RESEARCH QUARTERLY 1Q 2012

RESEARCH REPORT

RESEARCH QUARTERLY

RESEARCH REPORT | 1Q | 2012

TABLE OF CONTENTS
Table of Contents .................................................................................................................................. i Capital Markets Overview ................................................................................................................... 2 Municipal Bond Market ....................................................................................................................... 3 Treasury Market .................................................................................................................................... 5 Federal Agency Debt Market .............................................................................................................. 7 Funding and Money Market Instruments ......................................................................................... 8 Mortgage-Related Securities ................................................................................................................ 9 Asset-Backed Securities and CDOs ................................................................................................. 10 Corporate Bond Market ..................................................................................................................... 11 Equity and Other Markets ................................................................................................................. 13 Derivatives ........................................................................................................................................... 16 Primary Loan Market ......................................................................................................................... 17

The Securities Industry and Financial Markets Association (SIFMA) prepared this material for informational purposes only. SIFMA obtained this information from multiple sources believed to be reliable as of the date of publication; SIFMA, however, makes no representations as to the accuracy or completeness of such third party information. SIFMA has no obligation to update, modify or amend this information or to otherwise notify a reader thereof in the event that any such information becomes outdated, inaccurate, or incomplete. SIFMA brings together the shared interests of hundreds of securities firms, banks and asset managers. SIFMA's mission is to support a strong financial industry, investor opportunity, capital formation, job creation and economic growth, while building trust and confidence in the financial markets. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit www.sifma.org.

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Non-agency commercial-backed mortgage securities issuance picked up again in the first quarter.9 percent and 4.2 billion for 1Q’12. Refundings dominated issuance in the first quarter as issuers sought to take advantage of the exceptionally low rates in the municipal market.78 trillion in the first quarter of 2012. U.6% 88.4% 11.8 percent and 4. a 111.9% 63.4 percent to $59.4 percent up y-o-y.9% -22.4% 108. 400 300 200 100 0 Treasury(1) Federal Agency(1) Municipal(1) Mortgage-Related Asset-Backed Corporate(1) Equity (1) Includes long-term issuance only Source: Thomson Reuters.S. from 4Q’11 and 1Q’11.8 percent from 4Q’11 and double the amount issued in 1Q’11.5 45. bringing down agency share of issuance slightly (98. Although 2012 began with strong gains in equity market indices.9 Municipal (1) 486. totaled $486.4% -6.4 billion in the first quarter.1 Asset-Backed 3. 2012:Q1 600 $ Billions Q1'11 500 Q1'12 Securities issuance totaled $1. respectively.1 percent from 180 deals in 4Q’11.2 percent in the first quarter of 2012. an increase of 17. 14. respectively. including cash management bills. Federal agency long-term debt issuance was $152. Global funded collateralized debt obligation (CDO) issuance totaled $5. a 24.8 3. Federal Agencies Issuance Highlights .78 Trillion in First Quarter 2012 Issuance in U. quarter-over-quarter (q-o-q) and year-over-year (y-o-y).S. the number of equity deals rose to 281.4 177.0 Federal Agency (1) 78.5 Mortgage-Related 45.5 459.4 Mortgage-Related 45. including agency and non-agency passthroughs and collateralized mortgage obligations.1 Global CDO 402.3% -13.0 percent growth in 4Q’11. but an increase of 64.5 billion in the first quarter.S.06 trillion.2 101.6 Corporate (1) 59. According to the the Bureau of Economic Analysis. Municipal issuance volume totaled $78. respectively.99 trillion in 1Q’12.9 550. from 4Q’11 and 1Q’11.1 percent above the $1. respectively.8 30.3 percent from 4Q’11.9 percent and 13. the U. a negative credit outlook of the banking industry.1 Municipal 486. was $1.5 billion in the first quarter of 2012.1 Corporate (1) 59. a decline of 22.9 152.1% 103.4% -36. a 5.4% -22.3% 52. Total corporate bond issuance totaled $402.9 448. in 1Q’12. the first quarter closed with renewed concerns over Eurozone sovereign woes.6 Global CDO 402.8 193.2% Total gross issuance of Treasury bills and coupons. U.3 percent increase.3 31.9 billion in 1Q’12.7 percent in 4Q’11). and mixed economic data. 2012 562. Capital Markets 2011:Q1 vs.5 percent from 98.Year-Over-Year 2012:Q1 2011:Q1 562. Total equity issuance increased by 88.8 59.4 163. Issuance of mortgage-related securities.2 Equity * Percent change between 2012:Q1 and 2011:Q1 $ Billions Y-o-Y % Change* 2.4% Asset-backed securities (ABS) issuance totaled $45.3 1.8 30.8 billion in the first quarter of 2012.2 Treasury (1) 152.8 Treasury (1) 152.1 percent. Treasury.3% 4.2 47.9 percent decline.8 361.7 percent increase from the prior quarter and 11. an increase of 50.9% 50.4 78. from 4Q’11 and 1Q’11.S. 2 .3 76.5 percent increase.5 Equity * Percent change between 2012:Q1 and 2011:Q4 (1) Includes long-term issuance only $ Billions (1) Q-o-Q % Change* 25.75 trillion issued in 4Q’11 but a 3.5 Asset-Backed 3. Both high yield (HY) and investment grade (IG) issuance picked up dramatically q-o-q.4 percent and 52.6 466.2 percent decrease from 1Q’11’s $2. a 6. The number of deals increased as well.7% 5.7 Federal Agency (1) 78. up 56.3 402.5 486.3 5. down from 3.3 billion in 1Q’12. gross domestic product (GDP) increased by 2.3 Quarter-Over-Quarter 2012:Q1 2011:Q4 562.0 percent from 1Q’11.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 CAPITAL MARKETS OVERVIEW Total Issuance Rose to $1.

2 1. and higher education ($9.4 1. which contained several provisions relating to municipal securities.9 billion). MMA According to the Investment Company Institute (ICI). Direct loans/placements may have continued to take supply out of the market as well. 40% 20% 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2011 Q1 2012 0% Source: Thomson Reuters.08 percent on a total return basis in the first quarter.2 percent in 4Q’11 and 29. totaled $78. Average Daily Trading Volume of Municipal Securities1 2008:Q1 -2012:Q1 30 $ Billions Trading Activity Average daily trading activity increased q-o-q in 1Q’12 to $10.0 percent and 23. 3 .2 billion). respectively.1 percent q-o-q ($2. 25 20 15 10 5 Government Update 08:Q1 08:Q3 09:Q1 09:Q3 1 0 10:Q1 10:Q3 11:Q1 11:Q3 Includes both dealer-to-dealer and customer-to-dealer transactions. Taxables such as Build America Bonds (BABs) also continued to enjoy another strong quarter. Alternative minimum tax (AMT) issuance totaled $1. Source: Municipal Securities Rulemaking Board The Obama Administration released its fiscal 2013 proposal.6 percent from 1Q’11 ($46.2012:Q1 600 $ Billions 500 400 300 200 Short-Term 100 Yields. followed by primary & secondary education ($15. down 53.1 percent end-December 2011) as flight-to-safety demand for Treasuries subsided.9 percent increase from 4Q’11 ($10.0 0.5 percent. but up 46. a drop of 34. values reported in annul yearbooks will always be higher as daily values reported do not include all market activity. SIFMA Short-1 and Long-Term Municipal Issuance 2004 . compared to $9.1 billion).0 percent of all issuance derived from refunding.5 billion traded daily). but a 6.9 billion.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 MUNICIPAL BOND MARKET Taxable vs. water and sewer facilities ($11. returning 2. 2005 .1 The average number of trades increased slightly q-o-q (an increase of 2. Due to the expiration of most Congressional-authorized programs in 2011. yields in the municipal market continued to rally to new lows in the first quarter. with 47.1 billion).7 percent decline y-o-y ($11.1 billion).8 billion traded daily in 1Q’11).6 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Source: Bloomberg. Inflows and Total Return 2011 2012 Q1 2006 2007 2008 2009 1 Long-Term 0 2004 2005 2010 2011 Includes maturities of 13 months or less Source: Thomson Reuters Municipal GO AAA and 10-Yr Treasury Ratio Apr.3 billion).4 percent y-o-y ($38. compared to 2. long-term municipal issuance volume.2 billion).5 billion). compared to 30.08 percent on a total return basis. 2012 1.4 billion of outflow in 1Q’11.7 billion) and y-o-y ($7. taxable issuance declined to $5.Mar. q-o-q ($8. while shorter-term ratios continued its decline to 134.29 percent in 1Q’11.2 billion). such as the capping of tax preferences of the individual tax filer to 28 percent and the extension of BABs with expanded uses and at a lower subsidy rate (30 percent in 2013 and 28 per- 1 Based on averaging daily values reported on EMMA’s market activity. a decline of 12. ending at 96.1 percent (from 173.3 billion in 1Q’12.8 % Yield Ratios of 10-year tax-exempt AAA general obligation (GOs) and similarmaturity Treasuries continued to remain steady in the first quarter.7 percent). Tax-exempt issuance totaled $71. general purpose issuance led issuance totals in 1Q’12 ($23. like FINRA Trace.6 percent. returning 3. Tax-Exempt Issuance 2004 . compared to 1. 1.1 percent).6 percent y-o-y ($1. including taxable and tax-exempt issuance.4 billion. a 4.1 percent decline from the prior quarter ($92.11 percent in 4Q’11 and 0.2 percent in 1Q’11.7 billion in 1Q’12. With negative net supply putting pressure on the demand side.to AAA-rated corporates.2 billion in the first quarter of 2012.96 percent in A. Refundings were a substantial portion of the issuance in the first quarter. but plummeted y-o-y (a decline of 17.2012:Q1 450 400 $ Billions 120% 100% 350 300 250 200 150 100 80% BAB Taxable AMT Tax-Exempt Taxable Percentage of Municipal Issuance (right) 60% According to Thomson Reuters. a 15. first quarter inflow into long-term municipal mutual funds was $16.7 billion).1 billion in 1Q’12. but an increase of 66. By use of proceeds.6 1.5 billion inflow in the 4Q’11 and $19.0 percent qo-q but an increase of 84.8 0.

6 percent y-o-y. “General Explanations of the Administration’s Fiscal Year 2013 Revenue Proposals (Green Book). Council of Economic Advisors. the U. Department of the Treasury issued a report on infrastructure investment.” March 14. 4Q’11 state tax receipts showed growth of 3. Several other municipal-related provisions were also included. which promoted the benefits of infrastructure investment and recommended the use of previously successful financing strategies (i.0 percent.3 In late March. Rockefeller Institute. 2012.” March 23. etc.0 percent y-o-y.” US Department of the Treasury. “Estimated Budget Effects of The Revenue Provisions Contained in the President’s Fiscal year 2013 Budget Proposal. 2 4 . Rockefeller Institute of Government Report: “State Revenue Report: Tax Revenues Surpass Previous peak But Growth Softens Once Again”. 4 US Department of the Treasury. 5 Nelson A. BABs) and the creation of a national infrastructure bank (also promoted in the fiscal 2013 budget).2 percent). corporate income tax revenue declined by 9. such as allowing current refundings. services largely reliant on local government revenue. “A New Economic Analysis of Infrastructure Investment. April 19.e. loosening arbitrage restrictions on state and local governments.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 cent thereafter)2. eliminating the private activity bond (PAB) usage test. 2012. The report noted that due to differences in funding.4 percent) and personal income tax (4. 4 According to the Nelson A. such as education and public safety. however.. now feeling the effects of the housing market decline.S. saw revenue from taxes decline 1. would be under “severe fiscal pressure for some time. Local governments. 2012.5 While growth was seen in sales tax (2.” February 2012. which estimated that the cap would raise $520 billion over 10 years. 3 Joint Committee on Taxation. The tax preference was examined by the Joint Committee on Taxation. due in part to their heavy reliance on property tax revenues.

9 percent through 1Q’12.Mar.0 billion and more than double the $265.2012:Q1 2.800 1.00 150.00) Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Source: U.2012:Q1 900 800 700 600 500 400 300 200 100 0 1Q'08 3Q'08 1Q'09 3Q'09 1Q'10 3Q'10 1Q'11 3Q'11 1Q'12 $ Billions CMBs 13-week Bills 52-week Bills 3-year Notes 7-year Notes 30-year Notes 4-week Bills 26-week Bills 2-year Notes 5-year Notes 10-year Notes TIPS At its last meeting.2 billion issued in the prior quarter and 1. Source: U.0 billion in the prior quarter.400 1.2 billion issued in 1Q’11.000 1.2 percent increase from last quarter’s $1.000 800 600 400 200 0 1Q'08 3Q'08 1Q'09 3Q'09 1Q'10 3Q'10 1Q'11 $ Billions TIPS Coupons CMBs Bills 3Q'11 1Q'12 Total gross issuance of Treasury bills and coupons.600 2.000 1.2 percent decline from 1Q’11’s issuance of $2.0 billion from the post-crisis low of $10.S.00 300. Treasury remained pleased with the demand for inflation protection and expected to continue to gradually increase gross issuance of TIPS to $150 billion in 2012. when it stood at $433. 7.S. Treasury Gross Issuance of U.2 billion for a cumulative decline of 42.2 billion.2 billion issued in 1Q’11. total net issuance stood at $361. Coupon.4 percent below 4Q’11’s $267. increased to $401. Treasury securities.4 percent from the previous quarter’s $310.S. was $1.S. 2012 600. Treasury Net Issuances of Treasury Marketable Debt Jan.S. The Committee endorsed pursuing this option.200 1. Excluding CMBs.9 percent above the $451. but reached no concensus on an appropriate reference rate.500 1.S. but noted that system limitations prevented roll-out before 2013. Treasury Marketable Coupon Securities 2003 . including CMBs.4 percent higher than the $550. Net coupon issuance for the first quarter of 2012 was $247. a 20. Source: U.7 billion in Treasury coupons plus Treasury InflationProtected Securities (TIPS) were issued in the first quarter. Net coupon issuance has been declining steadily since 1Q’10.51 billion. Approximately $563.9 billion issued in 4Q’11 and 2.S.000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011 YTD 2012 Source: U.2 billion in 1Q’12.6 Excluding TIPS.2 billion.S. CMB issuance quadrupled in 1Q’12 to $40.00 0. 24. 14. Treasury Quaterly Summary of Bill. a 10.500 $ Billions 2. The 1Q’12 issuance of $401.1 percent above the $1.06 trillion.75 trillion issued in 4Q’11 but a 3.30 trillion but a 5. Gross issuance of bills. Treasury Securities 2008:Q1 . The Treasury will continue to study this option.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 TREASURY MARKET Issuance of U. up 29. total gross issuance of Treasury marketable coupon securities was $563. Treasury 6 See US Treasury’s February 2012 Quarterly Refunding Statement.400 2.3 billion.200 2. a 25. including CMBs. 5 .00 $ Billions Net Coupon Issuance (Notes and Bonds only) Net Issuance (including CMBs) Net Issuance (excluding CMBs) 450.5 percent increase from $448. including cash management bills (CMBs).6 percent below the Treasury’s January 1Q’12 borrowing estimate of $444 billion.7 percent above year-ago issuance of $554.4 percent increase from $300.0 billion in 4Q’11.99 trillion in 1Q’12. Treasury mentioned in its February Quarterly Refunding Statement that it had taken a number of steps over the past two years to improve liquidity in the TIPS market. and TIPS Issuance 2008:Q1 .00 (150. 2008 . was $1.00) (300. the Treasury Borrowing Advisory Committee continued to consider adding Floating Rate Notes (FRNs) to Treasury’s offerings.2 percent decline from $1.1 percent y-o-y. Treasury Securities Increases Quaterly Gross Issuance of U.0 billion and down 27.51 trillion issued during the same year-ago period.2 billion in net marketable debt was 9.2012:Q1 2.43 trillion in 1Q’12.600 1. Total first quarter net issuance of U.

04 percent from 0. and to continue reinvesting principal payments from its MBS holdings to support conditions in the mortgage market.S.3 pecent March pointing to a small improvement in the U.S. to continue extending the average maturity of its securities holdings. 2012 6 % Yield 2-yr Treasury 10-yr Treasury Fed Funds Target 5 4 3 2 After a very unstable second half of 2011. economy.4 billion in the prior quarter (6.2 percent increase) and $603. extended from mid-2013.84 percent and 10-year yields rose to 2.S.33 percent from 0. the rate has been 0 . 7 2011 2012 7 See SIFMA Government Forecast 2Q’12. the average daily trading volume increased. the U. the U.25% Source: Federal Reserve Treasury yields in 1Q’11 increased both on the front-end and back-end of the curve.8 percent drop).2012:Q1 800 700 600 500 400 300 200 100 0 2003:Q1 $ Billions After lower trading activity in 4Q’11. consumer spending increased by 0. Two-year yields increased to 0.3 percent in March.25 percent at least through late 2014. parallel with trading activity in other debt instruments in the first quarter of 2012.0 percent in December 2011. The unemployment rate fell to 8. Treasury Yields Increase 2004:Q1 2005:Q1 2006:Q1 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1 1Primary dealer activity Source: Federal Reserve Ban k of New York Treasury Yields and Target Fed Fund Rate Jan.Mar.0. 2012 the Federal Reserve indicated that the economic activity was expanding moderately. The Fed agreed: to keep the target Fed Funds rate at 0-0. Daily trading volume of Treasury securities by primary dealers averaged $544. 1 0 2003 2004 2005 2006 2007 2008 2009 2010 Note: Since December 2008. 6 . On March 13. economy showed small signs of improvement in 1Q’12. compared to $529.87 percent. primary dealers polled by SIFMA forecast benchmark two-year Treasury yields to decrease slightly going forward through the third quarter of 2012.7 percent on yearly bases in March. Consumer Price Index increased 2.22 percent from 1.2 percent in March. down from 3. five-year yields increased to 1. a three-year low.4 billion in the first quarter. while the yields of five-year and 10-year Treasuries are expected to first increase further in 2Q’12 but then decrease to decrease in 3Q’12. and the Conference Board Leading Economic Index increased by 0. 2003 . Looking ahead.25 percent in 4Q’11.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 Trading Volume Increases Over 6 Percent Average Daily Trading Volume of Treasury Securities1 2003:Q1 .3 billion in 1Q’11 (9.

Fannie Mae’s1Q’12 gross debt issuance. and $22 billion for the Farm Credit System.9 percent decline.3 billion. Discount notes outstanding experienced a decline to $181.5 percent y-o-y. whereas LTD issuance of $59. from 4Q’11 ($136.4 percent decrease from 4Q’11 ($152. 8 See SIFMA’s U. Freddie Mac. a 14.2) and end-March 2011 ($184. Total FHLB bonds outstanding were $476.6 billion) and a 30. A little more than $725. Total Farm Credit System bond issuance totaled $93.1 percent and 24. the federal agencies continued to move to long-term debt funding structure and continued to reduce short-term debt outstandings. generally in the form of discount notes.9 percent. gross coupon issuance was expected to be $48 billion for Fannie Mae. respectively.200 1. 2011 Q1 2012 1 Excludes maturities of one year or less * Beginning in 2004.5.2012:Q1 120 $ Billions Coupons Discount Notes The 12 Federal Home Loan Banks (FHLBs) issued $66.2 billion) and 1Q’11 ($139. both STD and LTD. 2012.0 percent below the $501. compared to the $37.7 billion) and 1Q’11 ($177 billion). Freddie Mac’s first quarter gross debt issuance totaled $130.S. and total debt outstanding ended the first quarter at $184. increases of 100 percent and 34.9 percent decrease from 1Q’11 ($189.6 percent y-o-y. Sallie Mae has been excluded due to privatization Sources: FHLB.2012:Q1 1.8 billion as of March 31.6 percent q-o-q and a decline of 57.6 billion. FCS Average Daily Trading Volume of Federal Agency Securities1 2004 .7 billion. $75 billion for the FHLBs. FHLMC. More generally. TVA. Primary dealers polled by SIFMA in the Second Quarter Government Forecast survey expected gross coupon issuance for the four largest Federal agencies (FHLB. Fannie Mae had $110.9 billion in short-term debt (STD).000 800 600 400 200 0 2004 2005 2006 2007 2008 2009 2010 2011 $ Billions Federal agency long-term debt (LTD) issuance was $152. Overall.5 percent q-o-q but up 14. As of quarter end.4 billion). totaled $104. a 6.6 billion daily average traded in the prior quarter.0 billion. FNMA. from 4Q’11 ($163.5 billion in LTD in the first quarter. 5. an increase of 80.5 billion).1 billion).2 billion) and 1Q’11 ($49.7 billion outstanding at the end of the fourth quarter and down nearly 13. respectively.5 billion was down by 20.5 percent y-o-y. Fannie Mae.9. percent drop q-o-q and down 48.9 percent and 13. was issued in 1Q’12. STD issuance declined to $45.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 FEDERAL AGENCY DEBT MARKET Agency LT Debt Issuance Continues to Decline Long-Term Federal Agency Debt Issuance1 2004 .400 1. from 4Q’11 ($33. Government Forecast 2Q’12 7 . down 23.2 billion.4 billion in the first quarter. average daily trading volume of agency securities (coupons and discount notes) increased in the first quarter to $42. SLMA. respectively.4 billion).7 billion at end-March 2012 from end-December 2011 ($190.6 billion LTD 100 80 60 40 20 0 2004 2005 2006 2007 2008 2009 2010 2011 2011 Q1 2012 1Prim ary dealer activity Sources: FRBNY outstanding.9 billion STD and $583.8 By agency. and the Farm Credit Systems) to be $195 billion for the second quarter of 2012. $50 billion for Freddie Mac.6 percent.6 percent y-o-y from $551.2 billion. a 26.3 billion as of March 31.

000 6. but 3 bps lower than 1Q’11’s 23 bps.8 trillion in 1Q’11.4 percent from 4Q’11 and an 11. 2010 .000 3.newyorkfed. This represents a 2. stood at $2.224 percent from 0.30 Percent Treasuries 0. a 2.org/tripartyrepo/margin_data.5 percent decrease from $1. 0.000 4.62 trillion in 4Q’11 and a 11.6 percent increase from $969 billion in 4Q’11.000 5.15 0.2 percent below the $2. and MBS Repo Rates Rise In 1Q’12.13 trillion outstanding in the first quarter. yet a 12. the DTCC General Collateral Finance (GCF) Repo Index rates increased for Treasuries. repo data is that provided by the primary dealers only: http://www. The repo rate for Treasuries (30year and less) increased to 0.Mar.500 4.00 Jan-10 Aug-10 Mar-11 Oct-11 Sources: The Depository Trust & Clearing Corporation Outstanding Money Market Instruments 2002 .000 500 0 2002 $ Billions Large Time Deposits Commercial Paper Financial and Nonfinancial CP 3-Month Interest Rates Rise Interest rates for financial and nonfinancial CP rose in the first quarter of 2012. 2 basis points (bps) higher than the 0. please refer to the Federal Reserve Bank of New York’s Tri-party Repo Reform website here: http://www.0 percent decrease y-o-y.20 percent at the end of 1Q’12.000 2.10 0. 2012 6 Percent Nonfinancial CP Financial CP 5 4 3 2 1 0 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Sources: Federal Reserve 9 As a reminder. The financial CP rate was 0.000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $ Billions Reverse Repurchases Repurchases The average daily amount of total outstanding repurchase (repo) and reverse repo agreement contracts decreased to $4.000 1.84 trillion in 1Q’12.html.90 trillion and a 0.500 3.203 percent from 0. 1. a 3. The rate for nonfinancial CP rose to 0.Mar. Large time deposits totaled $1.05 0.2012:Q1 4.000 2.500 1.18 percent in 1Q’12. 2012 0.2012:Q1 8.000 7. for agencies to 0.20 Total MMI Outstanding Falls The outstanding volume of total money market instruments (MMI).59 trillion at the end of the first quarter in 2012. and for MBS to 0.3 percent decrease y-o-y.117 percent. For a breakdown of tri-party repo data.newyorkfed.org/markets/gsds/search.187 percent from 0.500 2. CP outstanding totaled approximately $994 billion. including commercial paper (CP) and large time deposits.000 1. SIFMA estimates 2003 2004 Financial & Nonfinancial Commercial Paper 3-Month Interest Rates Mar. a decrease of 3.080 percent in 4Q’11.75 trillion.5 percent decrease y-o-y. Government Securities Dealers Average Daily Amount Outstanding 2002 . down 1.000 3.7 trillion in 1Q’12. Agency.cfm. but a 5 bps decrease from 1Q’11’s 0.6 trillion in 1Q’12. Reverse repo transactions averaged nearly $2.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 FUNDING AND MONEY MARKET INSTRUMENTS Total Repurchase Activity Falls9 Financing by U.S. agency debt and MBS. Daily average outstanding repo transactions totaled $2.25 Agency MBS 0. 2005 2006 2007 2008 2009 2010 2011 2012 Sources: Federal Reserve. 2006 .6 percent decrease from 4Q’11’s average of $4. Source: Federal Reserve Bank of NY DTCC GCF Repo IndexTM Jan.091 percent. Note: Data include corporate securities. 8 .18 percent in 4Q’11.23 percent.14 percent. 2011 Q1 2011 Q4 2012 Q1 Treasuries.7 percent decrease y-o-y.6 percent decrease from 4Q’11 and a 1. which represents a 4 bps increase from 4Q’11’s 0.8 percent from 4Q’11’s $2.

an increase of 27. Iowa Attorney General Tom Miller announced a $25 billion national joint federal-state accord over mortgage foreclosure abuses and fraud.2012:Q1 400 350 300 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 $ Billions Government Update In early February. respectively. including passthroughs. The Maiden Lane II portfolio. Thomson Reuters In 2011Q1.34 end-December on CMBX. totaled $486. from 4Q’11 ($459. a decline of 3.5 percent from 4Q’11. Issuance continued to remain predominantly from the CMBS space. Notably.2012:Q1 2500 $ Billions RMBS 2000 CMBS 1500 Non-Agency Issuance and Outstanding Non-agency issuance totaled $7. Outstandings continued to decline. with the TRX. Thomson Reuters U. the only issuer in the non-agency market since 2009.2012:Q1 2500 $ Billions Agency . Non-Agency Securities Outstanding 2004 . Dealogic.5 percent from 98. Average daily trading of non-agency CMBS and RMBS were $2.S. an increase of 5. 2011 Q1 2012 Source: Federal Reserve Bank of NY 10 See Maiden Lane Transations for more detail.2012:Q1 800 700 600 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 $ Billions RMBS CMBS Trading Activity Average daily trading of agency MBS. including agency and non-agency passthroughs and collateralized mortgage obligations (CMOs). the Federal Reserve began auctioning the assets of Maiden Lane II in the first quarter. and TBA.5 billion in the first quarter of 2012.0 billion in 1Q’12.6 percent and 5.3 percent and 130. respectively from 4Q’11 ($453.0 percent from 4Q’11 ($5.AAA).9 billion and $3.Other Agency MBS/CMO 2000 Non-Agency MBS 1500 1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2011 Q1 2012 Issuance of mortgage-related securities. selling down the entire portfolio by the end of February.3 billion in 1Q’12. Thomson Reuters Agency Issuance Agency mortgage-related issuance totaled $479. Non-agency residential mortgage issuance continues to remain relatively quiet. with an estimated $1. Non-agency commercial-backed mortgage securities (CMBS) issuance picked up again in the first quarter.2 billion. up 25.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 MORTGAGE-RELATED SECURITIES Mortgage-Related Market Issuance of Mortgage-Related Securities 2004 . S&P. Issuance of Non-Agency Mortgage-Backed Securities 2004 . and an independent monitor to ensure mortgage service compliance.5 billion) and 1Q’11 ($452. ABS outstandings were revised and certain securities in non-agency were moved to ABS categories. alt-A and option ARM securities as of the end of 2011. $3 billion to an underwater mortgage refinancing program. with two deals coming from Redwood Trust (Sequoia Mortgage Trust 2012-1 and 2012-2). new CMBS spreads have tightened significantly since end-December. Fitch Ratings.BBB) while CMBS AAA saw a small rise (to 94. On the other hand. in 1Q’12. The slight increase was largely due to increased issuance from Fannie Mae.9 billion).38 from 92. Sources: Federal Agencies.3 percent from 4Q’11.9 percent. was $305.2 billion). Numbers have been restated to reflect changes.89 on CMBX. CMOs. $5 billion to states and the federal government.9 percent and 4.7 percent in 4Q’11. but a decrease of 15.10 2011 Q1 2012 Sources: Bloomberg.4 trillion outstanding at end-March. Moody's. The settlement requires servicers to commit a minimum of $17 billion directly to borrowers through national homeowner relief effort options. SIFMA. was comprised primarily of non-agency subprime. Dealogic.II narrowing by 30 bps at end-March from end-December. an increase of 53. Average Daily Trading Volume of Agency Mortgage-Backed Securities 2004 .4 billion) and 1Q’11 ($466.78 end-March from 15. 1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD Sources: Loan Performance.5 percent from 4Q’11.9 billion).5 billion in 1Q’12.7 percent from 1Q’11 ($8.5 billion).3 percent increase. acquired during the financial crisis from various subsidiaries of AIG. a 5. respectively. Legacy CMBS BBB continued to see a drop in price (to 14. 9 . reducing the agency share of issuance slightly to 98.

S. $0. SIFMA ABS Issuance by Major Types of Credit 2012:Q1 Other.55B Equipment. continued to see negative net issuance. an increase of 50. an increase of 25. 0. compared to $4. 0% Structured Finance. The primary market for insurance-linked securities (ILS) also remained robust.71B Global funded CDO issuance totaled $5.8 billion in the first quarter of 2012.86B. with $25. 0% Other. Daily trading volumes averaged $1.53B Auto. credit card (3.00B. 0% Mixed Collateral. The U. According to Merrill Lynch indices. representing 17. an increase of 17.00B.54B Source: Thomson Reuters. 1. $4.1 percent.5 percent and 39. 0.00B.8 percent and 21. from 4Q’11 and 1Q’11. however. cell tower and utility securitizations were also brought to market. with the greatest declines in the structured finance CDO (6. 0.9 billion issued.853 percent in 4Q’11 and 1. 57% Investment Grade Bonds.7 percent) and manufactured housing (3. respectively.2 percent) sectors. $25. Both the auto and equipment sectors saw positive net issuance. 0% Source: Thomson Reuters 10 .2 billion and $273.g.2 billion. respectively.40B. 20 Market Value Synthetic Funded Cash Flow & Hybrid 15 10 5 0 08:Q1 08:Q3 09:Q1 09:Q3 10:Q1 10:Q3 11:Q1 11:Q3 12:Q1 Source: Thomson Reuters Global CDO Issuance by Underlying Collateral 2012:Q1 High Yield Bonds.8 percent from 4Q’11 and double the amount issued in 1Q’11. Credit Cards. Auto continues to lead issuance totals.2012:Q1 800 700 600 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 $ Billions Asset-backed securities (ABS) issuance totaled $45. collateralized loan obligation (CLO) market declined in 1Q’12..00B. while some relatively rare asset classes made it to market as well (e. Esoteric ABS issuance continued to remain relatively robust in the first quarter. from 4Q’11 levels.12B Manufactured Housing. $5. 1. up from 1. franchise.430 percent in 1Q’11.4 percent from 4Q’11. 0.7 billion sold (54. $2. Timeshare. 0.1 percent of total issuance in 1Q’12). with the second highest issuance total in 1Q’12 ($8. royalties). $7.5 percent.2 billion for 1Q’12.2012:Q1 25 $ Billions Trading Activity and Total Return Trading activity in ABS and CDOs saw a pick up in the first quarter from the sluggish fourth quarter.37B Student Loans.2 percent).069 percent in 1Q’12. with oustatndings increasing by 8.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 ASSET-BACKED SECURITIES AND CDOS Asset-Backed Market & CDO Issuance of Asset-Backed Securities 2004 . with $1.00B Collateralized Debt Obligations Home Equity.0 million respectively.7 percent). $0. SIFMA Global CDO Issuance by Transaction Structure 2008:Q1 .4 percent and 52. 43% High Yield Loans.7 billion in 4Q’11 and $410 million in 1Q’11. the total return for ABS and CMBS was 2. The remainder of ABS. 2011 Q1 2012 Source: Thomson Reuters. 0% Other Swaps.00B.

Corporate Option Adjusted Spreads to U.1 billion and 8.4 billion. 8. Financial companies remained the leading industry in IG debt issuance and accounted for over half (56. but excludes all issues with maturities of one year or less.6 billion in 1Q’11.0 billion issued in 1Q’11.5 billion in 4Q’11. composite spreads for both IG and HY bonds tightened in the first quarter of 2012. 2012 700 Basis Points AA-AAA Industrial BBB-A Industrial 600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bank of America Merrill Lynch U. the issuance of HY bonds for refinancing purposes jumped almost 35 times to $45.0 percent in 2011 and is forecasted by S&P to rise to 3.4 percent higher than $84. leading to relatively low default rates in 1Q’12. as well as the maturing debt from the Temporary Liquidtiy and Guarantee Program (TLGP). up from 2. when there were 111 downgrades versus 54 upgrades.200 $ Billions High Yield 1. economy continued to recover and worries about European sovereign debt crisis subsided. but up significantly from 1Q’11.2 billion in the previous quarter and increased by 12.7 billion from $1.S.S. or 25 percent of total issuance. Over half of total HY issuance during the quarter was directed toward refinancing or redeeming other bonds or notes. This represents a slight quarterly decrease in U. HY Issuance Triples Total corporate bond issuance totaled $402. issuers. a new record for the quarterly issuance of HY debt. The U.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 CORPORATE BOND MARKET Corporate Bond Issuance1 2000 .S.S.Yield Curves 7 % Yield 6 5 4 3 2 3/31/2012 3/31/2011 1 Years to Maturity 1-3 3-5 5-7 7-10 10-15 15+ Source: Bank of America Merrill Lynch S&P US Corporate Rating Actions 2012:Q1 2011:Q4 77 54 Upgrades 67 111 Downgrades 2011:Q1 81 49 2011 293 281 2010 232 175 Source: S&P Fixed Income Research 11 Fitch. and federal agency debt Source: Thomson Reuters U. issuers defaulted. The was a five-fold increase in IG bonds issued for the purposes of refinancing to $80. The issuance of corporate debt for refinancing purposes jumped over 8 times q-o-q.Yield Curves 6 % Yield Spreads Tighten. IG bond spreads finished the quarter at 204 bps. 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1 YTD YTD 2011 2012 Includes all nonconvertible debt. more than double the $190. The cost of HY borrowing decreased significantly from the beginning of October 2011. a significant improvement from the previous quarter. when only 4 U.2012:Q1 1. CDs.4 percent y-o-y.3 billion issued last quarter and up 11.2 percent below its 5-year moving average of 720 bps. The market remains open to HY issuers.7 percent) of the IG bonds issued in 1Q’12.9 billion in 1Q’12. when the speculative-grade spread reached 830 bps. defaults from 19 in the last quarter. issuance of corporate debt increased but the main driver of the jump was due to maturity wall concerns.4 percent in 1Q’12. Q1 2012 U. 5 4 3 2 1 3/31/2012 3/31/2011 0 Years to Maturity 1-3 3-5 5-7 7-10 10-15 15+ Source: Bank of America Merrill Lynch U.3 billion in 4Q’11.3 percent from $277.9 percent lower than 224 bps at the end of 4Q’11 and 14.S. MTNs Yankee bonds. IG bonds’ issuance doubled in 1Q’12 to $311.000 Investment Grade Corporate Bond Issuance Doubles. The issuance of HY bonds stood at $91. Default Rates Decrease Slightly According to S&P.S.3 percent lower than 721 bps in 4Q’11 and 13.1-10 Year Jan. finishing 1Q’12 at 625 bps.11 Demand for HY bonds was exceptionally high in the first quarter of 2012 due to issuers trying to get ahead of the maturity wall. reaching $126. As the U. nearly triple 4Q’11’s $34.S.2 billion in 1Q’12 from $13.3 percent for full year 2012. Leveraged Market Quarterly 11 . 13. and TLGP debt.Mar.0 billion in 1Q’12. HY bond spreads also narrowed.8 billion from $156.S.6 percent below its 5year moving average of 239 bps.S. Corporate: AAA . 15 of which were based in the U. Corporate: BBB . The majority of defaults were due to a missed interest or principal payment or because of bankruptcy filings. In 1Q’12 S&P Ratings Services downgraded 67 and upgraded 77 U.S. corporate default rate stood at 2. S&P’s Global Fixed Income Research reported 25 issuers defaulted worldwide in 1Q’12. Treasury .S. 2000 .

with the average daily trading volume of IG bonds increasing to $14.0 percent from $13. 12 .5 percent from $9. 0 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Source: FINRA The steep increase in IG and HY bond trading volume was due to subdued trading in the previous quarter. 2008 .6 billion in 4Q’11 but off slightly by 1.RESEARCH QUARTERLY TRACE Average Daily Trading Volume .0 billion but 26. up 39.2 billion.1 billion.1 billion. 2012 22 20 18 16 14 12 10 8 6 4 2 Convertibles High Yield Investment Grade $ Billions RESEARCH REPORT | 1Q | 2012 Trading Volume Increases Sharply in 1Q’12 According to the FINRA TRACE data.2 percent higher than $5.4 percent lower than the average trading volume of $1.4 billion and the highest monthly average on record (records date back to January 2005). a 57.1 percent increase from $3.4 billion. CVs trading volume stood at $1.Corporate Bonds Mar.5 billion in the fourth quarter and 5.5 percent above the year-to-date average of $11.3 billion and highest monthly volume since January 2010. Similarly.2 billion in the same year-earlier period. HY average daily trading volume rose to $5. February 2012 was a particulary active month in corporate bond trading.6 billion in 1Q’11. 46.Mar. 11.5 billion in 1Q’12. 24.5 percent above 4Q’11’s $1. the average trading volume of HY in February rose to $6. trading volume for IG. The average daily trading volume of CVs increased as well. In 1Q’12.6 percent above the year-to-date average of $2. IG average daily trading volume increased to $13.5 billion a year ago. HY and convertible bonds (CVs) increased significantly in the first quarter of 2012.

During the quarter.9 percent below the previous quarter’s $40.000 Daily Closing Stock Prices Mar.000 0 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 Sources: NASDAQ.47.2 percent increase y-o-y.2012:Q1 180 160 140 120 100 80 60 40 20 0 $ Billions NASDAQ NYSE 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 Sources: NASDAQ.6 billion in 1Q’11.500 1. an 8.4 billion shares.8 percent below 1. S&P NASDAQ and NYSE Average Daily Share Volume 2007:Q1 .3 percent of total shares outstanding) at the end of 1Q’12.000 1.2012:Q1 6.2 percent increase from 1Q’11. 12 During the quarter.000 NYSE 4.18 billion shares in 2Q’01.9 billion in 1Q’12. 2012 2. 3. DJIA reached 13. NYSE & NASDAQ Daily Share Volume Drops Sources: NASDAQ.3 percent y-o-y.408.5 percent decrease y-o-y.5 billion shares. The dollar trading volume increased to $54.8 billion shares in 1Q’12 but decreased by 12. short interest fell to as low as 12.000 The New York Stock Exchange’s (NYSE) 1Q’12 average daily share volume decreased to 1.6 billion shares (3. up 10.091.04.000 NASDAQ Composite S&P 500 500 2007 2008 2009 2010 2011 2012 The S&P 500 closed the first quarter at 1. The Dow Jones Industrial Average (DJIA) increased as well.Mar. down 5. an 18. economy showed small signs of improvement and the anxiety about the European sovereign debt crisis seemed to fade.3 billion at the end of last quarter and 2.000 1.000 Millions of Shares NASDAQ 5.1 percent from the 1Q’11’s $55.9 billion at the end of 1Q’11.500 2.7 billion.1 percent increase q-o-q and 7.S. NASDAQ’s average daily share volume stayed flat at 1.57.9 percent below the previous quarter’s 1. 2007 .000 for the first time since 2008.2 billion shares. The NYSE’s average daily dollar volume decreased as well.1 percent 12.6 billion in 1Q’12.7 percent increase from 4Q’11 and an 11. 2007 . 7. NYSE Short Interest Decreases by Five Percent The number of shares sold short on the NYSE Group stood at 12.4 billion in the previous quarter but down 2. and the lowest quarterly average daily share volume on NYSE since 1.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 EQUITY AND OTHER MARKETS 3. 14. finishing 1Q’12 at 13.1 percent from 13. The average dollar volume stood at $36.Mar. 2012 20 Billions of Shares 18 16 14 12 10 8 6 2007 2008 2009 2010 2011 2012 Source: NYSE 12 NYSE Group Short Interest Report 13 . on February 21. NASDAQ & NYSE Average Daily Trading Volume 2007:Q1 .0 percent increase from last quarter and 6.2 percent up y-o-y.1 billion and a 24. the lowest level since the end of October 2007 when short interest was12. NYSE NYSE Short Interest Mar. The NASDAQ Composite Index finished the first quarter at 3. a 12.000 2.4 billion and 23.4 percent from $49. Equity investors recorded quarterly gains as U.212.

2 percent and 63.500 400 2. respectively).2012:Q1 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 0 Source: Thomson Reuters 30 20 10 40 $ Billions # of Deals Volume Deals 70 60 50 80 Secondary Offerings Increase Secondary market issuance more than doubled in 1Q’12 to $44.9 percent. Inbound” M&A ( money invested in U.2 percent below the $76. December 27.411 in 4Q’11.4 percent below than the 5-year moving average of $60. IPO Volume Decreases. both institutional and individual investors are looking for a respite from market turbulence and a return to predictability. Mergers and Acquisitions Announced Deals 2007:Q1 .S. companies by those outside the US through M&A deals) decreased by 30. According to Dealogic the leading sector in IPOs in 1Q’12 was computers and electronics.S.1 billion. the amount “U.000 300 1. up 56. Remains below Five-Year Average “True” initial public offerings (IPOs). The average deal value for the quarter increased to $229. rising to 2.8 billion on 195 deals from $21. IPO activity remained subdued in the first quarter of 2012 as the economic recovery continues at a moderate pace without strong signs of a turnaround.5 million from $177.500 200 1. According to the KCSA Strategic Communications’ 2012 IPO Outlook survey.2 percent decrease from $7.13 "True" IPO .1 percent from 180 deals in 4Q’11.0 percent below the 5-year moving average of $256.0 billion.1 billion on 119 deals in 4Q’11 (an increase of 112.2012:Q1 120 $ Billions # of Deals 300 Volume 100 Deals 250 80 200 Announced M&A Volume Decreases by 61 Percent Despite some signs of improving U. Secondary Stock Offerings 2007:Q1 .1 billion.S.6 billion and 4.2 percent in dollar volume and 16.0 billion.. total equity underwriting volume increased by 88.0 billion in deals outside of the U. the dollar amount U. which exclude closed-end mutual funds. down 60.2 billion total in 1Q’11 and is 1.3 billion in 1Q’12. but was still 22.2012:Q1 600 $ Billions # of Deals Volume 500 Deals 3.000 100 500 0 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 0 Source: Dealogic 13 KCSA 2012 IPO Outlook. decreased in 1Q’12 to $6.7 billion in 4Q’11.0 billion in the previous quarter.Excluding Closed-End Funds 2007:Q1 . According to data from Dealogic. a 29.4 percent to $59.2012:Q1 120 $ Billions # of Deals 400 350 100 300 80 250 60 200 150 40 100 20 Volume ($ Billions) Deals 0 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 50 0 Source: Thomson Reuters After a relatively slow 4Q’11.S.9 percent.2 million in the previous quarter. 29.7 percent to $29. causing the average deal size to fall considerably. the investors remained hesitant given the still uncertain economic outlook and lingering worries about the European sovereign debt crisis.S.4 percent above the $24.. economy. followed by finance and auto/truck sectors.4 percent decrease from 45 deals in the previous quarter.The volume of equity underwriting increased in 1Q’12 as the economy showed small signs of recovery.500 2.S.674 this quarter from 2.7 percent from the previous quarter’s $163. Announced U. Despite a large q-o-q increase secondary issuances were down 13. mergers and acquisitions (M&A) volume in 4Q’11 stood at $64.: American firms invested $32. a 13. 14 .S.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 Equity Underwriting Increases by 88 Percent Total Equity Underwriting 2007:Q1 . companies invested in other countries increased. The number of deals increased as well: there were 281 equity underwriting deals.7 percent down in number of deals y-o-y.6 billion on 47 deals. 60 150 40 100 20 50 0 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 0 Source: Thomson Reuters U. The number of deals increased by 10. On the other hand.000 3.5 percent rise. 2011. Announced M&A volume declined to the lowest quarterly level since our records started in 1Q’00 and stood 75.8 billion from $43.

000 800 600 4. NASDAQ share repurchases increased by about 30 percent both in volume and number of deals. Compared to 1Q’11.S. followed by biotechnology with $0. 2007 .Mar. Money Tree Report First Quarter 2012 Press Release. according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA). SPX Volatility Index (VIX) Close Mar.14 Quarterly investment activity decreased by 18.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 P/E Ratio Increases. NASDAQ’s buybacks stood at $31.2 percent y-o-y and is 35.52 in June 2011.000 0 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 Investment # of Deals 400 200 0 Source: Pricewaterhouse/Venture Economics/NVCA MoneyTree Survey 14 15 PriceWaterhouseCoopers.2 percent below the quarterly high of 22. 15The software industry remained the single largest investment sector in 1Q’12 with $1.200 1. The index has been showing a general downward trend since the beginning of October 2011.5 billion on 104 deals in 1Q’12.9 but 12. the number of deals declined by 15.1 billion was invested in 889 deals.5 percent. Decrease on NASDAQ 2008 2009 2010 2011 Source: S&P 12 10 2007 NASDAQ and NYSE Share Buybacks 2007:Q1 .5 in the first quarter of 2012 from 23.Mar.5 billion while the number of deals decreased 34.8 percent to 15.000 2.000 6. 40 30 20 10 0 2007 2008 2009 2010 2011 2012 Source: Chicago Board of Options Exchange Venture Capital Investments in U. 16 14 Buybacks Increase on NYSE.7 percent in number of deals compared to the fourth quarter of 2011 when $7.9 in 1Q’12. While the volume of buybacks increased by 43. 15 . Companies 2007:Q1 .000 5. The S&P 500’s P/E ratio decreased by 9.8 billion in 758 deals in the first quarter of 2012.2012:Q1 160 140 120 100 80 60 40 20 0 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 Source: Dealogic $ Billions NYSE NASDAQ The volume of corporate share repurchases on NYSE totaled $99.5 percent decrease from 4Q’11’s $35. Remains below Five-Year Average S&P 500 P/E Ratio Mar.3 percent in dollar terms and by 14.4 in 4Q’11. translating into a near doubling of the average deal size.000 1. Compared to the first quarter of 2011 NYSE share buybacks decreased by 1.9 billion.000 7. 2012 70 60 50 Venture Capital Decreased in 1Q’12 Venture capitalists invested $5.000 8. According to MoneyTree™ Report VC funding also continued to decrease due to the industry consolidation and many seed stage companies being funded in stealth mode forming a pipeline not yet visible to the public eye.000 3.9. 2012 24 22 20 18 The S&P 500’s P/E ratio averaged 13. Venture capitalists remained cautious after a disappointing 4Q’11 results.000 $ Millions # of Deals 1. the lowest monthend value since 16. a 12. up 7.4 billion on 123 deals in 4Q’11.1 billion in 1Q’12.6 billion in received funding. The P/E ratio’s qoq was a reflection on a slightly more stable financial markets and small signs of economic recovery in the first quarter of 2012.2 percent below the 5-year average of 15. Zacks Investrment Research expects the VIX to remain in the 15 to 25 range with occasional spikes towards the high end of that range but generally trending towards the mid-point and below.9 percent in number of deals. CBOE VIX Index Falls 34 Percent The Chicago Board Options Exchange Volatility Index (VIX) fell by 33. compared to $69. Ibid.4 percent. 2007 .8 percent from the previous quarter’s average of 12.1 in 4Q’09.4 percent to 82.1 percent in volume but increased by 20.2012:Q1 9.

8 billion).S.15 trillion. Interest rate contracts and other products (unallocated in the BIS report) experienced decreases.6 trillion outstanding (down 8. including single names. the overall number of outstanding contracts for sovereign referenced entities increased since 4Q’11. the gross notional value of outstanding interest rate swaps (IRS) at the end of March was $486. $3. the gross credit exposure of outstanding OTC derivatives increased from endJune 2011 to end-December 2011.000 $ Billions 35. Aside from sovereigns and financials. The Office of the Comptroller of the Currency (OCC) Quarterly Report provides a more recent snapshot.2 billion (down 29 percent q-o-q) and to $115.000 510. commercial banks and bank holding companies.6 percent to $6. Spain ($17. The net credit exposure basis for the top 25 U. Source: TriOptima CDS Market Risk Activity By Sector.000 520. The number of contracts outstanding decreased slighlty q-o-q to 4.0 trillion.3 percent).3 percent) and cap/floor swaps (down 3. Gross Notional Amounts Outstanding: OTC Derivatives Dec.000 0 12/30/11 1/20/12 2/10/12 3/2/12 3/23/12 Source: DTCC Credit Default Swaps According to DTCC.000 530.4 percent). down 2.3 percent y-o-y.000 20.1 trillion (down 8.6 percent q-o-q to $1.2 percent).000 30. the gross notional value outstanding of credit default swaps (CDS).000 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Source: TriOptima $ Billions Thousands 4.350 4. Gross Notional Value of Interest Rate Swaps March 30. led by Italy ($33. Equity-linked contracts.5 percent q-o-q).2 percent from 3Q’11). inflation swaps.000 Interest Rate Swaps According to TriOptima data.8 percent).55 trillion end-March from $25.98T Source: BIS Semiannual OTC Derivatives Statistics (end Dec.300 4. $504. while on a net notional basis. $42. bank holding companies.5 percent from end-June 2011). 2011) Interest Rates. but declined 1. Though activity was concentrated in sovereign ($252. bank holding companies was $304.000 480. the outstanding value increased by 3.000 490. while decreases were found in OIS (down 11.000 470. 2011 .000 50. activity decreased in consumer services to $107.6 percent to $26. Percent from 3Q’11). the gross notional value of OTC derivatives outstanding held by the top 25 U.8 trillion (a decrease of 5. tranches and indices. according to the FFIEC.0 billion) and financial ($221. totaled $1.100 4. “vanilla” interest rate swaps (down 3. Single-name CDS outstanding increased on a gross notional basis by 4.0 billion in consumer goods (down 4.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 DERIVATIVES Gross Notional Value of Interest Rate Swaps March 2011 .9 percent) and $42.050 Gross Notional Outstanding Trade Count (right) 4.5 trillion.S. Weekly Dec. Although the gross notional amount outstanding for all risk categories and instruments decreased. 2012 250.Mar. dropping to $504.000 100. saw the largest decrease in gross notional outstanding during that period.3 billion).2 million (down 1. respectively.2 trillion. respectively. The most often referenced entities booked by gross exposures were concentrated in European sovereigns.61T Commodities. up 31.250 4.000 Utilities Technology Industrials Government Consumer Services Telecommunications Oil & Gas Health Care Financials Consumer Goods 150.2 billion) and France ($13.200 4. and Portugal. which is estimated to represent only 36 percent percent of the total market.63T FX.8 percent). Increases in the number of contracts were concentrated in FRA (up 24. Spain.000 3.950 3.10T CDS. 16 .000 15.0 percent q-o-q to $15. the gross notional amount outstanding of OTC derivatives totaled $647. $5. swaps exotic and cross-currency swaps were offset by decreases in overnight indexed swaps (OIS) and “vanilla” IRS. implying further hedging on outstanding exposures. increased by 2.000 460. however. dropping 12.000 40. According to the most recent report.4 percent from end-December’s $498. from 4Q’11. a relatively small category.1 trillion in the fourth quarter of 2011 (down 1.88 trillion end-December.9 trillion. these sectors saw decreases of 50.000 10.5 percent. including France.35T Equities.000 25.000 540.1 billion) reference entities.000 $ Millions 200. but only of activity in the United States by the largest U. 2012 OIS Swaption Basis Swap Cap/Floor CC-Swap Swap Exotic Inflation Swap Option Exotic CC-Swap Exotic Debt Option Callable Swap 0 5.March 2012 550.7 percent) and basis swaps (up 7.8 trillion as of end-December 2011 (down 8. Increases in forward rate agreements (FRA).6 trillion.76Trillion Unallocated. $28. 201 $647.10T Sovereign CDS outstanding decreased on a net notional basis q-o-q for many Eurozone sovereign reference entities. $63.S.150 4.7 percent to $3.000 500.900 According to the most recent Bank of International Settlements (BIS) Semiannual Over-the-Counter (OTC) Derivatives Markets Statistics Report (May 2012).6 percent and 35.

RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 PRIMARY LOAN MARKET 16 Global Syndicated Loan Market Volume 2009 . Despite a 9 percent decrease in lendingin 1Q’12 ($180.1 billion borrowed during the same period in 2011.943 deals. falling to $170. compared to the $54.0 billion in 1Q’12.9 billion from a four-year high of $217. For any questions.6 billion. nearly double the 7 percent share from 1Q’11.000 2.2012:Q1 180 160 140 120 100 80 60 100 40 20 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2012 2009 2010 2011 50 0 250 200 150 $ Billions Deals 350 300 Volume No.2012:Q1 1. a 20 percent increase on 1Q’11. Chung.2012:Q1 40 35 30 25 20 15 10 5 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2012 2009 2010 2011 $ Billions Rest of World USA Deal Types Investment grade (IG) loans stood at $462. down 13 percent from 1Q’11.4 billion).1 percent). compared to the $606. Source: Dealogic 16 The author of the Primary Loan Market discussion is Dennis K.6 billion in 1Q’12.5 billion). fell to $41.0 billion. Dealogic. and accounted for 63 percent of 1Q’12 global syndicated loan volume. Global leveraged loan volume reached $254. Deal activity in 1Q’12 fell to 1.000 500 0 $ Billions Investment Grade Leveraged No. please email Dennis.000 Global syndicated loan volume in 1Q‘12 reached $732. US leveraged borrowing also declined in 1Q’12.Chung@dealogic.4 billion). 17 . In contrast. the technology sector led all industries in 1Q’12 for the first time on record with a 12 percent share of syndicated loan volume ($65. EMEA lending ($147. of Deals Use of Proceeds Refinancing & Debt Repayment volume accounted for 34 percent of global loan volumes in 1Q’12. down 16 percentage points from the same period in 2011. and the third-consecutive first-quarter drop since 1Q’08 when IG volume accounted for 86 percent. Source: Dealogic LBO Market Volume 2009 . Asia-Pacific 1Q’12 leveraged loan completion stood at $21. The 254 EMEA loans signed in 1Q’12 were the lowest number on record and nearly half the 451 signed in 1Q’11.0 million average deal size was the smallest since 3Q’10.2 billion of lending in 1Q’11. a 16 percent decrease on the $302.200 1.500 2.com. by 117 percent and 63 percent. telecom ($37.2 billion.9 billion. and a 20 percent decrease from 1Q’11 volume of $910.5 billion). of Deals Deals 3.6 billion) saw the largest market share decreases from 1Q’11. Among corporate borrowers. loans for General Corporate Purpose and Working Capital combined for 40 percent of total 1Q’12 loan volume.5 billion). European leveraged loan volume.500 600 400 200 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2012 2009 2010 2011 1. the lowest firstquarter proportion since 1Q’07(51 percent).1 billion) and healthcare ($25.2 billion) accounted for a record-low 20 percent share in 1Q’12 compared to the previous low of 25 percent set in 2Q’02. Regional Breakdown The Americas accounted for a 55 percent market share of 1Q’12 global syndicated loan volume marking three-consecutive first quarters of growth. 1Q‘12 total loan syndication was the lowest quarterly volume since 3Q’10 ($719. the Asia Pacific region accounted for 25 percent of global quarterly volume marking the region’s highest quarterly proportion since 1Q’10 (30 percent).400 1. respectively. the lowest first quarter total since 2010 ($543. Among the top ten industries. however. and the highest quarterly volume total since 1Q’08 ($25. and accounting for the largest first-quarter share since 1Q’03 (56.000 800 1. and was the lowest first-quarter proportion since 1Q’09 when refinancings accounted for 28 percent of quarterly volume. and the highest first quarter proportion since 2008 (34 percent).8 billion in 1Q ’11. a 12 point percentage point increase on 1Q’11. while the $377.6 billion lent during the same period in 2011. Source: Dealogic Sponsor Related Loan Market Volume 2009 .

accounting for a record 81 percent of the quarter’s sponsor-related loan volume.1 billion) and Asia Pacific ($581m) each decreasing 63 percent on the same period 2011 Europe. Middle East.7 billion completed in 1Q’11. which was below first quarter European loan pricing for the first time since 2008. the highest first quarter U. The average pricing on European loans reached 345 bps in 1Q’12. U. loans was 316 bps.S.S. the lowest first-quarter proportion on record. 18 .5 years. the highest first quarter average margin on record (1Q’10: 328bps). the longest average maturity and lowest pricing for first quarter loans since 2008 (4. In contrast. European sponsor-related loans ($14. sponsor-related loan volume rose to $74. 222 bps).0 billion completed in 1Q’11.9 billion. Each of the three world regions experienced a decline in LBO-related loan volumes compared to 1Q’11.4 billion) accounted for 16 percent of 1Q’12 volume.3 billion in 1Q’12. Tenors & Pricing The average tenor on a 1Q’12 syndicated loan was 4. Global leveraged buyout (LBO) loan volume in 1Q’12 totaled $17.5 billion in 1Q’12. a 44 percent decrease on the $32.S. The average 1Q’12 pricing for U. proportion on record.8 billion in 1Q’11 despite having accounted for 62 percent of total 1Q’12 global LBO loan volume – the region’s highest first-quarter proportion of the total since 2006 (63 percent).3 billion from $13.4 years with an average pricing of 306 bps. and Africa(EMEA) LBO volume fell to $11.RESEARCH QUARTERLY Financial Sponsor & LBO Loan Volume RESEARCH REPORT | 1Q | 2012 Global sponsor-related loan volume totaled $91. with the Americas ($6. down 29 percent on the $141.

Research General Research Contact: research@sifma. Director of Research SIFMA RESEARCH Charles Bartlett . Director of Statistics Sharon Sung – Director.RESEARCH QUARTERLY RESEARCH REPORT | 1Q | 2012 Kyle Brandon Managing Director. Research Justyna Podziemska – Analyst.Vice President. Capital Markets Craig Griffith – Analyst. Capital Markets Timothy Cummings – Analyst. Capital Markets 19 .org SIFMA CAPITAL MARKETS Joseph Cox – Analyst.

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