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This monitor reflects the best interpretation of financial market developments and views of the staff of the Office of Financial Research (OFR). It does not necessarily reflect a consensus of market participants or official positions or policy of the OFR or the U.S. Department of the Treasury. Contributors: Viktoria Baklanova, Ted Berg, and Daniel Stemp.

First Quarter 2017 (data as of March 31)

A review of financial market themes and developments

Rising Confidence Lifts the U.S. Bull Market into its Eighth Year The bull market in U.S. stocks extended into its eighth year as major U.S. equity indexes rose during the first quarter, supported by an upswing in confidence, solid corporate earnings, and the expectation of faster U.S. economic growth (see Figure 1). Equity market volatility and corporate bond spreads fell to near cyclical lows but stock valuations remained elevated. As discussed in the OFR’s 2016 Financial Stability Report, the pattern of recent years — periods of calm interrupted by bouts of turbulence — suggests confidence can be overdone for some time before investors broadly reassess risks.

Key developments in the first quarter of 2017 • Prices of risk assets generally appreciated as the bull market in U.S. equities started its eighth year. The bull market

is supported by rising confidence, better-than-expected corporate earnings, and upbeat U.S. economic data.

• Corporate bond spreads tightened to near cyclical lows. Equity market implied volatility fell to a 10-year low.

• The Federal Open Market Committee (FOMC) raised short-term interest rates by 25 basis points in March, as expected. FOMC members projected two more rate hikes in 2017.

• In China, capital controls reduced capital outflows as official reserves increased. The currency appreciated against the U.S. dollar.

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Figure 1: Equity Prices and Confidence (index, z-score)An upswing in confidence lifted equity prices to new highs

Business Outlook Survey (right axis)

Note: Z-score represents the distance from the average expressed in standard deviations, calculated using data since Jan. 1, 1994.Sources: Federal Reserve Bank of Philadelphia, Bloomberg Finance L.P., OFR analysis

S&P 500 index (left axis)

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OFR MARKETS MONITOR First Quarter 2017 | 2

Bull market in U.S. equities turned eight years old. The U.S. benchmark equity index, the S&P 500, has risen 249 percent from its low on March 9, 2009, making this the second-longest bull market in U.S. history (seeFigure 2). During the first quarter of 2017, the S&P 500 rose 5.5 percent. Stocks were supported by rising consumer and business confidence in the United States, which was reinforced by better-than-expected corporate earnings and economic data. The upward trend in business confidence since the U.S. election coincided with robust fourth-quarter earnings. Adjusted earnings of S&P 500 companies grew 6 percent year-over-year, while sales grew 5 percent. Consensus estimates call for strong corporate earnings growth of about 11 percent in 2017. The corporate earnings outlook has supported rising stock valuations. By several key measures, U.S. stockvaluations are elevated compared with historical levels (see Figure 3). Valuations are sensitive to changes in the U.S. corporate tax rate. All else equal, price-earnings multiples would be expected to rise if corporate tax rates were to decrease as part of an overhaul of the U.S. tax code. Volatility in equity markets, both implied and realized, fell to historically low levels during the first quarter. The S&P 500 had its longest streak without a 1 percent downward daily price move since 1995. The Chicago Board Options Exchange Volatility Index (VIX®) , a gauge of S&P 500 implied volatility, fell below 10 during intraday trading in February, near its all-time low close of 9.3, set in 1993.

Corporate bond spreads fell to near cyclical lows.

Extremely low volatility in the equity market has coincided with tightened spreads in the corporate bond market. Option-adjusted spreads on investment-grade corporate bonds tightened by 6 basis points to 124 basis points. High-yield corporate bond spreads fells by 30 basis points to 392 basis points, near the lowest since the financial crisis (see Figure 4). Increased appetite for products that offer a spread to Treasuries has led investors to demand less compensation for credit risk, even though defaults among speculative-grade nonfinancial corporate issues are at a post-2010 high (see Figure 5). As discussed in the OFR’s 2016 Financial Stability Report, the combination of narrow

Figure 2: S&P 500 bull market runsThe current bull market is the second longest in U.S. history

Sources: S&P Global Market Intelligence, OFR analysis

Figure 3: U.S. stock valuations Key valuation metrics are high

Metric Current Historical percentile

Cyclically adjusted price-to-earnings (P/E) 30x 97%

Q-ratio 100% 88%

Buffett Indicator 132% 92%

Trailing P/E 21.8x 87%

Forward P/E 18.2x 83%

Price-to-book 3.1x 77% Note: Percentiles are based on historical data beginning in 1881, 1951, 1970, 1954, 1990, and 1990 respectively. Sources: Bloomberg Finance L.P, Haver Analytics, OFR analysis

Figure 4: U.S. corporate bond spreads (basis points)Corporate bond spreads tested cyclical lows

Investment grade (left axis) High-yield (right axis)

Note: Spreads are option-adjusted.Source: Haver Analytics

median 53 months, 114%

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OFR MARKETS MONITOR First Quarter 2017 | 3

corporate bond spreads and high equity valuations could make U.S. financial markets more vulnerable to shocks.

The Federal Reserve raised rates for the second time in three months. The Federal Reserve’s FOMC voted to raise its target for short-term interest rates by 25 basis points at its March meeting. In its statement, the FOMC stressed a continuing gradual approach to monetary tightening. The rate hike was in line with market expectations. The effective federal funds rate quickly adjusted to trade within its new target range of 0.75 percent to 1 percent (see Figure 6). Rates for excess reserves and the Federal Reserve’s reverse repo facility provide the bounds of the policy rate range. The median FOMC participant now projects two more rate hikes, totaling 50 basis points, in 2017. Short-term funding costs stabilized as banks adjusted to money market fund reform. The reform of U.S. money market funds in October 2016 dampened risk appetite among short-term investors, leading to generally higher borrowing costs for banks (see the December 2016 Financial Markets Monitor). In the first quarter, the relative cost for banks to borrow fell back to the level that prevailed before the reform. The three-month LIBOR-OIS spread, an important gauge of the relative cost of banks to borrow, stopped increasing when the reform took effect. The spread later declined. Short-dated cross-currency basis swap spreads, a measure of the cost to convert foreign currency borrowing into U.S. dollars, also narrowed after the reform (see Figure 7). Overall, this meant that borrowing U.S. dollars cost less for foreign firms. Data from the OFR’s U.S. Money Market Fund Monitor demonstrate that some foreign banks have adapted to changes in money markets in part by shifting their borrowing to repurchase agreements.

Foreign investors’ demand for Treasuries helped hold down long-term interest rates. U.S. long-term interest rates were range-bound for most of the first quarter. The yield on U.S. 10-year Treasuries fell 6 basis points to 2.4 percent. Breakeven inflation

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Figure 5: Trailing 12-month U.S. nonfinancial corporate speculative-grade default rate on bonds and loans (percent)Defaults by high-yield bond issuers are the highest since 2010

Source: Moody's Investors Service

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Figure 6: Overnight interest rates (percent) The effective federal funds rate traded within its new target range

Source: Bloomberg L.P.

Figure 7: 3-month LIBOR-OIS spread and cross-currency basis swap rates (basis points) Spreads on short-term borrowing have declined since reform

Interest rate on excess reservesFederal funds effective rateReverse repo facility rate

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Note: Right axis is inverted so that downward movement represents relatively cheaper funding.Source: Bloomberg L.P.

LIBOR-OIS (left axis)Yen (right axis)

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Money marketfund reform

OFR MARKETS MONITOR First Quarter 2017 | 4

compensation, the difference between the nominal yield of a Treasury bond and the real yield of a Treasury inflation-protected security of similar maturity, held steady at 2 percent. Actual inflation has been rising. U.S. Consumer Price Index inflation at the end of February was 2.7 percent year-over-year, the highest since 2012. Real rates remained below their peak in December (see Figure 8). A key driver of the rise in U.S. long-term interest rates from all-time lows in July 2016 has been an increase in the term premium. The term premium is the excess yield that investors demand for holding long-term Treasuries rather than a series of short-maturity government obligations. During the first quarter, the 10-year Treasury term premium fell and turned negative for the first time since the U.S. election (see Figure 9). One factor pushing down the term premium on Treasuries is foreign demand, especially from European investors seeking the safety and attractive yield of Treasuries. The yield spread between 10-year Treasuries and German government bonds of a similar maturity is 2 percent, near the widest since 1989.

Political events influenced major foreign economies. Political uncertainty related to European elections caused long-term interest rates to diverge in the eurozone during the first quarter. Yields on French bonds traded 64 basis points higher than the German benchmark, the widest spread since 2014 (see Figure 10). Investors sold off French bonds as uncertainty grew about presidential elections, to be held in two rounds on April 23 and May 7. The rhetoric of the campaign has weighed upon French bonds as one party has proposed that France exit the euro currency area, resulting in a return of the French franc and a redenomination of French national debt. On March 29, the United Kingdom (U.K.) government triggered Article 50 of the Lisbon treaty, the formal process to exit the European Union (EU). This begins a two-year timeframe for the U.K. and EU to negotiate an orderly exit before the split actually occurs in March 2019. Financial markets reacted calmly to the well-anticipated event. The British pound strengthened 1.6 percent against the U.S. dollar during the first quarter.

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Figure 8: U.S. 10-year Treasury yield (percent)Real interest rates have fallen since their December peak

Note: The breakeven rate is the difference between the nominal yield of a Treasury bond and the real yield of a Treasury inflation-protected security of similar maturity.Source: Bloomberg L.P.

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Nominal yield

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Figure 9: Ten-year Treasury yield and term premium (percent)The term premium fell back below zero during the first quarter

Note: Term premium is Adrian, Crump, Moench model.Source: Bloomberg L.P.

Nominal yield (left axis)Term premium (right axis)

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Figure 10: French to German 10-year bond yield spread (percent)French bonds sold off before elections in April and May

Source: Bloomberg L.P.

OFR MARKETS MONITOR First Quarter 2017 | 5

Crude oil prices fell despite a production cut by exporters. The U.S. benchmark price for crude oil fell more than 5 percent to under $51 a barrel during the first quarter (see

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Figure 11). Growing U.S. oil inventories indicated that efforts to reduce the supply of oil had not ended the global oil glut. Production cuts by the Organization of the Petroleum Exporting Countries have been partially offset by rapidly expanding U.S. shale oil production. U.S. producers have offset about one-fourth of the 1.8 million barrels that major oil exporters pledged to cut last November. Capital outflow pressures moderated in China. In February, China’s official reserves rose by $6.2 billion, the first monthly increase in eight months (see Figure 12). Since 2014, persistent capital outflows and the need to support its currency have cost China nearly $1 trillion in reserves. Chinese officials have sought to reduce this cost and stem capital outflows by imposing capital controls. Since late last year, moving capital out of China has

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become more difficult because of enhanced scrutiny of overseas acquisitions and restrictions on the international remittance of China’s currency. In a sign that capital controls may be having their intended effect, China’s currency appreciated by 0.8 percent against the U.S. dollar during the first quarter.

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Figure 11: Crude oil price and inventories ($, millions of barrels)Oil prices fell as U.S. inventories rose, despite OPEC supply cut

Note: OPEC stands for Organization of the Petroleum Exporting Countries. WTI stands for West Texas Intermediate, the U.S. benchmark for oil prices.Source: Bloomberg L.P.

WTI (left axis) U.S. oil inventories (right axis)

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Figure 12: Chinese foreign exchange reserves ($ billions) Reserves increased for the first time in eight months

Source: Bloomberg L.P.

China's foreign exchange reserves (left axis)Monthly change (right axis)

OFR MARKETS MONITOR First Quarter 2017 | 6

Selected Global Asset Price Developments

1Q CHANGE LEVEL 1Q CHANGE YTD CHANGE

(standard 12-MONTH RANGE**(3/31/2017) (bps or %) (bps or %)

deviations)*

EQUITIESS&P 500 2363 5.5% 0.4 6 –––––––––––––|––––––––––––O––U.S. KBW Bank Index 92 0.3% -0.1 0 –––––––––––––|–––––––––O–––––Russell 2000 1386 2.1% 0.0 2 ––––––––––––––|–––––––––––O––Nasdaq 5912 9.8% 0.5 10 ––––––––––––––|–––––––––––––OEuro Stoxx 50 3501 6.4% 0.5 6 ––––––––––––––|–––––––––––––OShanghai Composite 3223 3.8% 0.0 4 ––––––––––––––––|–––––––O––––Nikkei 225 18909 -1.1% -0.2 -1 –––––––––––––––|––––––––O––––Hang Seng 24112 9.6% 0.7 10 –––––––––––––––|–––––––––O–––FTSE All World 297 6.4% 0.6 6 –––––––––––––––|–––––––––––O–

RATESU.S. 2-Year Yield 1.25% 7 0.2 7 –––––––––––––|––––––––––O––––U.S. 2-Year Swap Rate 1.62% 17 0.3 17 –––––––––––––|–––––––––––O–––U.S. 10-Year Yield 2.39% -6 0.0 -6 –––––––––––––|–––––––––O–––––U.S. 10-Year Swap Rate 2.38% 5 0.2 5 –––––––––––––|––––––––––O––––U.S. 30-Year Yield 3.01% -6 0.0 -6 –––––––––––––––|–––––––O–––––U.S. 2y10y Spread 113 -12 -0.4 -12 –––––––––––––|––––O––––––––––U.S. 5Y5Y Inflation Breakeven 2.12% 7 0.2 7 ––––––––––––––|––––––––O–––––U.S. 5Y5Y Forward Rate 2.94% -11 -0.1 -11 ––––––––––––––|––––––––O–––––Germany 10-Year Yield 0.33% 12 0.5 12 ––––––––––––––|––––––O–––––––France 10-Year Yield 0.97% 28 0.9 28 ––––––––––––|––––––––––O–––––Japan 10-Year Yield 0.07% 2 0.2 2 –––––––––––––––––|–––––––O–––U.K. 10-Year Yield 1.14% -10 -0.1 -10 –––––––––––––––O|––––––––––––JPM EMU Periphery Yield 1.96% 28 0.8 28 –––––––––––––|–––––––––O–––––Euro area 5Y5Y Inflation Breakeven 1.56% -18 -1.0 -18 –––––––––––––|––O––––––––––––

FUNDING1M T-Bill Yield 0.73% 31 0.9 31 ––––––––––|––––––––––––––––O–DTCC GCF Treasury Repo 1.03% 55 2.2 55 –––––––|–––––––––––––O–––––––3M Libor 1.15% 15 0.3 15 ––––––––––––|–––––––––––––––OLibor-OIS Spread 22 -12 -0.4 -12 –––O–––––––––––|–––––––––––––EURUSD 3M CCY Basis Swap -26 29.2 0.7 29 –––––––––––––––––––|–––––O–––

U.S. MBSFNMA Current Coupon 3.13% 0 0.1 0 ––––––––––––|–––––––––O––––––FHLMC Primary Rate 4.14% -18 -0.4 -18 –––––––––––|––––––––––O––––––

CREDITCDX Investment Grade 5-Year CDS Spread 67 -1 -0.1 -1 ––––––O––––|–––––––––––––––––CDX High Yield 5-Year CDS Spread 338 -18 -0.1 -18 –––––O––––––––|––––––––––––––

IMPLIED VOLATILITYVIX Index 12 -12% -0.5 -12 –––O––|––––––––––––––––––––––V2X Index 17 -9% -0.4 -9 –––––O–––|–––––––––––––––––––VDAX Index 15 -16% -0.6 -16 ––––O––––|–––––––––––––––––––MOVE Index 61 -15% -0.8 -15 –––O–––––––|–––––––––––––––––3M2Y Swaption Volatility 47 -14% -0.6 -14 ––––––O––––––––––|–––––––––––3M10Y Swaption Volatility 70 -17% -1.0 -17 ––––O––––––|–––––––––––––––––DB G10 FX Volatility Index 9 -19% -1.1 -19 –––O––––––––|––––––––––––––––JPM EMFX Volatility Index 9 -20% -0.9 -20 ––O––––––––––––|–––––––––––––

FOREIGN EXCHANGE & COMMODITIESU.S. Dollar Index*** 100 -1.8% -0.5 -2 –––––––––––––|––––––O––––––––

EUR/USD 1.07 1.3% 0.2 1 ––––––O–––––––|––––––––––––––USD/JPY 111 -4.8% -0.8 -5 –––––––––––––|––––O––––––––––GBP/USD 1.26 1.7% 0.4 2 –––––O––––|––––––––––––––––––USD/CNY 6.89 -0.8% -0.2 -1 –––––––––––––––|––––––––O––––USD/CHF 1.00 -1.6% -0.3 -2 –––––––––––––|––––O––––––––––WTI Crude 51 -5.8% -0.5 -6 ––––––––––––––––––|–––O––––––Gold 1249 8.9% 1.1 9 ––––––––––––––O|–––––––––––––S&P GSCI Commodities Index 388 -2.5% -0.4 -3 –––––––––––––––––|––––O––––––

EMERGING MARKETSJPM EMFX Index 68 3.3% 1.0 3 –––––––––––––––|––O––––––––––MSCI Emerging Market Equity Index 958 11.1% 0.8 11 ––––––––––––––|–––––––––––O––CDX EM 5-Year CDS Spread 214 -28.4 -0.4 -28 ––O––––––––––|–––––––––––––––

* Standard deviations based on quarterly data from January 1994 or earliest available thereafter.** Trailing 12-month range. Latest (O); Mean ( | ).*** Dollar index from Bloomberg (ticker: DXY); averages the exchange rates between the U.S. dollar and major world currencies.Sources: Bloomberg Finance L.P., OFR analysis

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Select U.S. Interest Rates

U.S. T reasury yields and yield curve

S ource: Bloomberg Finance L.P .

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Professional vs. market - implied U.S. inflat ion expect at ions(percent )

S ource: Bloomberg Finance L.P .

Survey o f Pro fessional Forecasters 10-year annual average5y5y forward breakeven rate CPI current

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S ource: Bloomberg Finance L.P .

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T hree-mont h Eurodollar fut ures (percent )

Note s: T he high and low points of the De c FOMC proje ctions are the maximumand minimum fore casts. T he re ctangle re pre se nts the me dian.S ource: Bloomberg Finance L.P .

Mar-31 Feb-28 Jan-31FOMC pro jections from March 2017

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Money market and policy int erest rat es (percent )

S ource: Bloomberg Finance L.P .

GCF Treasury repoFed funds effectiveInterest on excess reservesReverse repo facility

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U.S. Corporate Debt Markets

U.S. corporat e bond opt ion-adjust ed spreads(basis point s)

S ource: Haver Analytics

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U.S. corporat e CDS indexes (basis point s)

Note : Five -ye ar maturity CDS Inde xS ource: Bloomberg Finance L.P .

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U.S. corporat e credit gross issuance ($ billions)

S ources: S ecurities Industry and Financial Markets Association, S tandard &Poor's Leveraged Commentary & Data

Investment Grade High Yield Leveraged Loans

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U.S. corporat e credit fund flows ($ billions)

Note : Flows data are re le ase d with one -month lag.S ource: Haver Analytics

High yield Leveraged loans

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Leveraged loan issuance by use of proceeds (percent )

Note : Data for 2017 are ye ar-to-date as of January.S ources: S tandard & Poor's Leveraged Commentary & Data, OFR analysis

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Leveraged loan price act ivit y

Note s: S&P Le ve rage d Loan Inde x. Inde x 100=January 01, 2012.S ource: Bloomberg Finance L.P .

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Primary and Secondary Mortgage Markets

Primary mort gage rat es (percent )

S ource: Bloomberg Finance L.P .

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MBS yield and opt ion-adjust ed spread t o U.S. T reasurysecurit ies

S ource: Bloomberg Finance L.P .

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30-year home mort gage fixed and jumbo rat es and spread

S ource: Bloomberg Finance L.P .

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Agency MBS holdings by invest or (percent )

Note : Data for 2016 is as of third quarte r 2016.S ource: Inside Mortgage Finance

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Note : Inde x 100 = April 01, 2016.S ource: Bloomberg Finance L.P .

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Equity Markets

Global equit y indices

Note : Inde x = April 01, 2016.S ource: Bloomberg Finance L.P .

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Note : Inde x 100 = Jan 01, 2000.S ource: Bloomberg Finance L.P .

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Note : Inde x 100 = April 01, 2016.S ource: Bloomberg Finance L.P .

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S&P 500 price-t o-earnings and price-t o-book rat ios(mult iple)

S ource: Bloomberg Finance L.P .

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Price-to-earnings 10-year Avg

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Note : CAPE is the ratio of the monthly S&P 500 price le ve l to trailing te n-ye arave rage e arnings (inflation adjuste d).S ources: Haver Analytics, OFR analysis

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S&P 500 implied volat ilit y and opt ion skew(percent )

Note s: Option ske w is the diffe re nce be twe e n thre e -month implie d volatility ofout of the mone y puts and calls with strike s e qual distance from the spot price(+/- 20 pe rce nt). Highe r value s re fle ct gre ate r de mand for downside riskprote ction.S ource: Bloomberg Finance L.P .

VIX 80% - 120% Skew

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Volatility

Implied volat ilit y by asset class (Z-score)

Note s: Z-score re pre se nts the distance from the ave rage , e xpre sse d instandard de viations. Standardization use s data going back to January 01, 1993.S ources: Bloomberg Finance L.P ., OFR analysis

U.S. equities (VIX) Global currencies (JPMVXYGL)U.S. Treasuries (MOVE) Average

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2

3

Realized volat ilit y by asset class (Z-score)

Note s: T hirty-day re alize d volatility. Equitie s base d on S&P 500 inde x, inte re strate s base d on we ighte d ave rage of T re asury yie ld curve , FX base d on we ightsfrom JPMVXY inde x. Standardization use s data going back to January 01, 1993.S ources: Bloomberg Finance L.P ., OFR analysis

Global FX U.S. interest rates U.S. equitiesAverage

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

-2

-1

0

1

2

3

Volat ilit y risk premium by asset class (percent )

Note s: One -month option-implie d volatility minus one -month mode l-pre dicte dvolatility. T he latte r is compute d base d on re alize d volatility, using a he te ro-autore gre ssive mode l with 1, 5, and 22 day lags. U.S. Inte re st Rate s re pre se ntsthe ave rage volatility risk pre mium of two- and te n-ye ar swap rate s. Equitie sbase d on S&P 500 inde x. Curre ncie s base d on we ights from JPMVXYGL Inde x. S ources: Bloomberg Finance L.P ., OFR analysis

U.S. Equities U.S. Interest RatesGlobal Currencies

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

-15

0

15

30

Slopes of implied volat ilit y curves(basis point s)

Note s: Se ve n-day moving ave rage . Slope re pre se nts diffe re nce be twe e n one -ye ar and one -month maturitie s. G10 FX base d on we ights from De utsche Bank'sCVIX inde x.S ources: Bloomberg Finance L.P ., OFR analysis

G10 FX (Left Axis) S&P 500 (Left Axis)2-year USD Swaption Rate (Right Axis)10-year USD Swaption Rate (Right Axis)

-600

-400

-200

0

200

400

600

800

-10

0

10

20

30

40

Opt ion skew by asset class (z-score)

Note s: Option ske w is the diffe re nce be twe e n thre e -month implie d volatility ofout of the mone y puts and calls with strike s e qual distance from the spot price(+/- 10 pe rce nt). Highe r value s re fle ct gre ate r de mand for downside riskprote ction. Equitie s re pre se nts S&P500 inde x. Inte re st rate s re pre se ntwe ighte d ave rage ske w of T re asury future s curve . Curre ncie s re pre se nt dollarske w against major curre ncie s base d on JPMVXY inde x we ights. Z-scorestandardization use s data going back to January 01, 2006.S ources: Bloomberg Finance L.P ., OFR analysis

U.S. equities U.S. interest ratesGlobal currencies Average

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

-3

-2

-1

0

1

2

3

Volat ilit y of equit y volat ilit y

Note : VVIX Inde x me asure s the e xpe cte d volatility of the 30-day forward priceof the CBOE VIX Inde x.S ource: Bloomberg Finance L.P .

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

60

80

100

120

140

6

Advanced Economies

2-year sovereign bond yields (percent )

S ource: Bloomberg Finance L.P .

U.S. Germany U.K. Japan

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

-1.5

-1

-0.5

0

0.5

1

1.5

10-year sovereign bond yields (percent )

S ource: Bloomberg Finance L.P .

U.S. Germany U.K. Japan France

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Breakeven inflat ion (percent )

S ource: Bloomberg Finance L.P .

U.S. ten-year Germany ten-year U.K. ten-yearJapan ten-year

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

0

1

2

3

4

10-year euro area periphery government bond spreadsover German bunds (basis point s)

S ource: Bloomberg Finance L.P .

Italian govt (Left Axis) Spanish govt (Left Axis)Portuguese govt (Left Axis) Greek govt (Right Axis)

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

80

120

160

200

240

280

320

360

400

0

400

800

1200

1600

2000

Major currency indexes

Note s: Fore ign curre ncy incre ase s re pre se nt gre ate r stre ngth ve rsus the U.S.dollar. DXY incre ase s re pre se nt gre ate r stre ngth of the U.S. dollar ve rsus abaske t of major world curre ncie s. Inde x 100 = April 01, 2016.S ource: Bloomberg Finance L.P .

DXY (U.S. do llar) euro British poundJapanese yen Swiss franc

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

85

95

105

115

U.S. dollar long posit ioning vs. major currencies(net speculat ive posit ions, t housands of cont ract s)

Note s: Positive value s re pre se nt ne t U.S. dollar long positions. T he DollarInde x (DXY) is a future s contract base d on the U.S. dollar's value against abaske t of major world curre ncie s. T o e xpre ss a U.S. dollar long position in anon-U.S. dollar contract, the contract must be shorte d.S ource: Bloomberg Finance L.P .

DXY (U.S. do llar) euro British poundJapanese yen Total

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

-100

0

100

200

300

400

7

Emerging Markets

Emerging market currencies(U.S. dollars per foreign currency unit )

Note s: Incre asing value s indicate stre ngthe ning ve rsus the U.S. dollar. Inde x100=April 01, 2016.S ource: Bloomberg Finance L.P .

RussiaChina o ffshoreBrazilEM currency Index

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

90

100

110

120

130

Emerging market sovereign debt yield

S ource: Bloomberg Finance L.P .

EM hard currency EM local currency

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

3.5

4.0

4.5

5.0

5.5

Equit y price indexes

Note s: T he US e quity inde x is the S&P 500 Inde x. T he Chine se e quity inde x isthe Shanghai Composite Inde x. T he De ve lope d Economie s inde x is the MSCIWorld Inde x and the Eme rging Marke ts inde x is the MSCI EM Inde x (both are inlocal te rms). Inde x 100 = April 01, 2016.S ource: Bloomberg L.P .

U.S. China Developed economiesEmerging markets

Ap r2016

Jul2016

O ct2016

Ja n2017

Ap r2017

80

90

100

110

120

130

1-mont h realized emerging market s volat ilit y (percent )

Note s: Re alize d volatility is the annualize d standard de viation. Hard curre ncysove re ign de bt base d on the J.P. Morgan Eme rging Bonds - Global Price Inde xand curre ncie s base d on a we ighte d ave rage of EM curre ncy re turns against thedollar using we ights from J.P. Morgan VXY-EM curre ncy volatility inde x.S ources: Bloomberg L.P ., OFR analysis

EM currencies

2010 2011 2012 2013 2014 2015 2016 20170

10

20

IIF port folio f lows t o emerging market s ($ billion)

Note s: Data re pre se nt the Institute of Inte rnational Finance 's monthly e stimate sof non-re side nt flows into thirty EM countrie s. Data for late st obse rvations arede rive d from IIF's e mpirical e stimate s using data from a smalle r subse t ofcountrie s, ne t issuance , and othe r financial marke t indicators.S ource: Bloomberg

Debt flows Equity flows

2010 2011 2012 2013 2014 2015 2016 2017-30

-20

-10

0

10

20

30

40

50

China's Foreign Exchange Reserves ($ t rillion)

S ource: Bloomberg

FX reserves

Ja n2006

Ja n2007

Ja n2008

Ja n2009

Ja n2010

Ja n2011

Ja n2012

Ja n2013

Ja n2014

Ja n2015

Ja n2016

Ja n2017

$0.5

$1

$1.5

$2

$2.5

$3

$3.5

$4

$4.5

8

Commodit ies

Major commodit ies prices

Note s: Inde x 100 = January 01, 2010S ource: Bloomberg Finance L.P .

Bloomberg commodities indexCrude o il front month (Brent) Gold front month

2014 2015 2016 20170

25

50

75

100

125

Crude oil

Note : WT I and Bre nt are front-month contracts.S ource: Bloomberg Finance L.P .

$/Barrel Million BarrelsWTI (Left Axis)Brent (Left Axis)U.S. inventories (Right Axis)

2014 2015 2016 201720

50

80

110

140

300

350

400

450

500

550

Oil and nat ural gas fut ures curves

Note : Data as of April 03, 2017.S ources: Bloomberg Finance L.P ., OFR analysis

$/barrel $/mmbtu

Brent (Left Axis) Natural gas (Right Axis)

2M 6M 12M 24M 60M45

50

55

60

2.0

2.5

3.0

3.5

4.0

Oil supply and demand fact ors

Note : Global production and consumption are e stimate s by the Inte rnationalEne rgy Age ncy.S ource: Bloomberg Finance L.P .

Million barrels per dayGlobal production (Left Axis)Global consumption (Left Axis)U.S. rig count (Right Axis)

2014 2015 2016 201785

90

95

100

105

110

115

120

200

400

600

800

1000

1200

1400

1600

1800

Speculat ive fut ures posit ioning(t housands of cont ract s)

Note s: Positive value s re pre se nt ne t long positions. Ne gative value s re pre se ntne t short positions.S ource: Bloomberg Finance L.P .

Brent (Left Axis) Gold (Left Axis)Copper (Left Axis) Steel (Right Axis)

Jul2015

Ja n2016

Jul2016

Ja n2017

-140

-70

0

70

140

210

280

350

-20

-10

0

10

20

30

40

50

Met als spot price indexes

Note : Inde x 100 = January 01, 2010.S ource: Bloomberg Finance L.P .

Copper Steel Precious metals

Ap r2015

O ct2015

Ap r2016

O ct2016

Ap r2017

0

50

100

150

200