1. 1 Credit and Fixed Income 30 January 2010 Philip Barleggs

2. 2 CMINST-0336 GrowthStrong growth, with variations The global economy will probably experience strong growth in the first half 2010. Asia is set to shine while the major economies will be held back by muted consumption growth InflationInflation in range The significant excess capacity around the world should lead core inflation to decline until mid-year. Headline inflation has been rising because of commodity prices but is not expected to overshoot PolicyRemoval of policy support Fiscal policy is becoming less supportive. And monetary policy is being effectively tightened as quantitative easing (QE) ends. We expect policy rates in the G4 to remain unchanged in 2010 Global Economic Outlook

3. 3 CMINST-0336 Growth Outlook – US Leading Indicators Point to Strong Growth in the US but questions remain about sustainability

4. 4 CMINST-0336 Growth Outlook – Europe Sentiment suggests softer recovery in Europe

5. 5 CMINST-0336 Inflation Outlook Large Output Gap should act as a Drag on Core Inflation

6. 6 CMINST-0336 Supportive Drivers Economic Recovery & Stimulus packages De-leveraging continues, fundamental improve Comparative position versus Sovereigns improving Investment inflows Credit Outlook

7. 7 CMINST-0336 Risk Factors Sovereign debt crisis deepens How overweight are investors already? Credit Outlook

8. 8 CMINST-0336 Yield LevelGradually higher yields Economic growth, large government deficits, and the prospect of rate hikes will probably lead to gradually higher yields CurveCurve to flatten - eventually We expect curves to remain very steep for several months before flattening when investors start pricing in upcoming rate hikes InflationBreakeven inflation attractive in the USA, too high in Europe For US bond investors, TIPS are an attractive insurance policy against higher-than-expected inflation. We prefer nominals in the UK and in the Eurozone Swap SpreadsSwap spreads to tighten We expect swap spreads to tighten, except for US swap spreads as their directionality to yields leave them vulnerable to a correction in bonds Global Government Bond Strategy

9. 9 CMINST-0336 Yield levelsSuperior yield on corporates provides comfortable break-even levels Flat spread curve enables capture of risk premiums at short maturities SpreadsSpread tightening is supported by improving fundamentals Compression between rating bands has further to go Overweight Corporate bonds Economic recovery on track Valuations attractive Asset allocation inflows expected Global Credit Strategy

10. 10 CMINST-0336 Central Banks – Lower for longer Asset Reflation – Substantial cash reserves put to work Focus Turns to Fundamental Data – Scaling back of official intervention Macro Themes for 2010

11. 11 CMINST-0336 Higher Yields Narrower Credit Spreads Lower Volatility Inflation: Is it Cheap? Investment Themes for 2010