(sourced via Bloomberg), Statistics Sweden Exports in SEK bln, using
2009 totals (sourced via Bloomberg)
EU
56%
Chart 7: UK: Export Structure
UK Exports by Destination
Asia Scandinavia
incl Japan 7%
4%
Oceania
2%
Canada
4%
Others
6%
US
21%
Food, Beverages
& Tobacco
20%
Finishedmanufactures
12%
UK Exports by Type
Basic Materials
19%
All
manuf
14% Fuel
18%
Semimanufactures
17%
Source: ONS UK Trade in goods by volume indices using 2009 totals
(sourced via Bloomberg), OECD International Trade Statistics Database
expressed in current USD, using 2009 totals
currently dominant bond-related cross-currency flow
converts into an equity flow. We showed above that
central bank liquidity has determined the equity trend
over the past year. With central bank liquidity being
printed not only in the G4 but also Asian central
banks operating looser conditions than warranted by
their domestic fundamental situation, there is a good
chance of seeing share prices move higher. An
increasing focus on equity markets should allow the
CAD to catch up with the AUD.
GBPSEK shorts are the conservative way to play
the China boom
The other big currency trading theme is China and its
increasingly important domestic market. Export
opportunities to China vary significantly between
countries. Generally, countries with a strong
manufacturing sector stand to benefit more than
countries with an underdeveloped manufacturing
sector. Sweden falls into the first category. It is not
only the direct trade relationship that counts.
Machinery exports comprise 21% of Sweden’s total
exports and are exactly what Asian economies are
demanding. Globally, the machinery sector is
booming and Sweden is participating in this boom.
On the other hand, the UK is not known for its
machinery and the financial services it exports are of
little use to China, with its closed capital account.
Hans Redeker 23 September 2010
Market Mover, Non-Objective Research Section
47
www.GlobalMarkets.bnpparibas.com

NOKSEK to extend downtrend
• Scandinavian currencies have been the out performers over the past week and in the case of SEK
over the past month
• The SEK uptrend has been accelerated with multi-year trendlines currently being tested; a break of
which will open further significant appreciation potential
• The NOK has remained supported, but the medium term technical position is less encouraging
than that of the SEK…
• …hence we expect NOKSEK to extend the major downtrend, especially given the sharp break
lower through long term support
The Scandinavian currencies have been the out
performers over the course of the past week and
in the case of the SEK the top performer among
the G10 currencies over the past month as well.
Technical indicators are still giving bullish signals
for the SEK and the break through key technical
levels suggests that the SEK has further upside
potential. Indeed, EURSEK is now testing long
term up trendline support currently intervening at
9.1065. A break below here will trigger another
bearish signal leaving EURSEK vulnerable to a
decline towards 8.9595 and then the 2005 low of
8.8800.
EURNOK has been keeping the pressure on
support in the 7.8405 and 7.8125 areas, which
represents the bottom end of the three month
trading range. A break below here is needed to
trigger a decline back towards the 7.6785 May
low. However, medium term technical indicators
have now started to develop positive signals with
both the 9-day and 9-week RSI moving higher.
Hence, the ability to hold above the
7.8405/7.8125 support is likely to see a EURNOK
rebound to test the major down trendline resistance
at 8.0120. A break above here will trigger a renewed
bullish signal opening upside potential towards the
8.2280 level, which is the peak from May as well as
the 38.2% retracement level of the decline from the
9.1460 June 2009 high.
The diverging technical picture between the NOK and
SEK suggests that NOKSEK is now vulnerable.
Indeed, NOKSEK has extended the major down
trend, breaking lower through the bottom end of the
long term trading range in the 1.1645 area to test the
initial channel support at the 1.1495 level. The initial
rebound from here has been limited by the key
resistance at 1.1660 and down trendline resistance at
1.1685. Failure to overcome this resistance will keep
the down trend intact. Indeed, medium term technical
indicators are giving bearish signals. Hence, we
expect a decline below the recent 1.1645 lows
opening downside potential towards the major
channel support at 1.1315 and then long term
support at 1.1195.
EURUSD has
extended the recent
recovery rally to test
channel resistance in
the 1.3445 area.
From here a near-term
correction lower is
likely targeting the
1.32 and 1.3155 area.
The ability to hold
above 1.3155 will
keep the outlook
bullish allowing a
move to 1.3690.
Chart 1: EUR/USD – near-term correction lower
1.46 1.4580
1.41
1.3820
1.3690
1.36
1.3280
1.3400
1.3445
1.31
1.3275
1.26
1.2920
1.21
1.2180
1.16
1.1880
01-Feb-10 31-Mar-10 28-May-10 27-Jul-10 23-Sep-10
Source: BNP Paribas
Ian Stannard 23 September 2010
Market Mover, Non-Objective Research Section
48
www.GlobalMarkets.bnpparibas.com

Chart 2: EUR/SEK – major support being tested
EURSEK has extended
the major down trend to
test the lower boundary
10.25
10.2480
of the major
10.05
9.9570
descending channel
9.8815
and the long term up
9.85
trendline support which
coincide at
9.1065/9.0930.
A break below here will
9.65
9.6640
trigger another bearish 9.45
10.153
signal leaving EURSEK
vulnerable to a decline 9.25
9.3585
towards 8.8800 over
the medium term. 9.05
01-Feb-10 31-Mar-10 28-May-10 27-Jul-10
9.5300
9.0850
23-Sep-10
Source: BNP Paribas
The technical picture
for the NOK is less
bullish with EURNOK
failing to break lower
through support.
8.40
8.30
8.20
Chart 3: EUR/NOK – holding above support
8.2640
8.2305
8.1735
Technical indicators
are also giving bullish
signals.
8.10
8.00
7.90
A break above the
down trendline
7.80
resistance at 8.0120
will trigger gains 7.70
towards the 8.1735
and 8.2280 area. 7.60
8.1140
7.9950
01-Feb-10
31-Mar-10
7.6735
28-May-10
7.8000
27-Jul-10
7.9960
7.8500
23-Sep-10
Source: BNP Paribas
The NOKSEK rebound
has remained limited
keeping the down
trend intact.
Chart 4: NOK/SEK – extending the down trend
1.28
1.26 1.2550
1.2585
1.2530
Major support at the
1.1645 level, which
represents the bottom
end of the major
trading range has
been broken.
1.24
1.22
1.20
1.18
1.2120
1.1870
1.2280
1.2035
We now expect the
down trend to be
extended towards
1.1315 and 1.1195.
1.16
1.14
06-Oct-09
03-Dec-09
01-Feb-10
31-Mar-10
28-May-10
1.1615
27-Jul-10
23-Sep-10
Source: BNP Paribas
Ian Stannard 23 September 2010
Market Mover, Non-Objective Research Section
49
www.GlobalMarkets.bnpparibas.com

Currency Spot Trade Recommendations Date
NOKSEK 1.1590 Sell 1.1590, stop 1.1670, target 1.12 23 Sep 2010
AUDNZD 1.3005 Buy 1.2890, stop 1.2790, target 1.3340 23 Sep 2010
AUDUSD 0.9535 Buy 0.9300, stop 0.92, target 0.9700 16 Sep 2010
GBPKRW 1809 Short at 1825, lower stop to 1825, target 1740 17 Sep 2010
EURGBP 0.8500 Long at 0.8250, raise stop to 0.8400, target 0.8600 2 Sep 2010
CHFJPY 85.65 Long at 82.10, raise stop to 84.60, target 86.10 10 Sep 2010
USDZAR 7.0360 Short at 7.20, lower stop to 7.18, target 6.80 3 Sep 2010
USDMXN 12.61 Shorts from 12.95 achieved the 12.65 target 3 Sep 2010
EURNOK 7.9675 Shorts from 8.0400 closed at 7.9700 31 Aug 2010
EURKRW 1537 Shorts from 1505, stopped at 1530 14 Sep 2010
USDKZT 147.36 Short at 147.00, stop at 149.50, target 135.00 28 May 2010
Source: BNP Paribas
Ian Stannard 23 September 2010
Market Mover, Non-Objective Research Section
50
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Economic Calendar: 24 Sep - 1 Oct
GMT Local Previous Forecast Consensus
Fri 24/09 05:30 07:30 France GDP (Final) q/q : Q2 0.6% (p) 0.6% 0.6%
05:30 07:30 GDP (Final) y/y : Q2 1.7% (p) 1.7% 1.7%
06:45 08:45 Wages (Final) q/q : Q2 0.4% (p) 0.4% n/a
06:45 08:45 Wages (Final) y/y : Q2 1.9% (p) 1.9% n/a
16:00 18:00 Job Seekers (ILO def. sa) : Aug -14k 0k -5k
07:30 09:30 Sweden PPI m/m : Aug 0.1% -0.2% -0.4%
07:30 09:30 PPI y/y : Aug 1.0% 1.6% 1.4%
07:30 09:30 Eurozone Eurocoin : Sep 0.37 0.35 n/a
08:00 10:00 Germany Ifo Business Climate : Sep 106.7 106.7 106.4
08:00 10:00 Ifo Current Conditions : Sep 108.2 109.2 108.7
08:00 10:00 Ifo Expectations : Sep 105.2 104.2 104.0
08:00 10:00 Italy Retail Sales y/y : Jul 0.5% 0.9% 0.0%
12:30 08:30 US Durable Goods Orders m/m : Aug 0.4% -1.7% -1.0%
13:00 09:00 Fed’s Duke Speaks at Mortgage Hearing in Washington
13:15 09:15 Fed’s Cumming Speaks at Chicago Fed’s Banking Conference
14:00 10:00 New Home Sales : Aug 276k 300k 295k
14:00 10:00 Fed’s Alvarez Testifies at Compensation Hearing
17:00 13:00 Fed’s Lacker Speaks on Economic Outlook in Kentucky
18:00 14:00 Fed’s Plosser speaks on Monetary Policy in Zurich
20:30 16:30 Fed’s Bernanke Speaks in Princeton on ‘Implications of the Financial Crisis for Economics’
Mon 27/09 23:50 08:50 Japan Trade Balance (nsa) : Aug JPY802bn JPY347bn JPY322bn
(26/09)
07:00 09:00 Eurozone ECB’s Trichet Speaks at ECB-CFS Conference in Frankfurt
07:15 09:15 ECB’s Tumpel-Gugerell Speaks at ECB-CFS Conference in Frankfurt
08:00 10:00 M3 y/y : Aug 0.2% 0.4% 0.4%
08:00 10:00 M3 3m y/y : Aug 0.1% 0.2% n/a
13:00 15:00 ECB’s Trichet Speaks at Economic & Monetary Affairs Cmte of the EU Parliament in Brussels
15:00 17:00 ECB’s Tempel-Gugerell Speaks at EUROFI Debate in Brussels
18:00 20:00 ECB’s Constancio Speaks at ECB-CFS Conference in Frankfurt
07:30 09:30 Neths Producer Confidence : Sep 0.4 -1.0 n/a
Tue 28/09 06:00 08:00 Germany GfK Consumer Confidence : Oct 4.1 4.5 4.1
CPI (Prel) m/m : Sep 0.0% -0.2% -0.1%
CPI (Prel) y/y : Sep 1.0% 1.2% 1.3%
HICP (Prel) m/m : Sep 0.1% -0.1% -0.2%
HICP (Prel) y/y : Sep 1.0% 1.3% 1.3%
06:45 08:45 France Household Consumption m/m : Jul -1.4% 1.6% 0.5%
06:45 08:45 Household Consumption y/y : Jul -1.9% 1.0% n/a
06:45 08:45 Household Consumption m/m : Aug n/a -0.5% n/a
06:45 08:45 Household Consumption y/y : Aug n/a 1.4% n/a
06:45 08:45 Housing Starts (3-mths) y/y : Aug 1.3% 4.5% n/a
06:45 08:45 Eurozone ECB’s Tumpel-Gugerell Speaks in Brussels
07:30 09:30 ECB’s Stark Speaks in Istanbul
08:00 10:00 ECB’s Liikanen Speaks in Helskini
07:30 09:30 Sweden Retail Sales (sa) m/m : Aug 0.5% 0.2% n/a
07:30 09:30 Retail Sales (nsa) y/y : Aug 2.0% 4.8% n/a
07:30 09:30 Italy ISAE Consumer Confidence : Sep 104.1 103.0 n/a
08:00 10:00 Wages m/m : Aug 0.1% 0.1% n/a
08:00 10:00 Wages y/y : Aug 2.4% 2.2% n/a
08:30 09:30 UK GDP (Final) q/q : Q2 1.2% (p) 1.2% 1.2%
08:30 09:30 GDP (Final) y/y : Q2 1.7% (p) 1.7% 1.7%
10:00 11:00 CBI Distributive Trades Survey : Sep
09:15 11:15 Belgium CPI m/m : Sep 0.1% 0.0% n/a
09:15 11:15 CPI y/y : Sep 2.3% 2.6% n/a
13:00 09:00 US S&P/Case-Schiller Home Price Index : Jul
14:00 10:00 Consumer Confidence : Sep 53.5 52.0 52.8
21:30 17:30 Fed’s Lockhart to Speaks on Economy in Tennessee
Market Economics 23 September 2010
Market Mover
51
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Economic Calendar: 24 Sep - 1 Oct (cont)
GMT Local Previous Forecast Consensus
Wed 29/09 23:50 08:50 Japan Tankan (Large Manufacturers DI) : Sep 1 7 7
(28/09)
06:45 08:45 France Consumer Confidence : Sep -39 (Jul) -39 -40
2011 Budget
07:00 09:00 Spain HICP (Flash) y/y : Sep 1.8% 2.1% 2.1%
07:00 09:00 Retail Sales (Adjusted) y/y : Aug 0.5% 0.9% n/a
07:15 09:15 Sweden Consumer Confidence : Sep 25.2 24.0 n/a
07:30 09:30 Italy ISAE Business Confidence : Sep 100.5 98.5 n/a
08:10 10:10 Eurozone Retail PMI : Sep 49.7 50.5 n/a
09:00 11:00 Economic Sentiment : Sep 101.8 101.5 101.0
09:00 11:00 Industrial Sentiment : Sep -4 -5 -5
09:00 11:00 Consumer Sentiment : Jul -11 -11 -11
14:00 16:00 ECB’s Gonzalez-Paramo Speaks in La Paz
08:30 09:30 UK Mortgage Approvals : Aug 49k 47k 46k
08:30 09:30 Net Consumer Credit : Aug GBP0.2bn GBP0.2bn n/a
09:30 11:30 Switzerland KoF Leading Indicator : Sep 2.18 2.05 n/a
14:30 10:30 US EIA Oil Inventories
17:15 13:15 Fed’s Rosengren Speaks in New York
Thu 30/09 23:01 00:01 UK GfK Consumer Confidence : Sep -18 -19 n/a
(29/09)
08:30 09:30 BoE Credit Conditions Survey
23:50 08:50 Japan Industrial Production (Prel, sa) m/m : Aug -0.2% 1.5% 1.2%
23:50 08:50 Retail Sales y/y : Aug 3.8% 4.9% 4.2%
23:50 08:50 Housing Starts y/y : Aug 4.3% 7.6% 9.8%
(29/09)
06:00 08:00 UK Nationwide House Prices Index m/m : Sep -0.9% -0.3% -0.0%
06:00 08:00 Nationwide House Prices Index y/y : Sep 3.9% 2.5% 2.9%
06:45 08:45 France PPI m/m : Jul 0.0% 0.6% n/a
06:45 08:45 PPI y/y : Jul 0.5% 4.3% n/a
06:45 08:45 PPI m/m : Aug n/a 0.0% n/a
06:45 08:45 PPI y/y : Aug n/a 0.5% n/a
07:00 09:00 Eurozone Finance Ministers Meet in Brussels
09:00 11:00 HICP (Flash) y/y : Sep 1.6% 1.8% 1.8%
10:30 12:30 EU Finance Ministers & Central Bankers Meet in Brussels
07:55 09:55 Germany Unemployment (Chg, sa) : Sep -17k -15k -18k
07:55 09:55 Unemployment Rate : Sep 7.6% 7.6% 7.6%
08:00 10:00 Norway Retail Sales (sa) m/m : Aug 1.3% 0.0% n/a
08:00 10:00 Retail Sales (nsa) y/y : Aug 2.0% 5.3% n/a
09:00 11:00 Italy CPI (NIC, Prel) m/m : Sep 0.2% -0.1% n/a
09:00 11:00 CPI (NIC, Prel) y/y : Sep 1.6% 1.7% n/a
09:00 11:00 HICP (Prel) m/m : Sep 0.2% 0.7% n/a
09:00 11:00 HICP (Prel) y/y : Sep 1.8% 1.7% n/a
12:30 08:30 US GDP (Final, saar) q/q : Q2 1.6% 1.3% 1.6%
12:30 08:30 GDP Deflator (Final, saar) q/q : Q2 1.9% 1.8% 1.9%
12:30 08:30 Initial Claims 465k 458k n/a
13:45 09:45 Chicago PMI : Sep 56.7 58.0 56.0
Market Economics 23 September 2010
Market Mover
52
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Economic Calendar: 24 Sep - 1 Oct (cont)
GMT Local Previous Forecast Consensus
Fri 01/10 23:30 08:30 Japan CPI National y/y : Aug -0.9% -0.9% -0.9%
23:30 08:30 Core CPI National y/y : Aug -1.1% -1.0% -1.0%
23:30 08:30 CPI Tokyo y/y : Sep -1.0% -0.8% -0.8%
23:30 08:30 Core CPI Tokyo y/y : Sep -1.1% -1.0% -1.0%
23:30 08:30 Household Consumption y/y : Aug 1.1% 1.3% 1.4%
23:30 08:30 Unemployment Rate (sa) : Aug 5.2% 5.2% 5.1%
(30/09)
06:30 08:30 Eurozone EU Finance Ministers & Central Bankers Conclude Meeting
08:00 10:00 PMI Manufacturing (Final) : Sep 53.6 (p) 53.6 n/a
09:00 11:00 Unemployment Rate : Aug 10.0% 10.0% 10.0%
16:30 18:30 ECB’s Constancio Speaks in Lisbon
07:00 09:00 Norway Unemployment Rate (sa) : Sep 2.9% 2.8% n/a
07:30 09:30 Switzerland PMI Manufacturing : Sep 61.4 60.0 59.2
08:30 09:30 UK CIPS Manufacturing : Sep 54.3 53.0 53.9
08:30 09:30 BoE Housing Equity Withdrawal : Q2
12:30 08:30 US Personal Income m/m : Aug 0.2% 0.3% 0.3%
12:30 08:30 Personal Spending m/m : Aug 0.4% 0.3% 0.3%
12:30 08:30 Fed’s Dudley Speaks At SABHEW Conference in New York
13:55 09:55 Michigan Sentiment (Final) : Sep 68.9 67.3 67.0
14:00 10:00 Construction Spending m/m : Aug -1.0% - 0.6 -0.4%
14:00 10:00 ISM Manufacturing : Sep 56.3 53.0 54.9
During 28/9-5/10 Germany Retail Sales (Real, sa) m/m : Aug -0.3% 0.5% 0.3%
Week Retail Sales (Real, sa) y/y : Aug 0.8% 2.9% 3.6%
Release dates and forecasts as at c.o.b. prior to the date of publication: See Daily Economic Spotlight for any revision
Source: BNP Paribas
Market Economics 23 September 2010
Market Mover
53
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Key Data Preview
120
115
110
105
100
95
90
85
80
Chart 1: German Ifo Business Climate
Expectations (4-Mth Lag)
Current Conditions
75
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Sep (f) Aug Jul Jun
Headline 106.7 106.7 106.2 101.8
Expectations 104.2 105.2 105.6 102.5
Current Conditions 109.2 108.2 106.8 101.2
Key Point:
Ifo’s business climate index remains very strong but
expectations are likely to moderate given evidence of
weaker external growth.
BNP Paribas Forecast: Cooling Expectations
Germany: Ifo Business Climate (September)
Release Date: Friday 24 September
Ifo’s business climate index rose to its highest level in over
three years in August, propelled by the strength of the subindex
measuring current business conditions.
The latter rose by a cumulative eighteen points in the six
months to August, the strongest run of data in the history of
the series since unification.
This strength largely reflects the exceptional strength in the
manufacturing and export sectors, though domestic sectors
including retail have also shown a marked improvement in
recent months.
As the chart shows, the current assessment is still several
points below its high in the previous expansion, implying
further upside potential, though recent ’hard’ data such as
industrial output, manufacturing orders and exports have
shown signs of weakening.
Given the evidence of a moderation in activity in some of
Germany’s most important markets, including the US and
China, Ifo’s survey of future expectations is likely to top out
in the period ahead.
Net, we expect Ifo’s business climate index to go sideways
in September, though given the external backdrop, we look
for a moderation in the subsequent months.
0.6
0.5
0.4
0.3
0.2
0.1
0.0
-0.1
-0.2
-0.3
-0.4
-0.5
Chart 2: France Job Seekers
01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Unemployment Rate
(3-m change, percentage points)
Job Seekers (3m change, thousands, RHS)
200
150
100
50
0
-50
-100
-150
SA Aug (f) Jul Jun Aug 09
Job Seekers m/m k 0.0 -14.4 -8.6 28.6
Job Seekers y/y % 4.2 5.4 6.9 26.0
Key Point:
The trend has changed from rising to declining, but
the August figure may blip slightly higher.
BNP Paribas Forecast: Stable
France: Job Seekers (August)
Release Date: Friday 24 September
In the last two months, the number of job seekers has
dropped; this represents a reversal in the unemployment
trend. However, the decline has been moderate and, since
it is recent, another month of increase cannot be ruled out.
August is a particular month in that a significant number of
seasonal jobs in the tourism activity can be subject to early
ending because of adverse weather. The level of industrial
activity is also still weak in absolute terms so the need for
temps to replace workers on holidays is less acute. Since
the number of job seekers is adjusted in accordance with
the usual seasonal pattern, we have forecast the number of
unemployed people to remain steady in August.
Nevertheless, the underlying trend has now switched from
the increase that prevailed since Q2 2008 to a modest
decline.
The unemployment rate reported by Eurostat has not
declined yet but we expect this to occur very soon –
probably in the figure for August – unless the summer
months (June and July) are revised down from the present
estimate of 10.0%. The Eurostat figure will be released on
1 October.
Market Economics 23 September 2010
Market Mover
www.GlobalMarkets.bnpparibas.com
54

Key Data Preview
Chart 3: US ISM Points to Moderation
Source: Reuters EcoWin Pro
BNP Paribas Forecast: Mixed Report
US: Durable Goods (August)
Release Date: Friday 24 September
Durable goods orders are expected to fall 1.7% in August,
after a 0.4% increase in July, reflecting a sharp drop in
Boeing orders. Excluding transportation, we look for a
modest 0.9% rebound after a sharp 3.7% decline in July.
Orders for durable goods appear to be slowing as the
inventory cycle runs its course and global trade cools. The
new orders component of the ISM manufacturing index has
declined for three consecutive months, pointing to a
noticeable slowing (see chart). Our forecast would be
consistent with a solid but smaller contribution to GDP from
business investment in Q3.
% m/m Aug (f) Jul Jun May
Durable Goods -1.7 0.4 -0.2 -0.7
Ex-Transport 0.9 -3.7 0.2 1.4
Key Point:
The negative headline reading we expect would be
driven by a sharp decline in Boeing orders; extransport
should post a modest gain.
Chart 4: Japan: Trade Balance (JPY bn, sa)
1400
1200
1000
800
600
400
200
0
-200
-400
-600
-800
00 01 02 03 04 05 06 07 08 09 10
Source: MOF, BNP Paribas
JPY bn Aug (f) Jul Jun May
Trade balance (nsa) 347.0 802.0 682.2 316.0
Trade balance (sa) 541.3 610.4 514.5 345.8
BNP Paribas: Slightly Smaller Surplus
Japan: Trade Data (August)
Release Date: Monday 27 September
Based on trade data through mid-August, we expect
nominal exports in the month as a whole to have declined
more sharply than nominal imports, with the result that the
seasonally adjusted trade surplus should modestly shrink.
Owing to the yen’s appreciation (which causes yen-based
prices to decline for imports and exports), nominal exports
have declined for three straight months and imports have
declined for two. On the other hand, real exports (adjusted
for exchange rate and price fluctuations) continue to trend
higher, led by shipments to Asia. In August, though, there
could be a momentary lull as real exports could contract
slightly (real imports should slightly expand). While the
yen’s dramatic appreciation has not damaged export
volume (real exports) so far, the pace of real export growth
is no longer as robust as before, owing to the fading impact
of overseas inventory restocking and fiscal stimulus.
Key Point:
We expect nominal exports to have declined more
sharply than nominal imports, with the result that the
seasonally adjusted trade surplus should modestly
shrink.
Market Economics 23 September 2010
Market Mover
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55

Key Data Preview
12.5
10.0
7.5
5.0
2.5
0.0
Chart 5: Eurozone M3 & Lending (% y/y)
Private Sector
Bank Lending
M3
-2.5
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
% y/y Aug (f) Jul Jun May
M3 0.4 0.2 0.2 0.0
M3 (3-mth Avg.) 0.2 0.1 0.0 -0.1
Private Sector Loans 1.2 0.9 0.5 0.2
Key Point:
Rates of growth in M3 and bank lending remain low
but have started to pick up.
BNP Paribas Forecast: Signs of Life
Eurozone: Monetary Developments (August)
Release Date: Monday 27 September
At 0.2% in July, the y/y rate of change in M3 was roughly
half a percentage point above its cycle low in February. We
forecast a further acceleration in August and given that the
base effects over the remainder of the year are favourable,
the y/y acceleration has further to go.
The differential between narrow and broad money growth
remains unusually wide but the gap is closing. The y/y rate
of increase in M1, having been in double digits for almost a
year from mid-2009, slowed to around 8% y/y in July.
The y/y rate of change in M3 minus M2 has been negative
since early 2009, with the relative steepness of yield curves
having encouraged purchases of longer-term assets which
are not captured in M3. This effect has started to diminish
as yield curves have flattened.
As with M3, the y/y rate of increase in bank lending to the
private sector remains very low but has picked up in recent
months. August’s 0.9% y/y growth rate was the highest in
over a year. A further acceleration is forecast in August.
Loan growth to households is the main reason for the pick
up. It has been improving since October last year, with the
y/y rate of change in July, of 2.8%, up by three percentage
points from its cycle low in September 2009. Bank lending
growth to non-financial corporates continues to lag.
Chart 6: French Sales of Manuf. Goods (3m avg)
12.5
10.0 Retail Sales of Manuf. Goods (including cars, Volume % y/y)
7.5
5.0
2.5
0.0
-2.5
-5.0
03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
New Car Registrations (% y/y, RHS)
Volume index Aug (f) Jul Jun Aug 09
SA-WDA
% m/m -0.5 1.6 -1.4 -0.9
% y/y 1.4 1.0 -1.9 -0.7
Key Point:
July should be much stronger than August. But the
underlying trend is subdued.
50
40
30
20
10
0
-10
-20
-30
BNP Paribas Forecast: Volatile
France: Hh Consumption of Manuf. Goods (Jul.-Aug.)
Release Date: Tuesday 28 September
The raw data are more difficult to collect in August, so
INSEE publishes the July and August retail sales figures
together in September.
Car sales, which are included in the retail sales data, are
the main source of short-term volatility. Car registrations
declined in both July and August, more in the former
month. The progressive ending of the sales incentive
caused a sharp decline through H1 2010; it seems we are
now close to the low point, although the y/y rate will
continue to plunge because of the base effect. Sales of
other manufactured goods were reportedly quite dynamic
during the seasonal sales in July. Tourism activity was also
relatively strong in July after a poor performance in June.
As a result, we estimate retail sales jumped in July, fully
correcting the June decline. However, sales probably
declined again in August. Such a pattern would still open
the door for a solid gain in Q3. Retail sales in July and
August are among the first hard data for that quarter,
allowing us to have a clearer view of how much growth will
decelerate H2 2010 after a respectable 0.6% q/q GDP
increase in Q2.
Market Economics 23 September 2010
Market Mover
56
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Key Data Preview
Chart 7: US Consumer Confidence
Source: Reuters EcoWin Pro
Sep (f) Aug 2H Sep p Aug
Conference Board 52.0 53.5
Michigan Sentiment 67.3 68.0 66.6 68.9
BNP Paribas Forecast: Still Sluggish
US: Consumer Confidence (September)
Release Date: Tuesday 28 September
The Conference Board Index of Consumer Confidence is
expected to edge down to 52.0 in August after improving
1.5 points to 53.5 in the previous month. The University of
Michigan index of consumer confidence declined in the
beginning of September to 66.6 from 68.9, the lowest
reading for more than a year. Leading the decline, future
conditions dropped to 59.1, the lowest reading since March
2009, suggesting consumers are becoming pessimistic
about future business prospects, jobs and family income.
Recent weakness is particularly worrying as the stock
market has rebounded significantly from its May/June
crash, oil prices have been stable and corporate earnings
reports have been upbeat about Q2 results (which have
generally beat analysts’ estimates). We expect the
recovery to continue and payrolls to keep growing,
although at a moderate pace. Therefore, we should see
confidence stabilise at current depressed levels.
Key Point:
The Conference Board Index of consumer
confidence is expected to edge down in September.
Source: Reuters EcoWin Pro
Chart 8: German CoL
% Sep (f) Aug Jul Jun
CoL m/m -0.2 0.0 0.3 0.1
CoL y/y 1.2 1.0 1.2 0.9
HICP m/m -0.1 0.1 0.2 0.0
HICP y/y 1.3 1.0 1.2 0.8
Key Point:
Energy price base effects should help drive headline
inflation higher in September.
BNP Paribas Forecast: Energy Base Effects
Germany: CoL (September, preliminary)
Release Date: Tuesday 28 September
In August, energy price base effects pushed down inflation
despite stronger food and core inflation. In September,
energy base effects will be in play once again. A 1.5% m/m
decline in energy prices last September will not be
repeated this month, mechanically pushing energy inflation
higher.
Food inflation should also rise further on the month. The
boost from food price base effects is now past, but we
should increasingly begin to see pass-through from the
recent soft commodity price shock to food prices in the
coming months.
Core inflation should creep higher on modest gains in
clothing and non-energy transport price inflation, though
rounded it should remain at 0.6%.
Looking beyond August, German headline inflation is likely
to trend higher over the remainder of the year, but is not
expected to rise above 2%. Core inflation is likely to remain
subdued, although with consumption in Germany gaining
momentum, we do not expect the discount to the euro area
average to continue for long.
Market Economics 23 September 2010
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Key Data Preview
10
5
0
-5
-10
-15
-20
-25
-30
-35
Chart 9: Eurozone Sentiment by Sector
Consumer
Industry
-40
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Sep (f) Aug Jul Jun
Economic Sentiment 101.5 101.8 101.1 98.9
Industry -5 -4 -4 -6
Services 7 7 7 4
Consumer -11 -11 -14 -17
Key Point:
The economic sentiment index is likely to remain
elevated but a moderation in the industrial sector is
forecast, in line with other survey data.
BNP Paribas Forecast: Topping Out
Eurozone: Economic Sentiment (September)
Release Date: Wednesday 29 September
The eurozone economic sentiment index improved in five
of the six months to August, reaching its highest level since
March 2008. The pick-up in sentiment has also been more
broad based over recent months.
The key driver of the improvement in sentiment early in the
expansion was industrial sentiment, which has the highest
weighting of the five main sub-sectors (at 40% of the total).
The moderation of other leading indicators for the industrial
sector, however, including the PMI for manufacturing, is
indicative of industrial sentiment losing ground in coming
months against a backdrop of slowing global growth.
Having lagged during the initial stages of the recovery, the
domestically driven sentiment sub-surveys, such as those
for the services and retail sectors, have improved markedly
over the summer months. The improvement in these areas
has been most pronounced in Germany, which is linked to
the relative strength of its labour market.
Preliminary September figures for the eurozone, however,
showed consumer sentiment flat at -11, the first month in
four not to show an improvement.
Surveys of price expectations in the household sector have
risen sharply from 2009’s lows, as have pricing intentions
of industrial firms, but they remain well below past peaks.
Net balance
40
30
20
10
0
-10
-20
-30
-40
-50
Chart 10: French Hh Confidence
Good Time to Save
Good Time to Spend
Headline Index
03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
Diffusion Index,
SA Sep (f) Aug Jul Sep 09
INSEE indices:
Overall -39 n.a. -39 -35
Buying opportunity -22 n.a. -24 -26
EU Commis. Index:
Headline -20.0 -18.2 -22.3 -24.4
Key Point:
Economic developments are favourable, but the
political context is highly adverse.
BNP Paribas Forecast: Stable
France: Household Confidence (September)
Release Date: Wednesday 29 September
As usual no survey is carried out in August, so the
September results will be compared to July’s.
Over the summer, inflation eased. Petroleum product
prices, to which consumers pay special attention, declined.
Employment rose in 0.2% q/q in Q2 with Q3 probably also
seeing an increase. That resulted in a slight decline in the
number of job seekers. Although households will not feel
this easing, they probably understood that some
improvement has occurred in the labour market. Overall,
economic trends are positive for confidence but politics are
clearly adverse.
In terms of political developments, we saw a slight recovery
of the president and prime Minister in the polls over the
summer, but this move has now reversed. The massive
demonstrations on 7 September show how concerned the
public is about the pension reform and more generally
about its standard of living.
As a result, we forecast the headline confidence index to
be unchanged although the opportunity to make important
purchases should have improved slightly. Since the
savings ratio trend is key for future consumption, it will also
be of interest to see whether the recent divergence
between the willingness and the ability to save persists.
Market Economics 23 September 2010
Market Mover
www.GlobalMarkets.bnpparibas.com
58

Key Data Preview
Chart 11: Japanese Production and Exports
120
115
110
105
100
95
90
85
80
75
70
65
(2005=100, seasonally adjusted)
00 01 02 03 04 05 06 07 08 09 10
Source: METI, BNP Paribas
Production
Exports (RHS)
150
140
130
120
110
100
90
80
70
60
50
Aug (f) Jul Jun May
% m/m 1.5 -0.2 -1.1 0.1
Key Point:
Production in August should firmly expand thanks to
a surge in last-minute demand for cars ahead of the
end of a stimulus programme.
BNP Paribas Forecast: Strong Growth
Japan: Industrial Production (August)
Release Date: Thursday 30 September
We expect production in August to be up 1.5% m/m,
rebounding from two months of decline. But the weak tone
of production since spring should not be taken at face
value, as distortions in the METI’s seasonally-adjusted data
– both the production index and forecast index – have
resulted in a downward bias in readings for Q2 and Q3.
Thus, the actual state of production in August is probably
stronger than indicated by the METI data. In any event,
production in August is likely to get a big boost from the
surge in last-minute demand for cars ahead of the
September termination of subsidies for buying eco-friendly
models. Output in other key sectors should also remain
firm thanks to solid export growth and the revival of
domestic appetite for capital investment. Although negative
payback for the fiscal stimulus programmes could cause
production to momentarily lose some steam moving
forward, so long as export growth does not come to an
abrupt end, the factory sector recovery should continue. As
for fallout from yen appreciation, a strong yen squeezing
profits is certainly is a headwind for producers, but
currency appreciation is a price shock, rather than a
demand (quantity) shock. There should thus be only limited
short-term impact on export volume and production.
Source: Reuters EcoWin Pro
Chart 12: Eurozone HICP
% Sep (f) Aug Jul Jun
HICP m/m 0.2 0.2 -0.3 0.0
HICP y/y 1.8 1.6 1.7 1.4
HICP Core m/m 0.2 0.4 -0.5 0.0
HICP Core y/y 1.0 1.0 1.0 0.9
Key Point:
Inflation should rise to 1.8%, driven up by food
inflation and energy price base effects.
BNP Paribas Forecast: Up On Food & Energy
Eurozone: Flash HICP (September)
Release Date: Thursday 30 September
In August, inflation moderated on energy price base
effects, and in September, they will be in play once again.
A 1.3% m/m decline in energy prices last September will
not be repeated this month, mechanically pushing energy
inflation higher.
Food inflation should also rise further on the month. The
boost from food price base effects is now past, but we
should increasingly begin to see pass-through from the
recent soft commodity price shock to food prices in the
coming months.
Core inflation, meanwhile, should remain flat for a second
consecutive month at 1.0%. Core inflation has recovered a
little since April’s 0.77% record low, with both core goods
and core services contributing to the rise. We see scope for
core goods inflation to rise a little further – in part, its
strength reflects pass-through of past euro weakness. But
core services should resume its downward trend given the
weak state of consumer demand and an absence of any
pressure from labour costs. Net, we expect core inflation to
trade flat in September.
Overall, the rise in food and energy will help drive a
rebound in headline inflation to 1.8% y/y, its highest level
since the end of 2008.
Market Economics 23 September 2010
Market Mover
59
www.GlobalMarkets.bnpparibas.com

Key Data Preview
3
2
1
0
-1
-2
-3
Chart 13: Japanese CPI (% y/y)
CPI excluding energy and food, but not alcohol
Core CPI
02 03 04 05 06 07 08 09 10
Source: MIC, BNP Paribas
% y/y Aug (f) Jul Jun May
Core CPI -1.0 -1.1 -1.0 -1.2
CPI -0.9 -0.9 -0.7 -0.9
BNP Paribas Forecast: Slightly Smaller Decline
Japan: CPI (National, August)
Release Date: Friday 1 October
The rate of decline in national core CPI deepened 0.1pp in
July to -1.1% y/y as the decline in food prices accelerated
slightly and price growth in petroleum products slowed.
Other national price indices were either unchanged –
US-style core CPI came in at -1.5% y/y – or improved: the
negative margin of the “10% trimmed mean CPI” eased
0.2pp to -0.5% y/y. Based on CPI data for Tokyo in August,
we estimate that the national index in August should
rebound and improve 0.1 pct point to 1.0%. Thanks to
improvements in the output gap, the downturn in consumer
prices is steadily easing. While such moderating of
deflationary pressures is expected to continue, the pace
moving forward will be tempered by slower improvements
in the output gap and yen appreciation.
Key Point:
We expect, based on Tokyo’s CPI data for August,
that the rate of decline in the national core index will
ease by 0.1pp to -1.0% y/y in August.
Chart 14: Japanese Unemployment Rate (% sa)
6.0
5.5
5.0
4.5
4.0
3.5
00 01 02 03 04 05 06 07 08 09 10
Source: MIC, BNP Paribas
% sa Aug (f) Jul Jun May
Unemployment rate 5.2 5.2 5.3 5.2
Key Point:
Improvements in the unemployment rate have stalled
of late as better economic conditions have
encouraged a growing number of people to quit work
in the hope of finding better employment while
prompting formerly discouraged workers to return to
active job seeking.
BNP Paribas Forecast: Flat
Japan: Unemployment Rate (August)
Release Date: Friday 1 October
We expect the unemployed rate in August to be unchanged
from July at 5.2%. In July, the unemployment rate fell 0.1pp
from June, marking the first improvement in six months.
After hitting an all-time high of 5.6% in July 2009, the
unemployment rate rapidly fell until January, when
improvements essentially stalled. That this should happen,
while the economy this past year has expanded at around
an annualised 4% on average, is due to stronger economic
conditions, which have prompted many discouraged
workers to return to active job seeking and encouraged
dissatisfied jobholders to voluntarily quit one position in the
hope of landing a better one. Meanwhile, job growth is also
still slow in recovering, as corporations, which kept payrolls
intact by cutting working hours during the recession, are
now responding to the improving economy with increased
working hours, rather than hiring.
Market Economics 23 September 2010
Market Mover
60
www.GlobalMarkets.bnpparibas.com

Key Data Preview
Chart 7: UK CIPS Manufacturing vs FMCI
Source: Reuters EcoWin Pro
Sep (f) Aug Jul Jun
53.0 54.3 56.9 57.5
Key Point:
We expect the CIPS to fall again in September, with
further downside potential in the coming months.
BNP Paribas Forecast: Down Again
UK: CIPS Manufacturing (September)
Release Date: Friday 1 October
We expect the manufacturing sector CIPS to continue to
fall in September, by 1.3 points to 53.0; this would be the
lowest since November 2009. Prior to August, the CIPS
had clearly topped out but had managed to avoid the falls
that had been experienced in other major economies. That
came to an end in August, when the index fell by 2.6
points.
The fall was consistent with the tightening in financial and
monetary conditions highlighted by our FMCI (chart). The
same relationship points to further downside in September.
Furthermore, the orders-inventories balance tends to
provide a guide to future trends in the output component
and indeed the headline index. At current levels, this
relationship points to a sub-50 reading on the headline
CIPS over the next three months.
In combination with the OECD leading indicator, the drop in
the CIPS so far and the likelihood that this trend continues
points to a contraction in output by the end of the year.
Output never caught up with the peaks in the survey
indicators, which probably highlighted relief that the
recession was over. The drop in surveys is partly a
correction of that over-optimism but is also likely to reflect a
genuine slowing in hard output.
Chart 8: US Confidence vs Consumption
Source: Reuters EcoWin Pro
% m/m Aug (f) Jul Jun May
Personal Income 0.3 0.2 0.0 0.3
Consumption 0.3 0.4 0.0 0.1
Core PCE Prices 0.1 0.1 0.0 0.1
BNP Paribas Forecast: Modest Gains
US: Personal Income & Spending (August)
Release Date: Friday 1 October
Personal consumption is forecast to rise 0.3% in August
after a 0.4% gain in July as rising gasoline prices and a
moderate gain in core sales spurred by back-to-school
spending more than offset a decline in auto sales. Looking
through the gain in prices, our forecast would imply a
relatively subdued 0.1% increase in real spending as
consumers remain cautious about allocating their
purchasing power.
Personal income is forecast to rise by 0.3% after a 0.2%
gain a month prior as the increase in hours worked and
solid gain in average hourly earnings should support wage
and salary income.
The core PCE price index is expected to rise 0.1% despite
the flat reading on core CPI as the weakness in the CPI
reading was driven by a softening in owner’s equivalent
rent (this is weighted less heavily in the PCE measure).
Our forecast would leave the annual rate steady at 1.4%.
Key Point:
We expect modest gains in income and spending and
a steady reading for core inflation.
Market Economics 23 September 2010
Market Mover
61
www.GlobalMarkets.bnpparibas.com

Key Data Preview
Chart 13: US: PMI Manufacturing Surveys
Source: Reuters EcoWin Pro
Sep (f) Aug Jul Jun
Headline index 53.0 56.3 55.5 56.2
Prices Paid 62.0 61.5 57.5 57.0
BNP Paribas Forecast: Down
US: ISM (September)
Release Date: Friday 1 October
We look for the ISM manufacturing index to fall in
September, to 53.0 from 56.3 in August. The new orders
component of the ISM has been declining for three months,
dropping a total of 12.6 points. The September readings of
the Empire and Philly indices point to further deceleration.
On the ISM-adjusted basis, the Philly Fed Index dropped
through the 50 breakeven level in August to 46.3, edging
up only to 46.6 in September. In the meanwhile the ISMadjusted
Empire State index was at 50.3 in August and
moved up to just 50.9. The pace of manufacturing growth is
settling as the inventory cycle cools. Our forecast would
still be consistent with expansion in the sector, albeit at a
much more sustainable pace. Meanwhile we look for the
prices paid index to remain virtually flat as energy prices
have stabilised recently.
Key Point:
The ISM is expected to cool to 53.0 in September, a
pace consistent with much more sustainable
expansion in the sector.
Market Economics 23 September 2010
Market Mover
62
www.GlobalMarkets.bnpparibas.com

Economic Calendar: 4 – 29 October
4 October 5 October 6 October 7 October 8 October
Eurozone: PPI Aug
US: Pending Home Sales
Jul, Factory Orders Aug
Market Economics 23 September 2010
Market Mover
Australia: RBA Rate
Announcement, Trade
Balance Aug, Retail Sales
Aug, NAB Business
Confidence Sep
Japan: BoJ Rate
Announcement
Eurozone: Retail Sales
Aug, Services PMI (Final)
Sep
UK: CIPS Services Sep
Switz: CPI Sep
US: ISM Services Sep
Eurozone: GDP (Final)
Q2
Germany: Factory Orders
Aug
Spain: Industrial
Production Aug
US: ADP Labour Sep,
Challenger Labour Sep
Australia: Labour Sep
Japan: Leading indicator
Aug
Eurozone: ECB Rate
Announcement & Press
Conference
UK: BoE Rate
Announcement, IP Aug
Germany: Industrial
Production Aug
France: Trade Balance
Aug
Norway: IP Aug
Neths: CPI Sep
US: Consumer Credit Aug
During Week: UK Halifax House Prices Sep
11 October 12 October 13 October 14 October 15 October
Holiday: Japan, US,
Canada
France: Industrial
Production Aug
Italy: Industrial Production
Aug
Norway: CPI Sep, PPI
Sep
UK: BRC Retail Sales
Monitor Sep, RICS House
Prices Sep, CPI Sep,
Trade Balance Aug,
DCLG House Prices Aug
France: C/A Aug
Germany: CPI Sep
Sweden: CPI Sep
US: FOMC Minutes, NFIB
Small Business Optimism
Sep
Australia: Westpac
Consumer Confidence
Oct
Japan: M2 Sep,
Machinery Orders Aug
Eurozone: Industrial
Production Aug
UK: Labour Sep
France: CPI Sep
Sweden: AMV Labour
Sep
US: Import Price Index
Sep, Treasury Statement
Sep
Japan: CGPI Sep
Eurozone: ECB Monthly
Bulletin
Spain: CPI Sep
Neths: Retail Sales Aug
US: Trade Balance Aug,
PPI Sep
18 October 19 October 20 October 21 October 22 October
Japan: Tertiary Index Aug
UK: Rightmove House
Price Index Oct
US: Industrial Production
Sep, TICS Data Aug,
NAHB Housing Market
Index Oct
Australia: RBA MPC
Minutes
Eurozone: Current
Account Aug
Germany: ZEW Survey
Oct
US: New Home Starts
Sep
Canada: BoC Rate
Announcement
UK: BoE MPC Minutes,
PSNCR Sep, PSNB Sep
Germany: PPI Sep
Italy: Industrial Orders
Aug, Non-EU Trade
Balance Sep
Neths: Consumer
Confidence Oct
US: Beige Book
Canada: BoC Monetary
Policy Report
Eurozone: Governing
Council Meeting (No Rate
Ann), PMIs (Flash) Oct
UK: Retail Sales Sep
France: Business
Confidence Oct
Sweden: Labour Sep
Neths: Labour Sep
US: Philly Fed Oct,
Leading Indicators Sep,
Retail Sales Sep
During Week: Germany WPI Sep
25 October 26 October 27 October 28 October 29 October
Australia: PPI Q3
Japan: Trade Balance Sep
Eurozone: Industrial
Orders Aug
Spain: PPI Sep
US: Existing Home Sales
Sep
UK: GDP (Adv) Q3
France: Consumer
Confidence Oct, Housing
Starts Sep, Job Seekers
Sep
Sweden: Riksbank Rate
Announcement &
Monetary Policy Report,
PPI Sep
Neths: Producer
confidence Oct
US: S&P/Case-Shiller
Home Prices Aug, FHFA
House Prices Aug,
Consumer Confidence
Oct
Australia: CPI Q3
Eurozone: Monetary
Developments Sep
Germany: CPI (Prel) Oct
France: Retail Sales Sep
Spain: Retail Sales Sep
Norway: Norges Bank
Rate Announcement &
Monetary Policy Report
Belgium: GDP (Flash) Q3
US: Durable Goods Sep,
New Home Sales Sep
Japan: BoJ Rate
Announcement & Outlook
Report, Retail Sales Aug
Eurozone: Business &
Consumer Survey Oct,
Retail PMI Oct
Germany: Labour Oct
France: PPI Sep
Italy: Wages Sep
Sweden: Retail Sales
Sep
Norway: Labour (nsa)
Oct
During Week: UK: Nationwide House Prices Oct
Source: BNP Paribas
Release dates as at c.o.b. prior to the date of this publication. See our Daily Spotlight for any revisions
63
Japan: BoJ Monetary
Policy Meeting Minutes,
Current Account Aug
UK: PPI Sep
Germany: Trade Balance
Aug
France: BoF Survey Sep,
Budget Balance Aug
Sweden: IP Aug
Neths: Industrial
Production Aug
US: Labour Sep,
Wholesale Trade Aug
Canada: Labour Sep
Eurozone: HICP Sep,
Trade Balance Aug, EU25
New Car Registrations
Sep
Italy: Foreign Trade Aug,
CPI Sep
US: Empire State Oct, CPI
Sep, Retail Sales Sep,
Business Inventories Aug,
UoM Sentiment (Prel) Oct
Australia: PPI Sep
Germany: Ifo Oct
France: Industrial Survey
Q4
Italy: Retail Sales Aug
Canada: CPI Sep
Japan: CPI Tokyo Oct,
CPI National Sep, Labour
Sep, Household
Consumption Sep, IP Sep,
Housing Starts Sep
Eurozone: Labour Sep,
HICP (Flash) Oct,
Eurocoin Oct
UK: GfK Consumer
Confidence Oct, Net
Consumer Credit Sep,
Mortgage Approvals Sep
Germany: Wages Q3
Italy: PPI Sep, CPI (Prel)
Oct
Spain: HICP (Flash) Oct
Norway: Retail Sales Sep
Switz: KoF Leading
Indicator Oct
US: GDP (Adv) Q3, ECI
Sep, Chicago PMI Oct,
UoM Sentiment (Final) Oct
Canada: GDP Aug
www.GlobalMarkets.bnpparibas.com

Treasury and SAS Issuance Calendar
Daily update onto https://globalmarkets.bnpparibas.com, Tools & Apps, Analytical Tools, Market Calendar, Government Flows
In the pipeline - Treasuries:
Ireland: Possibility of a syndicated offering towards the end of 2010
Germany: Plans to issue EUR 2-3bn in inflation-linked bonds and reserves right to issue foreign currency bonds in Q4
Poland: Plans to issue yen-denominated bonds in November and may issue euro-denominated bonds as early as January 2011
UK: Plans a syndicated offering: H2 October, conventional gilt (30-50y area), further details around 2 weeks in advance
Denmark: H2 2010, to issue a 5y EUR loan (EUR 1-2bn). Opening of new 5y (Nov 2016) & 10y (Nov 2021) DGBs postponed to the beginning
of 2011
Slovak Rep.: Considering issuing new syndicated 15y benchmark bond (around EUR 1.5bn) in the autumn
During the week:
UK: Choice of gilt for w.c. 11 Oct mini tender on Fri 1 Oct
Date Day Closing Country Issues Details BNPP forecasts
Local GMT
24/09 Fri Sweden Exch. Offer ILB 0.5% Jun 2017 vs. 3.5% Dec15 (# 3105) SEK 6bn
11:00 15:00 US Outright Treasury Coupon Purchase (2014-2016)
FNMA Notes 26 Oct 2015 (new, syndicated)
27/09 Mon 10:55 08:55 Italy CTZ 31 Aug 2012 EUR 3bn
Sweden Exch. Offer ILB 0.5% Jun 2017 vs. 5% Dec20 (# 3102) SEK 6bn
12:00 10:00 Belgium OLO 2.75% 28 Mar 2016 (OLO 59)
OLO 3.75% 28 Sep 2020 (OLO 58)
24 Sep EUR 2-2.8bn
OLO 4.25% 28 Mar 2041 (OLO 60)
Slovak Rep. SLOVGB 3.5% 24 Feb 2016 (#213)
EUR 0.150bn
13:00 17:00 US Notes 0.375% 30 Sep 2012 (new) USD 36bn
28/09 Tue 12:00 03:00 Japan JGB 15 Oct 2012 JPY 2.6tn
10:55 08:55 Italy BTPei 2.1% 15 Sep 2021 EUR 1-1.5bn
Sweden Exch. Offer ILB 0.5% Jun 2017 vs. 3.5% Dec15 (# 3105) SEK 3bn
Neths DSL 3.25% 15 Jul 2015 (Off-the-run facility)
DSL 4% 15 Jul 2018 (Off-the-run facility)
EUR 0-2bn
Denmark DGB 4% 15 Nov 2010 (buy back)
12:00 16:00 Canada Repurchase of 7 Cash Mgt Bonds (Dec10 - Dec11) CAD 1bn
11:00 15:00 US Outright Treasury Coupon Purchase (2011-2040)
13:00 17:00 US Notes 1.25% 30 Sep 2015 (new) USD 35bn
29/09 Wed 10:55 08:55 Italy BTP 2% 1 Jun 2013
CCT 15 Dec 2015 (CCTeu)
BTP 3.75% 1 Mar 2021
24 Sep EUR 5-7bn
11:00 09:00 Sweden T-bonds 4.5% 12 Aug 2015 (# 1049) SEK 2.5bn
13:00 17:00 US Notes 1.875% 30 Sep 2017 (new) USD 29bn
30/09 Thu 11:00 15:00 US Outright Treasury Coupon Purchase (2021-2040)
01/10 Fri 12:00 03:00 Japan Auction for Enhanced-liquidity 24 Sep JPY 0.3tn
05/10 Tue 11:00 09:00 Austria RAGBs 28 Sep
10:30 09:30 UK Index-Linked Gilt 0.625% 22 Nov 2042 28 Sep GBP 0.8bn
Denmark DGB 30 Sep
11:00 15:00 US Outright Treasury Coupon Purchase (2016-2020)
06/10 Wed 11:00 09:00 Germany Schatz 0.75% 14 Sep 2012 EUR 5bn
11:00 09:00 Norway NGBs 29 Sep
11:00 15:00 US Outright Treasury Coupon Purchase (2013-2014)
07/10 Thu 12:00 03:00 Japan JGB 10-year 30 Sep JPY 2.2tn
10:30 08:30 Spain Bono 2.5% 31 Oct 2013 4 Oct
10:50 08:50 France OATs 1 Oct
Sweden Exchange Offer ILBs 30 Sep
11/10 Mon Slovak Rep. SLOVGB (For decision) 4 Oct
12/10 Tue Neths DSL 6 Oct
13:00 17:00 US Notes 3-year (new) 7 Oct USD 33bn
13/10 Wed 11:00 09:00 Germany Bund 2.25% 4 Sep 2020 EUR 5bn
11:00 09:00 Sweden T-bonds 6 Oct
13:00 17:00 US Notes 10-year 7 Oct USD 21bn
14/10 Thu 12:00 03:00 Japan JGB 30-year 7 Oct JPY 0.6tn
10:55 08:55 Italy 5-year BTP and possibly 15- or 30-year BTP 7 Oct
10:30 09:30 UK Gilt 4.75% 7 Sep 2015 5 Oct
13:00 17:00 US Bond 30-year 7 Oct USD 13bn
Sources: Treasuries, BNP Paribas
Interest Rate Strategy 23 September 2010
Market Mover, Non-Objective Research Section
64
www.GlobalMarkets.bnpparibas.com

Next week's T-Bills Supply
Date Country Issues Details
24/09 UK T-Bills Oct 2010 GBP 1bn
T-Bills Dec 2010
GBP 1.5bn
T-Bills Mar 2011
GBP 1.5bn
27/09 France BTF Dec 2010 EUR 4bn
BTF Feb 2011
EUR 1bn
BTF Mar 2011
EUR 2bn
BTF Jun 2011
EUR 1.5bn
Italy BOT Mar 2011 EUR 9bn
Germany Bubills Sep 2011 (new) EUR 4bn
US T-Bills Dec 2010 USD 29bn
T-Bills Mar 2011 (new) USD 29bn
FHLMC Bills 3-month & 6-month 24 Sep
28/09 Spain Letras Dec 2010 27 Sep
Letras Mar 2011
27 Sep
Canada T-Bill Jan 2011 CAD 7.7bn
T-Bill Mar 2011 (new) CAD 2.9bn
T-Bill Sep 2011 (new) CAD 2.9bn
US T-Bills 4-week 27 Sep
FHLB Discount Notes
29/09 Japan T-Bills Jan 2011 JPY 4.8tn
Denmark T-Bills
FNMA Bills 3-month & 6-month 27 Sep
30/09 FHLB Discount Notes
01/10 UK T-Bills 24 Sep
Sources: Treasuries, BNP Paribas
Comments and charts
• EGB gross supply will fall to around EUR 12/13bn in
the week ahead from EUR 14bn in the past week. In 10y
duration adjusted terms, it falls to around EUR 6.3bn.
There well be also a significant amount of long-term and
short-term redemptions, leading to negative net supply
figures.
• Italy will kick off EGB issuance with a CTZ Aug-12
tap for EUR 3bn. On the same day, Belgium will tap
three OLO lines: Mar-16, Sep-20 and Mar-41. Then on
Tuesday, Italy will tap BTPei Sep-21 for EUR 1-1.5bn
and Netherlands will conduct off-the-run taps of DSLs
Jul-15 and Jul-18 for EUR 1-2bn. Finally, on Wednesday
Italy will reopen BTPs Jun-13 and Mar-21 and also tap
CCTeu Dec-15 for an expected amount of EUR 4-6bn.
• Outside the eurozone, the US will issue USD 100bn
of 2y, 5y and 7y maturity notes. Sweden and Japan will
also issue paper.
Next week's Eurozone Redemptions
Date Country Details Amount
28/09 Belgium OLO 5.75% EUR 15.8bn
29/09 Greece GGB 6% EUR 0.2bn
30/09 Italy CTZ EUR 16.4bn
Total Eurozone Long-term Redemption EUR 32.4bn
27/09 Austria ATB (EU38) EUR 0.1bn
27/09 Austria ATB (EU37) EUR 0.2bn
29/09 Germany Bubills EUR 5.0bn
30/09 France BTF EUR 10.0bn
30/09 Italy BOT 6mth EUR 9.0bn
30/09 Neths DTC EUR 12.3bn
Total Eurozone Short-term Redemption EUR 36.6bn
35
30
25
20
15
10
5
0
-5
-10
20
18
16
14
12
10
8
6
4
2
0
Next week's Eurozone Coupons
Country
Belgium
Total Long-term Coupon Payments
Chart 1: Investors’ Net Cash Flows
(EUR bn, 10y equivalent)
Net Investors' Cash Flows
(EUR bn , 10y equivalent)
Week of Sep 27th Week of Oct 4th Week of Oct 11th Week of Oct 18th
Chart 2: EGB Gross Supply Breakdown by
Country (EUR bn, 10y equivalent)
Germany Italy Portugal Belgium
France Spain Netherlands Austria
Finland Greece Ireland
Amount
EUR 4.7bn
EUR 4.7bn
Week of Sep 27th Week of Oct 4th Week of Oct 11th Week of Oct 18th
Chart 3: EGB Gross Supply Breakdown by
Maturity (EUR bn, 10y equivalent)
14
12
2-3-YR 5-7-YR 10-YR >10-YR
EGBs Gross Supply (EUR bn, 10y equivalent)
10
8
6
4
2
0
Week of Sep 27th Week of Oct 4th Week of Oct 11th Week of Oct 18th
All Charts Source: BNP Paribas
Interest Rate Strategy 23 September 2010
Market Mover, Non-Objective Research Section
65
www.GlobalMarkets.bnpparibas.com

Central Bank Watch
Interest Rate
EUROZONE
Current
Rate (%)
Minimum Bid Rate 1.00
US
Fed Funds Rate 0 to 0.25
Discount Rate 0.75
JAPAN
Call Rate 0.10
Basic Loan Rate 0.30
UK
Bank Rate 0.5
DENMARK
Lending Rate 1.05
SWEDEN
Repo Rate 0.75
NORWAY
Sight Deposit Rate 2.00
SWITZERLAND
3 Mth LIBOR Target
Range
CANADA
0.0-0.75
Overnight Rate 1.00
Bank Rate 1.25
AUSTRALIA
Cash Rate 4.50
CHINA
1Y Bank Lending
Rate
BRAZIL
5.31%
Selic Overnight Rate 10.75
Date of Last
Change
-25bp
(7/5/09)
-75bp
(16/12/08)
+25bp
(18/2/10)
-20bp
(19/12/08)
-20bp
(19/12/08)
-50bp
(5/3/09)
-10bp
(14/1/10)
+25bp
(2/9/10)
+25bp
(5/5/09)
-25bp
(12/3/09)
+25bp
(8/9/10)
+25bp
(8/9/10)
+25bp
(5/5/10)
-27bp
(22/12/08)
+50bp
(21/7/10)
Next Change in
Coming 6 Months
No Change
No Change
No Change
No Change
No Change
No Change
No Change
+25bp
(26/10/10)
+25bp
(26/01/11)
No Change
+25bp
(20/10/10)
+25bp
(20/10/10)
+25bp
(2/11/10)
No Change
+50bp
(26/1/11)
Source: BNP Paribas
For the full EMK Central Bank Watch please see our Local Markets Mover
Comments
Doubts about the sustainability of the recovery and low inflation
pressures imply no rise in the refinancing rate for a considerable
period of time: we expect the first increase only in H2 2012.
The FOMC is expected to maintain the funds rate at 0 to 0.25%
for an extended period and is likely to initiate a second round of
quantitative easing in Q4 2010.
We expect the BoJ to maintain its super-low rate policy until
2012, but it may in the meantime further expand its liquidity
provision to cooperate with the government in countering
deflation and the yen’s appreciation.
We expect the MPC to reengage in asset purchases although
elevated inflation could delay this until February 2011. We do
not expect the BoE to start raising Bank Rate before H1 2012.
We expect the central bank to keep its policy rate on hold until
H2 2012, in line with our expectation for the ECB.
As economic growth remains strong and labour market
conditions improve further, we expect the Riksbank to deliver a
further hike at its October meeting.
Moderate growth since the start of the year and our
expectations of a slowdown in growth in Norway’s main trading
partners suggest further rate hikes will come gradually. We
expect the next hike in Q1 2011.
Rates are looking inappropriate given the strength of the
domestic economy. But the first hike is being delayed by
financial stress in the markets and the exceptional strength of
the CHF.
Depending on developments in global financial markets and the
US economic outlook in particular, we expect the BoC to deliver
an additional 25bp of tightening in October. The BoC is then
expected to pause at 1.25% to allow further progress in the
recovery.
The RBA noted in its June statement that policy was appropriate
for the “near term”. This appears to rule out any move in the
coming months, especially in the context of volatility in global
markets. However, likely strong Q2 growth should be enough to
prompt a hike late in the year.
The benchmark lending rate (12-month) should be left
unchanged this year. However, given that housing prices are
failing to correct, the government might hike the mortgage loan
rate in Q4 10. Accordingly, the deposit rate might also be raised
in order to keep the general interest spread unchanged.
The BCB has become much more dovish, sounding more
comfortable with the balance of risks for inflation on the heels of
recent data. However, the monetary authority is likely to resume
hiking rates in early 2011 to tame inflation expectations.
Change since our last weekly in bold and italics
Market Economics 23 September 2010
Market Mover
66
www.GlobalMarkets.bnpparibas.com

Economic Forecasts
GDP
Year 2010
(% y/y) ’09 ’10 (1) ’11 (1) ’12 (1) ’13 (1) Q1 Q2 Q3 Q4
US -2.6 2.6 1.6 2.6 3.1 2.4 3.0 2.9 2.0
Eurozone -4.0 1.7 1.1 1.4 2.0 0.8 1.9 1.9 2.1
Japan -5.2 3.2 1.6 1.6 1.7 4.7 2.4 3.2 2.6
CPI
(% y/y) ’09 ’10 (1) Year
’11 (1) ’12 (1) ’13 (1) Q1 Q2 Q3 Q4
US -0.3 1.7 1.4 0.7 1.1 2.4 1.8 1.3 1.4
Eurozone 0.3 1.6 1.6 1.0 1.2 1.1 1.5 1.7 1.9
Japan -1.4 -0.8 -0.8 0.1 0.6 -1.2 -0.9 -0.9 -0.4
Source: BNP Paribas. End Period, Spot Rates as at 16 September
* Preliminary, to be confirmed in the Global Outlook
Interest Rate Forecasts
Interest Rate (3)
(%) Spot Q4'10 Q1'11 Q2'11 Q3'11 Q4'11
US
Fed Funds 0.25 0.25 0.25 0.25 0.25 0.25
10-year 2.77 2.00 2.00 2.25 2.50 2.75
Eurozone
Refi 1.00 1.00 1.00 1.00 1.00 1.00
10-year 2.48 1.90 1.90 2.00 2.25 2.50
Japan
ODR 0.30 0.30 0.30 0.30 0.30 0.30
Call Rate 0.10 0.10 0.10 0.10 0.10 0.10
10-year 1.05 0.90 0.90 1.00 1.10 1.10
Source: BNP Paribas. End Period, Spot Rates as at 16 September
* Preliminary, to be confirmed in the Global Outlook
Market Economics / Interest Rate Strategy 23 September 2010
Market Mover
67
www.GlobalMarkets.bnpparibas.com

FX Forecasts*
USD Bloc Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13
EUR/USD 1.29 1.34 1.27 1.23 1.22 1.20 1.22 1.24 1.26 1.25 1.22
USD/JPY 85 82 85 87 90 92 95 100 110 120 119
USD/CHF 0.98 0.93 1.01 1.07 1.09 1.12 1.11 1.10 1.10 1.12 1.16
GBP/USD 1.54 1.58 1.48 1.40 1.45 1.46 1.49 1.48 1.50 1.52 1.53
USD/CAD 1.02 0.96 0.92 0.90 0.87 0.90 0.95 1.00 1.02 1.09 1.11
AUD/USD 0.94 1.02 1.00 0.99 0.97 0.95 0.92 0.93 0.92 0.90 0.87
NZD/USD 0.73 0.78 0.76 0.75 0.74 0.73 0.72 0.69 0.67 0.66 0.64
USD/SEK 7.13 6.64 6.93 7.32 7.46 7.75 7.54 7.42 7.22 7.28 7.62
USD/NOK 6.12 5.82 6.14 6.26 6.23 6.25 6.07 6.05 6.03 6.00 5.98
EUR Bloc Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13
EUR/JPY 110 110 108 107 110 110 116 124 139 150 145
EUR/GBP 0.84 0.85 0.86 0.88 0.84 0.82 0.82 0.84 0.84 0.82 0.80
EUR/CHF 1.27 1.25 1.28 1.31 1.33 1.34 1.35 1.36 1.38 1.40 1.41
EUR/SEK 9.20 8.90 8.80 9.00 9.10 9.30 9.20 9.20 9.10 9.10 9.30
EUR/NOK 7.90 7.80 7.80 7.70 7.60 7.50 7.40 7.50 7.60 7.50 7.30
EUR/DKK 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46 7.46
Central Europe Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13
USD/PLN 3.06 2.87 2.99 3.13 3.20 3.25 3.20 3.10 3.02 3.00 3.03
EUR/CZK 26.5 24.4 24.5 24.7 25.0 24.7 24.3 24.0 23.9 23.8 24.0
EUR/HUF 275 280 275 270 270 265 250 250 250 245 235
USD/ZAR 7.30 7.00 6.90 7.10 7.00 7.30 7.80 7.80 7.50 7.70 7.00
USD/TRY 1.50 1.45 1.40 1.42 1.40 1.45 1.50 1.52 1.56 1.58 1.45
EUR/RON 4.50 4.25 4.35 4.25 4.20 4.20 4.00 3.95 3.90 3.80 3.90
USD/RUB 29.19 29.49 29.42 29.45 29.12 28.90 28.21 27.75 27.31 27.15 29.12
EUR/PLN 3.95 3.85 3.80 3.85 3.90 3.90 3.90 3.85 3.80 3.75 3.70
USD/UAH 7.9 7.9 7.6 7.6 7.5 7.4 7.4 7.2 7.0 7.5 -----
EUR/RSD 110 110 105 115 105 100 90 86 87 85 86
Asia Bloc Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13
USD/SGD 1.34 1.33 1.32 1.31 1.30 1.29 1.28 1.27 1.26 1.25 1.25
USD/MYR 3.10 3.07 3.05 3.03 3.00 2.95 2.93 2.90 2.87 2.85 2.85
USD/IDR 8800 8600 8500 8400 8300 8200 8100 8000 7900 7800 7800
USD/THB 30.50 30.00 29.50 29.00 28.70 28.50 28.30 28.00 27.70 27.50 27.50
USD/PHP 44.00 43.00 42.50 42.00 41.50 41.00 40.50 40.00 39.50 39.00 39.00
USD/HKD 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80 7.80
USD/RMB 6.70 6.65 6.60 6.55 6.50 6.45 6.40 6.35 6.30 6.26 6.23
USD/TWD 31.60 31.00 30.50 30.00 29.80 29.50 29.00 28.50 28.80 28.50 28.50
USD/KRW 1150 1100 1080 1060 1050 1040 1030 1020 1010 1000 1000
USD/INR 46.00 45.50 45.00 44.50 44.30 44.00 43.50 43.00 42.80 42.50 42.50
USD/VND 20000 20500 20500 20500 20500 20500 20500 20500 20500 20500 20500
LATAM Bloc Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13
USD/ARS 3.95 4.05 4.15 4.20 4.30 4.40 4.55 4.70 4.80 4.90 5.00
USD/BRL 1.75 1.70 1.67 1.65 1.68 1.70 1.73 1.75 1.77 1.79 1.80
USD/CLP 495 485 480 470 475 480 483 485 488 492 494
USD/MXN 12.65 12.40 12.25 12.10 11.80 11.90 12.00 12.20 12.40 12.50 12.55
USD/COP 1810 1790 1760 1730 1720 1740 1755 1780 1800 1825 1835
USD/VEF (Priority) (1) 4.29 4.29 4.29 4.29 4.29 4.29 8.80 8.80 8.80 8.80 8.80
USD/VEF (Oil) (1) 2.59 2.59 2.59 2.59 2.59 2.59 5.30 5.30 5.30 5.30 5.30
Others Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13
USD Index 81.87 78.63 82.19 84.73 85.01 86.48 86.16 86.35 86.57 88.46 90.03
*End Quarter
(1) Following the devaluation of the VEF, there is now an official ‘priority’ exchange rate and a so-called ‘oil’ exchange rate used for certain transactions
Source: BNP Paribas
Foreign Exchange Strategy 23 September 2010
Market Mover, Non-Objective Research Section
68
www.GlobalMarkets.bnpparibas.com

Market Coverage
Market Economics
Paul Mortimer-Lee Global Head of Market Economics London 44 20 7595 8551 paul.mortimer-lee@uk.bnpparibas.com
Ken Wattret Chief Eurozone Market Economist London 44 20 7595 8657 kenneth.wattret@uk.bnpparibas.com
Luigi Speranza Head of Inflation Economics, Eurozone, Italy London 44 20 7595 8322 luigi.speranza@uk.bnpparibas.com
Alan Clarke UK London 44 20 7595 8476 alan.clarke@uk.bnpparibas.com
Eoin O’Callaghan Inflation, Eurozone, Switzerland, Ireland London 44 20 7595 8226 eoin.ocallaghan@uk.bnpparibas.com
Gizem Kara Scandinavia London 44 20 7595 8783 gizem.kara@uk.bnpparibas.com
Dominique Barbet Eurozone, France Paris 33 1 4298 1567 dominique.barbet@bnpparibas.com
Julia Coronado Senior US Economist New York 1 212 841 2281 julia.l.coronado@americas.bnpparibas.com
Yelena Shulyatyeva US, Canada New York 1 212 841 2258 yelena.shulyatyeva @americas.bnpparibas.com
Ryutaro Kono Chief Economist Japan Tokyo 81 3 6377 1601 ryutaro.kono@japan.bnpparibas.com
Hiroshi Shiraishi Japan Tokyo 81 3 6377 1602 hiroshi.shiraishi@japan.bnpparibas.com
Azusa Kato Japan Tokyo 81 3 6377 1603 azusa.kato@japan.bnpparibas.com
Makiko Fukuda Japan Tokyo 81 3 6377 1605 makiko.fukuda@japan.bnpparibas.com
Richard Iley Head of Asia Economics Hong Kong 852 2108 5104 richard.iley@asia.bnpparibas.com
Dominic Bryant Asia, Australia Hong Kong 852 2108 5105 dominic.bryant@asia.bnpparibas.com
Mole Hau Asia Hong Kong 852 2108 5620 mole.hau@asia.bnpparibas.com
Xingdong Chen Chief China Economist Beijing 86 10 6561 1118 xd.chen@asia.bnpparibas.com
Isaac Y Meng China Beijing 86 10 6561 1118 isaac.y.meng@asia.bnpparibas.com
Chan Kok Peng Chief Economist South East Asia Singapore 65 6210 1946 kokpeng.chan@asia.bnpparibas.com
Marcelo Carvalho Head of Latin American Economics São Paulo 55 11 3841 3418 marcelo.carvalho@br.bnpparibas.com
Italo Lombardi Latin America New York 1 212 841 6599 italo.lombardi@americas.bnpparibas.com
Florencia Vazquez Latin American Economist Buenos Aires 54 11 4875 4363 florencia.vazquez@ar.bnpparibas.com
Michal Dybula Central & Eastern Europe Warsaw 48 22 697 2354 michal.dybula@pl.bnpparibas.com
Julia Tsepliaeva Russia & CIS Moscow 74 95 785 6022 julia.tsepliaeva@ru.bnpparibas.com
Interest Rate Strategy
Cyril Beuzit Global Head of Interest Rate Strategy London 44 20 7595 8639 cyril.beuzit@uk.bnpparibas.com
Patrick Jacq Europe Strategist Paris 33 1 4316 9718 patrick.jacq@bnpparibas.com
Hervé Cros Chief Inflation Strategist London 44 20 7595 8419 herve.cros@uk.bnpparibas.com
Shahid Ladha Inflation Strategist London 44 20 7 595 8573 shahid.ladha@uk.bnpparibas.com
Alessandro Tentori Chief Alpha Strategy Europe London 44 20 7595 8238 alessandro.tentori@uk.bnpparibas.com
Eric Oynoyan Europe Alpha Strategist London 44 20 7595 8613 eric.oynoyan@uk.bnpparibas.com
Matteo Regesta Europe Alpha Strategist London 44 20 7595 8607 matteo.regesta@uk.bnpparibas.com
Ioannis Sokos Europe Alpha Strategist London 44 20 7595 8671 ioannis.sokos@uk.bnpparibas.com
Camille de Courcel Europe Alpha Strategist London 44 20 7595 8295 camille.decourcel@uk.bnpparibas.com
Bülent Baygün Head of Interest Rate Strategy US New York 1 212 471 8043 bulent.baygun@americas.bnpparibas.com
Mary-Beth Fisher US Senior Strategist New York 1 212 841 2912 mary-beth.fisher@us.bnpparibas.com
Sergey Bondarchuk US Strategist New York 1 212 841 2026 sergey.bondarchuk@americas.bnpparibas.com
Suvrat Prakash US Strategist New York 1 917 472 4374 suvrat.prakash@americas.bnpparibas.com
Rohit Garg US Strategist New York 1212 841 3937 rohit.k.garg@americas.bnpparibas.com
Anish Lohokare MBS Strategist New York 1 212 841 2867 anish.lohokare@americas.bnpparibas.com
Olurotimi Ajibola MBS Strategist New York 1 212 8413831 olurotimi.ajibola@americas.bnpparibas.com
Koji Shimamoto Head of Interest Rate Strategy Japan Tokyo 81 3 6377 1700 koji.shimamoto@japan.bnpparibas.com
Tomohisa Fujiki Japan Strategist Tokyo 81 3 6377 1703 Tomohisa.fujiki@japan.bnpparibas.com
Masahiro Kikuchi Japan Strategist Tokyo 81 3 6377 1703 masahiro.kikuchi@japan.bnpparibas.com
Christian Séné Technical Analyst Paris 33 1 4316 9717 christian.séné@bnpparibas.com
FX Strategy
Hans Redeker Global Head of FX Strategy London 44 20 7595 8086 hans-guenter.redeker@uk.bnpparibas.com
Ian Stannard FX Strategist London 44 20 7595 8086 ian.stannard@uk.bnpparibas.com
James Hellawell Quantitative Strategist London 44 20 7595 8485 james.hellawell@uk.bnpparibas.com
Kiran Kowshik FX Strategist London 44 20 7595 8086 kiran.kowshik@bnpparibas.com
Sebastien Galy FX Strategist New York 1 212 841 2492 sebastien.galy@bnpparibas.com
Mary Nicola FX Strategist New York 1 212 841 2492 mary.nicola@americas.bnpparibas.com
Andy Chaveriat Technical Analyst New York 1 212 841 2408 andrew.chaveriat@americas.bnpparibas.com
Emerging Markets FX & Interest Rate Strategy
Drew Brick Head of FX & IR Strategy Asia Singapore 65 6210 3262 Drew.brick@asia.bnpparibas.com
Chin Loo Thio FX & IR Asia Strategist Singapore 65 6210 3263 chin.thio@asia.bnpparibas.com
Robert Ryan FX & IR Asia Strategist Singapore 65 6210 3314 robert.ryan@asia.bnpparibas.com
Jasmine Poh FX & IR Asia Strategist Singapore 65 6210 3418 jasmine.j.poh@asia.bnpparibas.com
Gao Qi FX & IR Asia Strategist Shanghai 86 21 2896 2876 gao.qi@asia.bnpparibas.com
Shahin Vallée Head of FX & IR Strategy CEEMEA London 44 20 7595 8306 shahin.vallee@uk.bnpparibas.com
Elisabeth Gruié FX & IR CEEMEA Strategist London 44 20 7595 8492 elisabeth.gruie@uk.bnpparibas.com
Bartosz Pawlowski FX & IR CEEMEA Strategist London 44 20 7595 8195 Bartosz.pawlowski@uk.bnpparibas.com
Diego Donadio FX & IR Latin America Strategist São Paulo 55 11 3841 3421 diego.donadio@@br.bnpparibas.com
69

For Production and Distribution, please contact:
Ann Aston, Market Economics, London. Tel: 44 20 7595 8503 Email: 0ann.aston@uk.bnpparibas.com,
Danielle Catananzi, Interest Rate Strategy, London. Tel: 44 20 7595 4418 Email: 1Hdanielle.catananzi@uk.bnpparibas.com,
Derek Allassani, FX Strategy, London. Tel: 44 20 7595 8486 Email: 2Hderek.allassani@uk.bnpparibas.com,
Martine Borde, Market Economics/Interest Rate Strategy, Paris. Tel: 33 1 4298 4144 Email 3Hmartine.borde@bnpparibas.com
Editors: Amanda Grantham-Hill, Interest Rate Strategy/Market Economics, London. Tel: 44 20 7595 4107 Email: 4Hamanda.grantham-hill@bnpparibas.com;
Nick Ashwell, FX/Market Economics, London. Tel: 44 20 7595 4120 Email: 5Hnick.ashwell@uk.bnpparibas.com
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