13 March 2013 Economics Research

http://www.credit-suisse.com/researchandanalytics

US Economics Digest
US ECONOMICS
Research Analysts Neal Soss +1 212 325 3335 neal.soss@credit-suisse.com Dana Saporta +1 212 538 3163 dana.saporta@credit-suisse.com

FOMC Meeting Preview – If You Like the Show, Don’t Change the Channel
 Federal Reserve officials presumably are pleased with market and economic developments since QE3 commenced in September. Equities have rallied, job growth has strengthened, and household confidence is building.  Admittedly, the direct influence of QE3 on these welcome trends is difficult to quantify. And several FOMC participants have voiced increasing discomfort with continued easing. But the core members of the Committee have already signaled their preference for more asset purchases, and the majority of voting members likely will support them.  The FOMC meets March 19-20. We expect no change in the $85bn monthly asset purchase pace for now, especially with sequester layoffs a reasonable consensus forecast. The Committee likely will reaffirm the policy thresholds it introduced in December. An update to the exit strategy is possible, too.  We are finally seeing building evidence that the household risk aversion that persisted through the post-recession period is diminishing. Consumers have stepped up their pace of borrowing and are venturing out the risk curve in choosing their investments.  Bernanke said in recent Congressional testimonies that if QE3 appears to be working, the Fed will keep purchasing assets. If not, the Central Bank will try something different. The circumstantial evidence suggests that the low interest rates engineered by the Fed are, slowly but surely, having their desired effect. This implies that it’s still full speed ahead for QE3.

Exhibit 1: US Households Beginning to Take On More Risk
Change in debt outstanding, household sector*, SAAR, $bn

1500 1200 900 600 300 0 -300 -600 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Source: Federal Reserve, Credit Suisse * Sector includes domestic hedge funds, private equity funds, and personal trusts.

Mortgages
Consumer Credit

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13 March 2013

FOMC Meeting Preview – If You Like the Show, Don’t Change the Channel
Federal Reserve Chairman Bernanke said in his Congressional testimonies last month that if QE3 appears to be working, the Fed will keep purchasing assets. If not, he asserted, the Central Bank will try something different. Fed officials presumably are pleased with market and economic developments since the current asset purchase program commenced in September 2012. The S&P 500 equity index has rallied some 6% in six months. Job growth has strengthened. And, as we explore in more detail below, household risk aversion – so evident throughout the sluggish recovery – is finally showing signs of thawing. Admittedly, the direct influence of QE3 on these welcome trends is difficult to quantify. And it is true that several vocal FOMC participants are becoming increasingly uncomfortable with continued easing. But the core members of the Committee – including Bernanke and Vice Chair Yellen – have already signaled their preference for still more balance sheet expansion, and the majority of voting members likely will support them. The FOMC next meets on March 19-20. We expect the Committee’s March 20 policy statement to convey the Fed’s intention to continue purchasing MBS and long-term Treasury debt. We see no changes in the $85bn/month asset purchase pace for now, especially with sequester-related layoffs a reasonable consensus forecast. The FOMC likely will reaffirm the economic thresholds it introduced in December. An update to the Fed’s exit strategy – first laid out in June 2011 – is also possible as soon as March 20. We expect any new policy normalization plan to retain the potential for – but downplay the inevitability of – outright asset sales from the Fed’s portfolio. Results of next week’s meeting will be released in three stages. The FOMC policy statement will hit the newswires at about 12:30pm EDT on Wednesday, March 20. This will be followed by updated FOMC economic and fed funds rate projections at 2:00. Chairman Bernanke will then hold a press briefing at 2:15.

Policy slowly gaining traction
We still anticipate the Fed’s open-ended purchase program (QE3) will persist through 2013 and perhaps into early 2014, though probably not in its current form. QE3 allows for flexibility in the size of the monthly purchases, and it may be that the Fed will choose to decrease the size of its purchases later this year, say to $30bn each in Treasuries and MBS. Such a scenario would bring us to just over the $1.1 trillion mark in balance sheet expansion by March 2014 (if we include all 2012 MBS purchases).

Exhibit 2: FOMC to Continue Purchasing $85bn/month, At Least for Now
Credit Suisse forecasts, $bn

Quarter Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013* Q4 2013 Q1 2014 TOTAL
Source: Federal Reserve, Credit Suisse

MBS purchases 23 40/mo 40/mo 40/mo 40/mo thru mid-Sep. 30/mo 0 588

Treasury purchases 0 0 45/mo 45/mo 45/mo thru mid Sep. 30/mo 30/mo 583

Total 23 120 255 255 180 180 90 1171

* Forecasted cut in asset purchase size at the September 17-18, 2013 FOMC meeting.

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13 March 2013

A look back at the initial objectives of the Fed’s asset purchases, beyond the emergency restarting of paralyzed markets in 2008-09, suggests that the monetary policy medicine is working largely as desired, albeit slowly. As Bernanke explained in August 2010: “I see the evidence as most favorable to the view that [the Fed’s asset] purchases work primarily through the so-called portfolio balance channel, which holds that once short-term interest rates have reached zero, the Federal Reserve's purchases of longer-term securities affect financial conditions by changing the quantity and mix of financial assets held by the public.” Or, in other words, by pursuing extremely low yields for relatively “safe” assets, the Fed sought to encourage more risk-taking behavior among both institutional and individual investors. Appreciation in corporate bond and equity prices, it was theorized, would in turn promote a virtuous cycle in which demand, investment, and – importantly – job growth would strengthen. The US recovery from the great recession is already nearly four years old, and we are finally seeing building evidence that the household risk aversion that persisted through the post-recession period is diminishing. Consumers have stepped up their pace of borrowing and are venturing out the risk curve in choosing their investments. Data released just over the past few weeks – from the New York Fed, the Federal Reserve Board, and the Investment Company Institute – illustrate this point. In its Q4 report on Household Debt and Credit, the NY Fed announced that aggregate consumer debt increased slightly in Q4-2012, by $31bn, a reversal from the downward trend that has been in place since late 2008. As of December 31, 2012, total consumer indebtedness was $11.34tr, 0.3% higher than its level in Q3. (But overall consumer debt remains considerably below its peak of $12.68tr in Q3-2008.)

Exhibit 3: Total Household Debt Balance and its Composition
$ trillions

Source: FRBNY Consumer Credit Panel/Equifax, Credit Suisse

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This modest increase in consumer debt was driven by the third consecutive quarterly rise in non-housing-related debt, with auto loans up by $15bn; student loans up by $10bn (to $966bn), and credit card balances up by $5bn. Mortgages, the largest component of household debt, were roughly flat, and home equity lines of credit (HELOC) declined in the fourth quarter (Exhibit 3). The report noted that overall, delinquency rates continued to improve in Q4. As of December 31, 8.6% of outstanding debt was in some stage of delinquency, compared with 8.9% in 2012Q3. About $978bn of debt is delinquent, with $712bn seriously delinquent (at least 90 days late or “severely derogatory”). While overall delinquency rates are now back to pre-recession levels—around 8-1/2%— they are still well above the 3-5% rates that prevailed in the first half of the 2000s. A glaring exception to the delinquency improvement is student loans (Exhibit 4). The 90+ day delinquency rate on student loans continues to rise and now stands at 11.7%. Note that according to the NY Fed, “these delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in grace periods, in deferment, or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle, delinquency rates are roughly twice as high.” NY Fed Director of Research James McAndrews cast the data in a positive light. He said, along with some positive economic developments, “there has been a notable increase in risk appetite among financial market participants over recent months, although there was some pull-back and volatility this week following the election results in Italy.” McAndrews added that “data indicate that the recent improvement in the housing market was accompanied by a slight increase in the level of household debt. While it is too soon to conclude that a trend has been established in which households are beginning to increase their debts again, there are signs that the four-year long contraction is slowing.”

Exhibit 4: Loan Delinquencies Trending Lower with One Glaring Exception
Percent of household loan balance 90+ days delinquent

Source: FRBNY Consumer Credit Panel/Equifax, Credit Suisse

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13 March 2013

Back Where We Started
The Federal Reserve Board’s “Flow of Funds” report, released on March 7, tells a similar story. Households in the aggregate continued to pay down mortgages through 2012. But mortgage debt in Q4 contracted at the slowest pace since 2009. Meanwhile, consumer credit growth is gaining momentum, although again the student loan aspect of this debt increase is worrisome.

Exhibit 5: Household Beginning to Take On More Risk
Change in debt outstanding, household sector*, SAAR, $bn

1500

1200
900 600 300 0 -300 -600 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Source: Federal Reserve, Credit Suisse * Sector includes nonprofits, domestic hedge funds, private equity funds, and personal trusts.

Mortgages Consumer Credit

How do we explain this increase in household borrowing? For one, increased access to credit may be playing a role. Faster income growth is probably another factor. A third possible explanation is the fact that households, in the aggregate, have nearly regained the wealth they lost during the Great Recession.

Exhibit 6: Household Wealth Nearly Back to 2007 Peak
Household sector net worth*, $ trillions

70 60 50 40

30
20 10 0 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11
Source: Federal Reserve, Credit Suisse * Sector includes nonprofits, domestic hedge funds, private equity funds, and personal trusts.

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The difference between household assets and liabilities at the end of December 2012 was reported at $66.1 trillion, some $1.2tr more than at the end of the previous quarter. In comparison, the $2.9tr rise in Q1-2012 was the biggest jump in household wealth since Q4-1999 ($3.5tr).

Exhibit 7: Selected Household Sector Asset Values*
$ trillions

55

44

33

Financial assets

22

11

Real estate assets

0 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11

Source: Federal Reserve, Credit Suisse

* Sector includes nonprofits, domestic hedge funds, private equity funds, and personal trusts.

In Q4, the value of corporate equities and mutual funds owned by households increased by about $130bn, and there was a $480bn increase in the value of real estate owned by households. This was the largest jump in real estate values since Q1-2006. Household wealth is just $1.3tr (or 2%) below its Q3-2007 peak. Assuming home prices don't fall this quarter and equities hold on to most of their gains for another two weeks, wealth likely will hit a new high in Q1-2013. How recent increases in household wealth will translate into near-term spending is an interesting question. Our recent work on the wealth effect suggests that changes in housing wealth have a greater influence on consumer spending than changes in stock market wealth. But wealth effects appear to have shrunk since the 2007-2008 financial crisis, and more so for housing wealth than for stock market wealth. One implication of this result is that the Federal Reserve will need to “engineer” even larger bull markets in house prices and stock prices for any given desired pick-up in economic growth. (See our February 13, 2013 US Economics Digest: Honey, I Shrunk the Wealth Effect.) There are several potential explanations for our estimate of a smaller housing wealth effect since the last financial crisis, including the following: Since the housing bubble burst in early 2006, housing wealth volatility has remained elevated at levels well above its historical norm. Households will be less likely to view gains in asset prices as permanent, and their willingness to spend will thus be restrained (Exhibit 8).

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Exhibit 8: Household Real Estate Values Become More Volatile
Q/Q % changes, +/- one standard deviation

6 4

2
0 -2

-4
-6 '53 '56 '59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10
Source: Federal Reserve, Credit Suisse

Mortgage equity withdrawals, once the main channel through which consumers generated the cash flow to spend beyond their current take-home pay, show no sign of recovery following the collapse from 2006-2008. Less cash from monetized home equity implies less purchasing power and consumer expenditures, and hence a smaller housing wealth effect (Exhibit 9).

Exhibit 9: Freddie Mac: Total Home Equity Cashed Out
Prime conventional mortgages, $ billions

90
Q2-2006: $84bn 75 60

45
30

Q4-2012: $8bn
15

0
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Source: FHLMC, Credit Suisse

Also, and perhaps most important for the outlook, is the unprecedented bifurcation of households who contributed to lower aggregate debt-to-asset ratios by default/foreclosure/ charge-offs and those who contributed to the same statistical result by continuing to service their debt (Exhibit 10).

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13 March 2013

Exhibit 10: Aggregate Household Financial Ratios Mask Underlying Divergence
Household credit debt/assets

23%

20%
17% 14% 11%

1990s avg: 14.2%

Q4-2012: 16.9%

8%
5% '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12
Source: Federal Reserve, Credit Suisse

Sudden inflows into equity mutual funds
Mutual fund flow data from the Investment Company Institute also are consistent with the theme of moderating household risk aversion. (Since mutual funds are largely a retail investment vehicle, we use ICI data as one proxy for household attitudes toward risk.) Hungry for returns but wary of equities, retail investors in recent years have deemed bond funds an acceptable compromise between the competing desires for yield and safety (Exhibit 11). Demographics are also playing a role in household portfolio allocation decisions, as an aging population tends to desire less risk.

Exhibit 11: Hungry for Returns but Wary of Equities
Cumulative net inflows by year, $bn

450 Equity funds 300

Bond funds
150

0

-150

-300 '06 '07 '08 '09 '10 '11 '12

Source: Investment Company Institute, Haver Analytics®, Credit Suisse

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But, as weekly data in Exhibit 12 suggest, there was an abrupt change in this pattern recently, as retail investors began making net new investments in both bond and equity mutual funds. It is not uncommon to see stronger net inflows into equity mutual funds at the start of each calendar year, but inflows in early 2013 were particularly dramatic.

Exhibit 12: A Sudden Surge of Inflows into Equity Mutual Funds
Weekly net mutual fund flows, $ billions

15 10

5 0
-5 Feb 27 -10 -15 1/4/12 Equity mutual funds Bond mutual funds 2/29/12 4/25/12 6/20/12 8/15/12 10/10/12 12/5/12 1/30/13

Source: Investment Company Institute, Haver Analytics®, Credit Suisse

The question remains whether this retail investment behavior heralds a more protracted portfolio shift or if it will prove to be a temporary, short-lived adjustment. Net inflows into

equity mutual funds persisted for the eighth consecutive week of the new year, but they have been shrinking in size. It is too soon to draw a firm conclusion. (We explore
this question in our February 10 US Money Matters: Mutual Funds: Seismic Shift or ShortTerm Pop?)

FOMC participants’ economic projections
The March 20 post-meeting announcements will include updated FOMC economic projections and participants’ latest preferences for the path of the fed funds rate target. Now that the FOMC revises its economic projections during the third month of each quarter, the estimates Committee members make in December for the same year should be fairly accurate. As it turned out, the nearly flat growth result for Q4-2012 (+0.1%) apparently took the Committee – as well as private forecasters -- by surprise. Real GDP grew just 1.5% last year on Q4/Q4 basis, below the FOMC central tendency range of 1.7%-1.8%. The FOMC may downgrade its 2013 growth forecast, since it now needs to factor in the headwinds created by the budget sequester. The 2.3%-3.0% range submitted in December for 2013 real GDP growth may be shaved by as much as 0.5 percentage point. What FOMC members decide to do with their unemployment rate forecasts will be of particular interest, given this statistic’s multiple moving parts. A slower growth forecast ordinarily would be associated with raised unemployment rate projections. But if the labor force participation rate is expected to keep declining, we may see little or no adjustment to the FOMC’s 7.4%-7.7% range for 2012 (Exhibit 13).

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Exhibit 13: FOMC Economic Projections as of December 12
GDP and PCE price indexes (Q4/Q4%), unemployment rate (Q4 average)

Variable
Change in real GDP Sep'12 projection Jun'12 projection Apr'12 projection Unemployment rate Sep'12 projection Jun'12 projection Apr'12 projection PCE inflation Sep'12 projection Jun'12 projection Apr'12 projection Core PCE inflation Sep'12 projection Jun'12 projection Apr'12 projection

2012
1.7 to 1.8 1.7 to 2.0 1.9 to 2.4 2.4 to 2.9 7.8 to 7.9 8.0 to 8.2 8.0 to 8.2 7.8 to 8.0 1.6 to 1.7 1.7 to 1.8 1.2 to 1.7 1.9 to 2.0 1.6 to 1.7 1.7 to 1.9 1.7 to 2.0 1.8 to 2.0

FOMC's central tendency 2013 2014 2015
2.3 to 3.0 2.5 to 3.0 2.2 to 2.8 2.7 to 3.1 7.4 to 7.7 7.6 to 7.9 7.5 to 8.0 7.3 to 7.7 1.3 to 2.0 1.6 to 2.0 1.5 to 2.0 1.6 to 2.0 1.6 to 1.9 1.7 to 2.0 1.6 to 2.0 1.7 to 2.0 3.0 to 3.5 3.0 to 3.8 3.0 to 3.5 3.1 to 3.6 6.8 to 7.3 6.7 to 7.3 7.0 to 7.7 6.7 to 7.4 1.5 to 2.0 1.6 to 2.0 1.5 to 2.0 1.7 to 2.0 1.6 to 2.0 1.8 to 2.0 1.6 to 2.0 1.8 to 2.0 3.0 to 3.7 3.0 to 3.8 --6.0 to 6.6 6.0 to 6.8 --1.7 to 2.0 1.8 to 2.0 --1.8 to 2.0 1.9 to 2.0 ---

Longer run
2.3 to 2.5 2.3 to 2.5 2.3 to 2.5 2.3 to 2.6 5.2 to 6.0 5.2 to 6.0 5.2 to 6.0 5.2 to 6.0 2.0 2.0 2.0 2.0 -----

Source: Federal Reserve, Credit Suisse

FOMC participants’ fed funds rate preferences
Diagrams of potential future paths for the funds rate target will also be updated next week. In the histogram showing preferred rate hike dates, there was in December a modest migration further into the future. The mean, median and mode were all in the 2015 rate hike camp; 14 of 19 officials did not believe a rate hike is appropriate before 2015 (Exhibit 14). We expect to see a sizable majority in the 2015 column again on March 20.

Exhibit 14: FOMC: Appropriate Timing of Policy Firming
Number of participants

14
Jan

13
12
April

12 10 8 6 4 2 0

June
Sep Dec

7 7 6

5
4 4 3 3 3 3 3 3 3 2 2 3 2

1

1 1

2012
Source: Federal Reserve, Credit Suisse

2013

2014

2015

2016

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The Fed’s second chart will reflect the “appropriate pace” of tightening. The December chart showed the distribution of FOMC estimates for the appropriate level of the funds rate target at the end of 2012 and each of the following three calendar years. Note that four of the 19 FOMC participants looked for rate hikes totaling 100bp or more by year-end 2014. This was down from six in September. We assume that at least four of the FOMC’s more hawkish participants (mainly among the Regional Fed Bank presidents) have maintained similar preferences for tightening within the next 15 months.

Exhibit 15: Appropriate Pace of Policy Firming
Count of policymaker projections for fed funds rate target at year-end

5%

4%
3% 2% 1% 0%
2012
Source: Federal Reserve, Credit Suisse

2013

2014

2015

Longer Run

Updated Exit Planning
Bernanke, in response to questions during his semiannual testimony to Congress, said the exit strategy laid out in June 2011 needs to be reviewed. We see a small chance that an updated strategy will be unveiled as soon as March 20 (although the Committee may need a few more months to deliberate). While the basic exit outline likely will be left intact, Bernanke suggested the timing of such steps as outright asset sales may be revised. He noted that the Fed may decide to hold securities longer than previously envisioned and perhaps not sell them at all – just let them roll off the balance sheet as they mature (or, in the case of MBS, are amortized or prepaid). Theoretically, the Fed should be able to tighten policy without actively shrinking its balance sheet. It would do this by hiking the interest it pays on reserves, with the fed funds rate presumably following IOR higher. In order to promote a tighter relationship between IOR and the fed funds rate in this scenario, the Fed probably would need to neutralize large swaths of excess reserves (perhaps several hundred billion dollars’ worth) via reverse RPs and term deposit accounts.

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Exhibit 16: Bank Reserves
$bn
1750

Exhibit 17: Fed Funds vs. IOR
Percent
0.30

Federal funds effective rate Interest on reserves (IOER)

1400

0.25

Excess reserves Required reserves
1050

0.20

0.15
700

0.10

350

0.05

0 Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

0.00 Dec-08

Aug-09

Apr-10

Dec-10

Aug-11

Apr-12

Dec-12

Source: Federal Reserve, Credit Suisse

Source: Federal Reserve, Credit Suisse

Echoing a comment in the January 29-30 FOMC meeting minutes, Bernanke also suggested in testimony that holding securities longer may serve as a potential future alternative to more asset purchases. The minutes noted the following: “In this regard, a number of participants discussed the possibility of providing monetary accommodation by holding securities for a longer period than envisioned in the Committee's exit principles, either as a supplement to, or a replacement for, asset purchases. *** It is difficult to identify a direct causal link between the Fed’s QE initiatives and improving trends in the economy (including the nascent normalization of risk appetite among households). That said, circumstantial evidence suggests that the low interest rates engineered by the Central Bank are, slowly but surely, having their desired effect. As a result, the most likely monetary policy resulting from the March 19-20 FOMC meeting is unchanged policy.

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GLOBAL FIXED INCOME AND ECONOMIC RESEARCH
Dr. Neal Soss, Managing Director Chief Economist and Global Head of Economic Research +1 212 325 3335 neal.soss@credit-suisse.com Eric Miller, Managing Director Global Head of Fixed Income and Economic Research +1 212 538 6480 eric.miller.3@credit-suisse.com

US AND CANADA ECONOMICS
Dr. Neal Soss, Managing Director Head of US Economics +1 212 325 3335 neal.soss@credit-suisse.com Dana Saporta, Director +1 212 538 3163 dana.saporta@credit-suisse.com Jonathan Basile, Director +1 212 538 1436 jonathan.basile@credit-suisse.com Jill Brown, Vice President +1 212 325 1578 jill.brown@credit-suisse.com Jay Feldman, Director +1 212 325 7634 jay.feldman@credit-suisse.com Isaac Lebwohl, Associate +1 212 538 1906 isaac.lebwohl@credit-suisse.com Henry Mo, Director +1 212 538 0327 henry.mo@credit-suisse.com Peggy Riordan, AVP +1 212 325 7525 peggy.riordan@credit-suisse.com

LATIN AMERICA ECONOMICS AND STRATEGY
Alonso Cervera, Managing Director Head of Non-Brazil Latam Economics +52 55 5283 3845 alonso.cervera@credit-suisse.com Mexico, Chile Nilson Teixeira, Managing Director Head of Brazil Economics +55 11 3701 6288 nilson.teixeira@credit-suisse.com Casey Reckman, Vice President +1 212 325 5570 casey.reckman@credit-suisse.com Argentina, Venezuela Daniel Lavarda, Vice President +55 11 3701 6352 daniel.lavarda@credit-suisse.com Brazil Daniel Chodos, Vice President +1 212 325 7708 daniel.chodos@credit-suisse.com Colombia, Latam Strategy Di Fu, Analyst +1 212 538 4125 di.fu@credit-suisse.com

Tales Rabelo, Vice President +55 11 3701 6353 tales.rabelo@credit-suisse.com Brazil

Iana Ferrao, Associate +55 11 3701 6345 iana.ferrao@credit-suisse.com Brazil

Leonardo Fonseca, Associate +55 11 3701 6348 leonardo.fonseca@credit-suisse.com Brazil

EURO AREA AND UK ECONOMICS
Neville Hill, Managing Director Head of European Economics +44 20 7888 1334 neville.hill@credit-suisse.com Axel Lang, Associate +44 20 7883 3738 axel.lang@credit-suisse.com Christel Aranda-Hassel, Director +44 20 7888 1383 christel.aranda-hassel@credit-suisse.com Steven Bryce, Analyst +44 20 7883 7360 steven.bryce@credit-suisse.com Giovanni Zanni, Director +44 20 7888 6827 giovanni.zanni@credit-suisse.com Yiagos Alexopoulos, Analyst +44 20 7888 7536 yiagos.alexopoulos@credit-suisse.com Violante di Canossa, Vice President +44 20 7883 4192 violante.dicanossa@credit-suisse.com

EASTERN EUROPE, MIDDLE EAST & AFRICA ECONOMICS AND STRATEGY
Berna Bayazitoglu, Managing Director Head of EEMEA Economics +44 20 7883 3431 berna.bayazitoglu@credit-suisse.com Turkey Alexey Pogorelov, Vice President +7 495 967 8772 alexey.pogorelov@credit-suisse.com Russia, Ukraine, Kazakhstan Sergei Voloboev, Director +44 20 7888 3694 sergei.voloboev@credit-suisse.com Russia, Ukraine, Kazakhstan Saad Siddiqui, Vice President +44 20 7888 9464 saad.siddiqui@credit-suisse.com EEMEA Strategy Carlos Teixeira, Director +27 11 012 8054 carlos.teixeira@credit-suisse.com South Africa Natig Mustafayev, Associate +44 20 7888 1065 natig.mustafayev@credit-suisse.com EM and EEMEA cross-country analysis Gergely Hudecz, Vice President +33 1 7039 0103 gergely.hudecz@credit-suisse.com Czech Republic, Hungary, Poland Nimrod Mevorach, Associate +44 20 7888 1257 nimrod.mevorach@credit-suisse.com EEMEA Strategy, Israel

JAPAN ECONOMICS
Hiromichi Shirakawa, Managing Director +81 3 4550 7117 hiromichi.shrirakawa@credit-suisse.com Takashi Shiono, Associate +81 3 4550 7189 takashi.shiono@credit-suisse.com

NON-JAPAN ASIA ECONOMICS
Dong Tao. Managing Director Head of NJA Economics +852 2101 7469 dong.tao@credit-suisse.com China Michael Wan, Analyst +65 6212 3418 michael.wan@credit-suisse.com Singapore Robert Prior-Wandesforde, Director +65 6212 3707 robert.priorwandesforde@credit-suisse.com Regional, India, Indonesia Weishen Deng, Analyst +852 2101 7162 weishen.deng@credit-suisse.com Christiaan Tuntono, Vice President +852 2101 7409 christiaan.tuntono@credit-suisse.com Hong Kong, Korea, Taiwan Santitarn Sathirathai, Vice President +65 6212 5675 santitarn.sathirathai@credit-suisse.com Malaysia, Philippines, Thailand

Disclosure Appendix
Analyst Certification

I, Neal Soss and Dana Saporta, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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