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Global Rates, FX & EM 2017 Year Ahead Bank of America Tectonic shifts ea ce 16 November 2016 Corrected Our top 10 Rates, FX & EM trades for 2017 Fs aaa Behes Global 1. Short US 5y rates — Two and a half Fed hikes priced by the rates market for 2017- 18 are not consistent with aggressive fiscal easing promised by Trump. 2. Short US 10y real rates — After the violent repricing of inflation breakevens, we believe real rates offer better risk-reward to position for higher rates. 3. Buy USD/JPY — With the BO) pegging 10y JGB yields at zero, we expect this highly Sor David Woo interest rate sensitive USD cross will continue to be the biggest beneficiary of the eee ot eo neen OM Trump win. 4. Sell a basket of Brazilian, Mexican, and Colombian long bonds — Positioning in ° 5 5 5 Byki GD Figee 8 David Woo EM fixed income market remains crowded while liquidity is poor. FX, Rates & EM Strategist MLPF&S david.woo@baml.com 5. Sell BRL/MXN — MXN is oversold but BRL will likely be vulnerable to the divergent 5 Ko fh ‘ See Team Page for Full List of Contributors paths between Brazil’s easing and the Fed’s tightening cycles. 6. Buy USD call/CNH put — President Trump will need a weak USD, but President Xi needs a weak CNY. We believe risk premium for a collision course is too low. 7. Sell EUR/GBP - Brexit and Trump could bolster the anti-globalization parties in Europe ahead of key elections next year. 8. Sell Eurozone 30y inflation breakevens — We think investors should take advantage of the recent rally to sell into the December ECB meeting, which could disappoint. 9. Sell EUR/RUB — Likely OPEC production cuts on November 30 and possible sanction relief for Russia are bullish for the RUB, in our view. 10. Buy NZD/USD put spread — Spot NZD/USD is forming a head and shoulders top pattern that suggests a decline will follow in 2017. Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in FX markets and the financial resources to absorb any losses arising from applying these ideas or strategies. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 54 to 56. Analyst Certification on page 53. Valuation & Risk on page 53. 11688515 Timestamp: 16 November 2016 05:30AM EST Unauthorized redistribution of this report is prohibited. This report is intended for kaasha.saini@baml.com HOUSE_OVERSIGHT_014731