Expect stable country and OAS/ASW spreads over the summer period

Transcription

1 Reading the Markets Denmark Expect stable country and OAS/ASW spreads over the summer period Jan Weber Østergaard Christina Emilia Falch Arne Lohman Rasmussen Chief Analyst Senior Analyst Chief Analyst, Head of Fixed Income Research jast@danskebank.dk chfa@danskebank.dk arr@danskebank.dk Jens Peter Sørensen Mathias Røn Mogensen Chief Analyst Analyst jenssr@danskebank.dk mmog@danskebank.dk 1 June 217 Investment Research Important disclosures and certifications are contained from page 14 of this report.

2 Expect stable country and OAS/ASW spreads over the summer Our market views We see a low risk of events that could break the stability in the Danish bond market and spreads to Germany. We expect OAS and ASW spreads to remain at around the current low (and expensive ) levels for the upcoming period, as we continue to expect 1) foreign investor demand for short-term non-callable bullets and callables, 2) low supply of DMBs in general and a very low risk of supply shocks, 3) stable yields for the remainder of the year and 4) strong interest for floaters among Danish investors to confirm risk appetite despite low spreads. The stage is set for the positive carry environment to prevail for the remainder of 217. Key points What could break the stability of the Danish fixed income market? (slides 3-4) 2 47 has overtaken in high-carry terms (slide 5) We continue to buy.5 27 vs 1 21apr (slide 6) Solid demand for floaters (slides 7-8) Non-callable bullets still look attractive to foreign investors modest pick-up in 5Y Bostäder for funded and hedged investors (slides 9-1) Expect still-low supply of DGBs in general (slide 11) Foreign holding of Danish mortgage bonds continue to increase (slide 12) DMO set to adjust down DGB issuance outlook again (slide 13) Relative value View Earlier view Trade / Comment Callables Neutral We expect low issuance going forward, but solid performance and low spreads limits performance 3% 3Y Neutral Buy io series and sell non-io series due to social housing 2.5% 3Y Underweight 2.5% 3Y is still a bit expensive relative to 2% 3Y 2% 3Y Overweight 2'47 looks slightly cheaper and offers better carry vs. 2.5'47 1.5% 3Y Neutral Attractive closing effects, but low liquidity 1Y-2Y Overweight Neutral Trade: Buy.5'27 vs. 1'21apr - better carry and relative value Non-callables ("Flexer") Neutral We prefer 5Y non-callables -2Y Underweight Foreign investors buying, but low relative value in DKK space 3-5Y Neutral We prefer 4-5Y non-callables Floaters Neutral Strong floater auctions showed 2-5bp premium to Flex - buy if 5bp pickup to Flex DGBs Neutral Still some value left for non funded investors- Low supply. 2Y Neutral 5Y Neutral We prefer 5Y DKK risk in DGBs 1Y Neutral We see value in DGB '27 vs. DGB '25 Linker Neutral Swaps Overweight Value against EUR. We prefer 5Y5Y segment. Stable spread but positive carry/roll -2Y CITA Neutral Neutral after recent spike in EUR/DKK Flexer vs. swaps Neutral Short bonds have negative carry - we prefer 5Y bonds Callables vs. swaps Neutral Risk-reward in callables have been reduced vs. Swaps Flexer vs. DGBs Neutral 5Y non-callables have performed relative to DGBs Callables vs. DGBs Swap spread DKK-EUR Gov spread DK-DE EUR/DKK Neutral Overweight Neutral Underweight Source: Danske Bank Markets Callables offer a yield pickup relative to DGBs - but the spreads have decreased significantly in 216 and 217 We recommend to position for a tighter 5Y5Y DKK-EUR spread. Positive carry/roll. Low risk trade. Neutral after recent DGB performance. Low supply could tighten spread further. Fundamental downward pressure on cross. Downside potential after recent spike. 1

3 Trade overview DKK fixed income market Open trades Name Nom Entry Level Return (bp of investment) Current Target Stop loss DK '27 RD DK '21 Apr RD '27 vs. 1'21 apr (Opened 23/5/217) 18 4bp -3bp Modtag 5Y5Y DKK6M-EUR6M (Opened on 17/5/217) 29.3bp -.2bp 29.5bp 23bp 33bp Closed trades 217 Name Nom Entry Level Return (bp of investment) Closed Target Stop loss DK '22 Apr RD DK DGB 3' Y Flex vs. DGB 3'21 (Opened 15/2/217) 74bp 21/4/217 7bp -4bp Receiver 5Y DKK6M-EUR6M (Opened 3/1/217) 24.6bp 3.9bp 3/5/217 14bp 3bp DGB Nov '18 vs BKO Dec '18 (Opened on 19/4/217) 22bp 8bp 24/4/217 14bp 29bp Sælg 1Y1Y Straddle ATMF (Opened on 15/3/217) 29bp 7bp 17/5/217 DK '47 RD DK '17 Jul NYK DK '37 RD '47 vs. 1.5'47 og 1Y flex (Opened 1/3/217) 15bp 23/5/217 4bp -3bp Source: Danske Bank Markets 2

4 What could break the stability of Danish fixed income market? The Danish fixed income market has been very stable this year. DGB and swap spreads to Germany/EU are stable and mortgage bond OASs are narrowing slowly. Is this the calm before the storm, or will stability reign for the rest of 217? Rising yields are a classic, with negative convexity and risk of higher swaption volatility plus OAS/ASW spread widening on callables. Remember, however, that one reason the market was hit hard in 215 was an extraordinarily large issuance following major prepayments in July and banks adjusting their holdings in line with new regulation. Neither of these presents the same threat now. Moreover, we doubt long yields will rise in 217. True, the European economy is improving; but still-low wage growth and core inflation make it impossible for the ECB to change course if there is to be any hope of reaching the 2% inflation target. Overseas investors selling Danish mortgage bonds. We doubt it and would ask: what is the alternative, with Japanese 1Y govie yields at zero, range trading in Bunds, expensive EUR covered bonds, a cheap FX hedge (asset swap) of Danish risk and high yields on callables? Stable DKK. After the French election we doubt even a mixed result of a potential Italian election this autumn could trigger any inflows into Denmark. On the other hand, the current account surplus should prevent any significant DKK weakening. Hence, the outlook is for continued stability and focus on carry in the Danish market through 217. Last time we recommended receiving 5y5y DKK-EUR in swaps as a boring carry trade. Buying long DBGs against core is another option. Carry is also the dominant theme in Danish mortgage bonds. Stable spreads to Germany in Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Source: Danske Bank Markets ASW spreads continue to narrow DGB.25'18 - DBR '18 DGB 1.5'23 - DBR 2'23 DGB 1.75'25 - DBR 1'25 ASW(3M) - 1Y Flex ASW(3M) - 3Y Flex ASW(3M) - 5Y Flex Generic ASW(3M) -5 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Source: Danske Bank Markets, Danish central bank 3

5 We continue to expect expensive ASW and OAS spreads ASW and OAS spreads are (still) very low what would point to persistently low spread levels? Foreign investors continue to demand short-term non-callable bullets and callables after having been in the market for more than months. Callables continue to offer a decent carry vs. alternatives, and non-callable bullets remain attractive vs. EUR covered bonds. Swedish Bostäder have performed strongly recently, and the pickup to DKK non-callable bullets has narrowed, especially for 5Y tenors. As long as the basis-swap spread to EUR/USD stays close to the existing level, and interest rates remain low, we would expect the decent demand from foreign investors to persist. Despite the low ASW/OAS spreads, Danish investors currently have no attractive alternatives to Danish bonds. We expect the supply of non-callables, floaters and callables to remain low in coming months, and the next ARM refinancing auction is not until mid-/end-august with an expected supply of a mere DKK8bn (DKK88bn maturing). The August benchmark change could result in marginally lower issuance in callables, while also slightly reducing the prepayment risk in high-coupon callables. Other things being equal, this entails a lower risk of a supply shock, and it calls for an even greater drop in yields to trigger a remortgaging wave. Danish investors showed strong demand at the most recent non-callable and floater auctions, and three of the floater auctions attracted the four largest supply volumes seen during the past two to three years. 12 OAS6M/ASW 6M Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 3Y Call. - OAS6M (Price =98) 5Y Non-callables (Level1B) - ASW 6M Source: Danske Bank Markets 4

6 2 47 has overtaken in terms of high carry among DMBs 2.9% 12M HPR % has slightly outperformed 2 47 during the past couple of weeks, and the price spread between and 2 47 is at the high end relative to 1Y swap yields. 2.7% 2.5% In terms of relative value, 2 47 looks slightly cheaper than in our optics has for a long time offered the highest carry of all Danish mortgage and government bonds, but it has now been surpassed by now offers a percentage return that is (a marginal) 4bp higher than However, 2 47 obviously involves a higher interest rate risk than and when this risk is hedged, the offers a higher excess carry. On the other hand, 2 47 has less negative convexity, meaning it will clearly outperform if interest rates fall. 2'47 looks attractive to investors expecting interest rates to remain unchanged in coming months, given its cheaper relative pricing vs and marginally higher carry. 2.3% 2.1% 1.9% 1.7% 1.5% May Jun 16 Jul 16 Aug 16 RD 2 S 1OCT247[horizon return 12m] RD 2.5 S 1OCT247[horizon return 12m] Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Kursspænd 2.5'47-2'47 vs. 1Y SWAP Apr r - 247r (Quote) vs. SWAP 1Y DKK6M 2.547r - 247r (Quote) vs. SWAP 1Y DKK6M Name Nom. Quote Dirty BPV CVX Spreadrisk -5bp -25bp bp 25bp 5bp RD 2.5 S 1OCT RD 2 S 1OCT Strategi Source (for table and charts): Danske Bank Markets 5

7 1Y to 2Y callables outperforming but not by much Last week, we opened our strategy to buy.5 27 vs. 1 22apr (1-2Y callables have underperformed other callables and non-callable bullets buy.5 27 vs Y non-callable bulletse), and the strategy has performed by about.18%. 1Y to 2Y callables have outperformed 3Y callables and 5Y non-callable bullets by 2-5bps in terms of OAS during the past week, bringing, among other effects, close to a two-year low in terms of OAS spreads (against the DMB curve). On the other hand,.5 27 continues to trade at a decent OAS relative to previous levels. Note that OAS in this case is primarily measured against longer-tenor noncallables. However, we believe.5 27 is set to continue to outperform non-callable bullets a bit longer before the strategy should be closed. The strategy also offers still attractive 12M excess carry of about 3bps. The remortgaging of subsidised housing loans has already produced supply (of DKK8m) in 1 32, so this risk has been eliminated. OAS '37 1'27 1'32 1.5'37.5'27-2 Sep 14Dec 14Mar 15Jun 15Sep 15Dec 15Mar 16Jun 16Sep 16Dec 16Mar 17Jun 17Sep 17 Isin Name Nom. Quote Dirty BPV CVX Spreadrisk -5bp -25bp bp 25bp 5bp DK RD 1 T 1APR DK RD.5 S 1OCT Strategi Note: Forventet afkast er regnet over 12M. Det er antaget, at ASW-rullet i RD 1'21apr bidrager med 25bp til carry. Source (for table and chart): Danske Bank Markets 6

8 Solid demand for floaters supporting expensive spreads Floater auctions have dominated the events of the past few days, driven by an accumulated supply of DKK62bn and with a further DKK4.9bn at yesterday s Nykredit auction. Monday s NYK floater auction produced a floater non-callable premium of 4-5bps and solid bidding at the auctions. Notably, the NYK FLT SDO Apr 21 auction of DKK16.3bn drew bids for an impressive DKK56bn, although that amount was dwarfed by total bidding of DKK75bn for the NDA CIBOR 6M Jul 21 auction on Tuesday. Tuesday s floater auctions demonstrated persistently strong demand, spread performance in longer-tenor non-callables and a floater non-callable premium of about 2-3bps less than at Monday s auction. Demand was driven by domestic, not international, investors. Nykredit s floater auction on Wednesday also produced a floater discount of about 5bps. Market concerns (or hopes, perhaps) that the large supply of long-tenor floaters would lead to wider spreads and very low ASW spreads were unfounded. The solid demand and the 1-2bp spread performance during the floater auctions indicate yet again that the current narrow ASW spreads in non-callables and floaters could very well continue. This would also indirectly support the expensive pricing of callables, and given the outlook for a bleak supply of floaters, non-callables and callables in coming months, we would not worry about supply-pressure-driven spread widenings or sell-offs by domestic investors. Bond information Pricing ASW 3M Auction Name Auction amt. Est. LCR Floor Cashflow Dates Fwd ASW flex FLT LCR Closed MCI RO Cshflw* Floor Callable ASW FLT 365/ Bid -2 to +2 from fair spread Low Hgh result NYK FLT SDO CITA 6M Jan B No Hybrid 29 May to bp NYK FLT SDO CIBOR 3M Jul B No Hybrid 29 May to bp NYK FLT SDO CIBOR 3M Apr B No Hybrid 29 May to bp RD FLT SDRO EURIBOR 3M Jul19.1 1B Yes Hybrid 3 May to RD FLT SDRO CITA 6M Jul None (+3M: 2A) No Hybrid 3 May to bp NDA FLT SDRO CIBOR 6M Jul B No Hybrid 3 May to bp BRF FLT SDO CIBOR 3M Jul B No Hybrid 3 May to bp NYK FLT SDO CITA 3M Oct B No Hybrid 31 May to bp *) Due to redemptions and shorter than 3Y loans behind the floaters, spreadrisk could be lower than a bullet bond with same maturity. This leads to lower spreadrisk and should lead to lower fair ASW-requirement Source: Danske Bank Markets 7

9 Solid demand for floaters supporting expensive spreads We have gone through three years of floater auction data to see if demand has previously been as strong as recorded at the recent auctions. Tuesday s NDA auction tops the list in terms of total bid volume, and two other floater auctions (held on Monday and Tuesday) attracted the third and fourth-largest bid volumes. Accordingly, historical data suggests demand has been strong even when taking account of the large supply Total bid size Isin Name Amount Bids BtC Date DK NYK EUR 6M EURIBOR (Jul-18) RO (D) IT+RF /5/216 DK NYK 1% Jul-18 RF - SDO (CC H) /5/215 DK NYK EUR FLT Oct-18 SDO (H) RF /8/215 DK63493 DLR DKK 6M CITA (jul-18) SDO IT+RF /5/216 DK NYK SDO (H) DKK CF'21 (Jul) - RF /11/216 DK NYK 1% Jul-2 RF - SDO (CC H) /5/215 DK95688 NYK 1% DKK Jul-16 - SDO (CC H) IT /5/215 DK RD DKK 6M CITA (Jul-21) SDRO (T) RF /5/217 DK95688 NYK 1% DKK Jul-16 - SDO (CC H) IT /5/215 DK95688 NYK 1% DKK Jul-16 - SDO (CC H) IT /5/215 DK NYK SDO (H) DKK CF'27 (Jul) - RF /11/216 DK BRF SDO (E) DKK FLT'21 (Jul) - RF /11/216 DK95688 NYK 1% DKK Jul-16 - SDO (CC H) IT /5/215 DK95159 NYK DKK 6M CIBOR (Apr-19) RO (D) RF /5/216 DK BRF SDO (E) DKK FLT'2 (Jul) - RF /11/216 DK DLR DKK 6M CIBOR (jul-2) SDO RF /5/216 DK NYK DKK 3M CIBOR (Jul-2) SDO (H) RF /5/217 DK NYK DKK FLT Oct-18 RO (G) RF /8/215 DK NDA DKK 6M CITA (Jul-19) SDRO RF /5/216 DK RD FLT CIBOR6M Jan-17 - SDO (CC T) /5/215 DK NYK DKK 6M CITA (Jan-2) SDO (H) RF /5/217 DK RD FLT CIBOR6M Jan-17 - SDO (CC T) /5/215 DK RD FLT CIBOR6M Jan-17 - SDO (CC T) /5/215 DK RD FLT CIBOR6M Jan-17 - SDO (CC T) /5/215 DK RD SDRO (T) DKK FLT'21 (Jul) - RF /11/216 DK RD SDRO (T) DKK FLT'21 (Jul) - RF /11/216 DK NYK DKK 3M CIBOR (Apr-21) SDO (H) RF /5/217 DK BRF DKK 3M CIBOR (Jul-22) SDO (E) RF /5/217 DK RD DKK 6M CITA (jul-2) SDRO RF /5/216 DK NDA DKK 6M CIBOR (Jul-21) SDRO (2) RF /5/217 Source (chart and table): Danske Bank Markets 8

10 Non-callable bullets still look attractive to foreign investors with liquidity Swedish Bostäder have performed in ASW terms on the back of increased demand from overseas investors to now trade at around the same level as other EUR covered bonds from a EUR ASW perspective. Despite Danish non-callable bullets performing to the lowest DKK ASW spread in several years, these bonds still offer a pick-up to EUR covered bonds in EUR ASW terms. Hence, non-callable bullets are still attractive to EUR and USD investors using basis swaps/fx swaps to hedge currency risk. 5Y non-callables look particularly attractive vs. EUR covered bonds, mainly because the non-callable ASW curve is considerably steeper than that for EUR covered bonds Y ASW-spread for covered bonds (swapped into EUR6M ), bp Denmark Sweden Germany Netherlands Finland -2 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May Y Covered bonds ASW EUR3M Jul 15 Jan 16 Aug 16 Mar 17 Sep 17 Denmark Covered 3Y Finland Covered 3Y Sweden Covered 3Y Netherland Covered 3Y Source: Danske Bank Markets 8. 5Y Covered bonds ASW EUR3M Jul 15 Jan 16 Aug 16 Mar 17 Sep 17 Denmark Covered 5Y Finland Covered 5Y Sweden Covered 5Y Netherland Covered 5Y 9

11 Funded and hedged investors short maturity Bostäder offer the largest pick-up to non-callable bullets ASW spreads in local currency are more interesting for funded and hedged investors, as currency risk does not need to be hedged due to the funding being in local currency. Bostäder have outperformed DKK non-callable bullets in local ASW-spread terms lately and have generally performed well 5Y Bostäder, for example, have performed around 2bp. Despite the recent performance, Bostäder offer a pick-up for funded and hedged investors though the excess pick-up in the 5Y bond has been reduced due to the better ASW performance in 5Y Bostäder relative to shorter maturities. For DKK funded and hedged investors we still recommend maturities of around 4-5Y in non-callable bullets and floaters, where the ASW roll is highest. Given the solid demand for floaters and the prospect of a low supply of mortgage bonds generally, yields range trading and continuing arguments for overseas demand for Danish bonds, we prefer to go for the excess carry in the longer maturities. Excess carry of around 15bp can be obtained among the Y maturities by buying Bostäder instead of non-callable bullets and it is in these maturities that Bostäder offer the largest pick-up to non-callable bullets M pickup for funded & hedged strategies DKK Flex Funded & hedged -2 SEK Bostäder Funded & Hedged Difference (RHS) Slope on ASW-curve Denmark 5-3Y Swedish 5-3Y 1. Jul 15 Jan 16 Aug 16 Mar 17 Sep Y Covered bonds ASW 3M Jul 15 Jan 16 Aug 16 Mar 17 Sep 17 Denmark Covered 5Y Finland Covered 5Y Sweden Covered 5Y Netherland Covered 5Y Note: Repo Flex: -3bp, repo Bostäder: -42bp Source: Danske Bank Markets 1

12 Mortgage bond supply set to remain low little risk of supply shock The key points for supply in mid-april (ahead of the auctions) can be summarised as follows: Total non-callable bullet issuance of DKK35m/day on average with 8% of issuance in 4Y or 5Y bonds Floater issuance amounts to just roughly DKK115m/day on average Average callable issuance has hovered around DKK65m/day since the start of the year and that level has also prevailed since April We expect issuance to remain at these levels in coming months which is relatively low for callables. 4,5 1D Moving average (DKKbn) 4, 3,5 3, 2,5 2, 1,5 1, 5-5 Apr 12 Oct 12 May 13 Nov 13 Jun 14 Dec 14 Jul 15 Jan 16 Aug 16 Mar 17 Sep 17 Floaters Flexer Callables Daily average YTD 5 Daily average Source: Danske Bank Markets 11

13 Foreign holdings of Danish mortgage bonds still rising The Danish central bank, Danmarks Nationalbank, has just published data on the distribution of ownership figures for DGBs and DMBs. Foreign investors are continuing to buy Danish mortgage bonds with the latest figures showing non-callable bullets are again popular. There is still a yield pick-up for overseas investors who swap into EUR, particularly on 3-5Y non-callable bullets. Foreign holdings of DMBs are growing 3% 25% 2% 15% Udlandets beholding af realkreditmarkedet - fordelt på segmenter % af den samelde beholdning af DK realer % af konv. realer % af inkonverterbare realer (flexere og FRNs) Foreign holdings of callables are also rising, with the focus being on low-coupon bonds. In this segment, foreign holdings of 2-3Y mortgage bonds with a coupon of less than 2% is growing (see chart on the right). 1% 5% % Moreover, a shift in foreign investor behaviour is difficult to imagine, given that the alternatives for overseas investors are being bought by the ECB and BoJ and to some extent by the US Fed, which is set to reduce its balance sheet very gradually and thus should continue to have a large reinvestment requirement in both US Treasuries and US MBS in coming years. Foreign investors buying low coupons among callables (2-3Y segment) 35% 3% 25% Udlandets andel af konverterbare realkreditobligationer, % of udestående mængde fordelt på kuponen 2% 15% 1% < = 2% 2% < coupon < = 3% 3% < coupon <= 4% 5% % Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Source: Danish central bank, Danske Bank Markets 12

14 DMO set to adjust down DGB issuance outlook again The government published its Economic Survey this week, including the MoF s updated estimate of the central government net funding and funding requirement for 217. The government s total funding requirement was adjusted down by DKK7bn to DKK1bn. The domestic funding requirement was adjusted down by DKK5bn to DKK93bn. The lower funding requirement reflects the raising of the growth forecast and, not least, higher expected PAL (pension return) taxes for 217 due to better-thanexpected returns on both equities and bonds. The Danish Debt Management Office (DMO) will base its Government Debt Policy for H2 17 (due in 3-4 weeks) on the new funding requirement. In line with our previous estimates, we expect the DMO to announce a reduction in DGB issuance of DKK5-1bn to DKK55-6bn. We expect T-Bill issuance to be maintained at DKK3bn, as the DMO views this as the lower limit for securing investor interest. Reducing issuance would mean continuing to cover part of the funding requirement by drawing on the central government account. In April the account stood at DKK142bn, thus overshooting the year-end target of DKK75-1bn by a wide margin. Lower issuance would support DGBs. It would also underline that DMO issuance is not lagging behind despite low sales at some of this spring s auctions. Furthermore, lower issuance would increase the need for switches and buy-backs to boost market liquidity. We have seen some narrowing of spreads to Bunds this year. All else being equal, lower issuance could support this trend. Lower funding requirement in 217 Source: Economic Survey, May 217 DGB issuance on track 7DKK bn, accumulated Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Estimated issuance if 65bn total in 217 (market value) Estimated issuance if 55bn total in 217 (market value) Monthly issuance (ex. Switches in nominal value) Source: Danske Bank Markets, Danish central bank 13

15 Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The authors of the research report are listed on the front page. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in this research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. Danske Bank s research reports are prepared in accordance with the recommendations of the Danish Securities Dealers Association. Danske Bank is not registered as a Credit Rating Agency pursuant to the CRA Regulation (Regulation (EC) no. 16/29); hence, Danske Bank does not comply with nor seek to comply with the requirements applicable to Credit Rating Agencies. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-quality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Danske Bank is a market maker and a liquidity provider and may hold positions in the financial instruments of the issuer(s) mentioned in this research report. Danske Bank, its affiliates and subsidiaries are engaged in commercial banking, securities underwriting, dealing, trading, brokerage, investment management, investment banking, custody and other financial services activities, may be a lender to the companies mentioned in this publication and have whatever rights are available to a creditor under applicable law and the applicable loan and credit agreements. At any time, Danske Bank, its affiliates and subsidiaries may have credit or other information regarding the companies mentioned in this publication that is not available to or may not be used by the personnel responsible for the preparation of this report, which might affect the analysis and opinions expressed in this research report. See for further disclosures and information. 14

16 General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ( Relevant Financial Instruments ). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for, and may not be redistributed to, retail customers in the United Kingdom or the United States. This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank s prior written consent. Disclaimer related to distribution in the United States This research report was created by Danske Bank A/S and is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank A/S, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to U.S. institutional investors as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to U.S. institutional investors. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA but satisfy the applicable requirements of a non-u.s. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-u.s. financial instruments may entail certain risks. Financial instruments of non-u.s. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission. 15