Research Methodologies

Money Markets
Regular publications concerned: ECB Preview; ECB Post-Meeting Comment; EUR Money Market Monitor
Latest update: 17/05/2016

Qualitative methodologies used

For the money market projections we use an eclectic approach.

Starting point is the ECB policy rate (refi rate and deposit rate); these are based on both qualitative and quantitative analysis:

1. A Taylor-rule framework, which links inflation and growth (output gap) to the policy rate (central bank behaviour).
2. Our forecasts for growth and inflation are inputs (these are partly the result of an eclectic approach as well, by combining
experience and knowledge from ourselves with the output from the NIGEM DSGE (Dynamic Stochastic General Equilibrium)
model, as well as estimates of the neutral rate (which is based on productivity trends as per the neoclassical theory of optimal
saving/consumption (Ramsey-Cass-Koopmans)
3. We combine this framework with analysis of pronouncements by ECB officials (for example whether the emphasis should lie
on inflation or output gap) and global factors not included in the first two steps.
The second stage is forward estimations of the overnight money market rate. This is largely based on the relationship between
money market liquidity and the level of policy rates (the rates corridor) determined by the central bank

Given these forward estimations of the overnight rate (Eonia), the third stage combines this with the historical relationship
between money market rates of various tenors and the overnight rate. This third stage is a mixture of the expectations theory
and past behaviour. Expectations theory would dictate a single forecast for each tenor which is based solely on the forward
trajectory of the Eonia rate. But in practice there is often as much volatility in longer tenors and in short tenors, which is
inconsistent with the pure expectations theory.

Quantitative methodologies used

First stage (Taylor rule): The idea is that central bank steers its official rate in such a way that it is above the neutral rate when it
wants to slow down the economy (and inflation) and moves it below the neutral rate to stimulate growth and inflation; this is
largely based on past behaviour, i.e. the relationship between nominal rates and the inflation-gap and output gap.

The second stage is based on the S-curve relationship between excess liquidity and the (given) corridor for policy rates, which we
have documented in a special in August 2013: Excess liquidity and the overnight rate

The third stage is based on several VAR (Vector Autoregression), linking the changes in rates for various tenors to each other.
However, the model also includes the forward component from stage 2, assuming perfect foresight for the Eonia rate.

Frequency
Updates are usually done on a weekly basis. Update frequency is relatively high, although this often is simply a fine tuning in stage
3 (using the latest market data) rather than significant changes in the policy outlook (stage 1), where the frequency is closer to
once a quarter.

Rates Strategy
Regular publications concerned: Rabo Rates Morning Note; Rabo Rate Directions (Weekly); Auction Previews
Latest update: 06/06/2016

Qualitative methodologies used

There is no one approach when it comes to how we come to our forecasts or our trade recommendations. This is owing to the fact
that the drivers of the rate markets themselves are not constant. For example, in previous years, investors would have assumed
that safe haven fixed income markets (i.e Bunds and USTs) might underperform in an environment in which equities are
performing well. In the post crisis period, however, both safe haven and risky asset markets have tended to take their cue from
expectations as regards policy stimulus with central bank largesse resulting in a hitherto unprecedented positive correlation
between these asset classes.

Given the shifting nature of correlations between differing assets, we aim to spot changes in trends/relationships before they are
widely appreciated. One clear example here is provided by peripheral debt markets which began to trade in line with equities as
of the beginning of 2016 having previously been insulated from changes in global risk appetite in the months following the ECBs
announcement of QE. This, in turn, fits within a bigger picture we have developed in the early part of 2016 which is an apparent
loss of confidence in central banks ability to support risky asset valuations through unconventional policy stimulus. As can be
discerned from these examples, our rate views/trading strategies are derived from a framework that can best be described as
macro-thematic. Of course, by its very nature, this framework is hard to define as the themes which underpin it are in a constant
state of flux. (Crucially, the thinking behind our thematic approach is constantly updated and made public via our daily morning
notes and our more in-depth weekly publications).

Having spotted what we believe to be an emergent theme (and, crucially, one which we believe has yet to be fully understood by
the market), we might make recourse to technicals either to set entry and exit points for a given trade (i.e. we might look at prior
highs when considering when we might close a position) and/or refer to relative value (as detailed in the section below) on an
historical basis. These technical considerations, though, are purely ancillary and do not inform our thinking as regards trade
recommendations/yield forecasts. This owing to the fact that in a market beset by regular structural breaks the past is a poor
guide to the future.
Quantitative methodologies used
General

The main quantitative tool we use is our in-house Rich/Cheap model which measures the relative richness/cheapness of
government bonds within the euro area by comparing their valuations with similarly dated bonds issued by other countries in the
single currency zone, bonds on the same curve and relative to swap rates. This model reports how many standard deviations a
given bond is cheap or rich relative to a 60-day moving average. The 10 bonds which offer the most relative value using this
metric are reported in our weekly publication, Rabo Rate Directions, both as regards comparisons with other bonds on the same
curve and vs. similarly dated bonds issued by other euro area governments. We also employ such a model for bonds issued by
euro area supranationals and agencies which works according to exactly the same principal.

Detailing the SSA market indices

In the context of what is an increasingly challenging market environment, we have introduced a number of interrelated,
proprietary market barometers that we hope will assist investors in tracking the evolution of the European SSA market. We use
Rabobanks own request for quote (RFQ) data to build a number of proprietary market indices, namely, the Market Activity Index,
the Market Diffusion Index and the Market Momentum Index. These three metrics rely on number of inquiries and volume of
trade SSA RFQ data, which we have broken down into each of the market sub-sectors, namely; supra-nationals, sub-sovereigns
(which are predominantly German Lnder) and agencies, and also into tenors across these sectors. By doing so, we believe we
have captured a rich and unique view of activity across the European SSA market. With this in mind, we feel these measures will
prove useful in assessing prevailing market conditions with a view to assisting investors in their efforts to take positions within an
increasingly challenging trading environment.

1. The SSA Market Activity index

This proprietary index is simply the absolute number of RFQs that we have seen through the various digital trading systems used
by our SSA trading desk in a specific week (Note: these data do not capture any voice requests that were received). Though our
analysis revealed little difference in terms of measuring this activity either through the number of inquiries or volume of inquiries,
weekly volume statistics show some outliers, whereby, for example, one request for a large volume of one particular issuer/bond
does potentially impact the overall index positioning.

As such, we rely on the total number of inquiries in our index calculation, where the index itself uses a base week of 2015W2
(Week 2) = 100. We believe this allows us to create a clearer view of the trend in demand for the combined universe of SSA bonds
traded by Rabobank. When taking into consideration the size of Rabobanks SSA trading platform the desk is currently ranked
number 1 on Bloomberg in terms of number of tickets traded we believe these data and the index we calculate provide a reliable
overview of broader market activity and trends.

To take the index a step further, we break the Market Activity data into more granular form, examining maturity for both inquiries
and volume. To define these measures, volume is the aggregate volume of inquiries (total ticket size), whilst inquiries is simply
the number of RFQs, regardless of their actual size. A breakdown of the data indicates how much of the activity witnessed can be
allocated to which particular segment of the market, contrasting whether this was based on volume or number of tickets.
Although this is a simple aggregate of the number of inquiries and the total volume of inquiries within each SSA maturity sector,
we believe this measure provides a vivid picture as to where the level of interest is vs. the volume of inquiries made across the SSA
sector over the course of a trading week.

2. The SSA Market Bias index

The market bias index is designed to show whether there is relatively more buy or sell pressure across buckets and within each of
the SSA sub-sectors. It is important to note that this metric differs from the Market Activity Index in that it is a diffusion index
where 50 is neutral, anything sub-50 signals selling, and any reading above 50 shows a bias towards buying during the week. The
computation is straightforward, where any buy volume is seen as a positive number, and any sell as a negative. The difference
between the two is then computed and compared on a relative basis to the total volume in the week. This methodology is
identical for the number of inquiries, with the exception that inquiry data has been grouped by counterparty (i.e. the party looking
to buy/sell). This way, the number of inquiry data highlights buy/sell bias in terms of the number of participants looking to buy
or sell, while the volume data signals whether there was any large volume.

3. The SSA Market Momentum Index

Finally, our Market Momentum Index attempts to highlight whether combined buying/selling pressure has increased/decreased
over time and further qualifies the picture presented in the Market Bias Index above. As such, a richer picture of activity can be
drawn when the Market Bias and Market Momentum Indices are considered together. For the Market Momentum Index, we
present a period of four weeks per SSA sub-sector, so momentum is examined separately for supra-nationals, sub-sovereigns and
agencies. This indicator measures the relative size of a weekly change in each maturity bucket over a four week period with each
of these weeks compared to the past three months (12 weeks). Here, a reading of 0 represents the single smallest change seen in
the past 12 weeks (i.e. the most negative change, or the largest shift towards selling in that particular segment), while a score of
100 signals that that particular weekly change is the largest increase (i.e. shift towards buying) seen in the last 3 months. These
scores are an average of the change in both inquiries and volume.

By showing a set of 4 bars per maturity bucket for each market segment, where each bar represents one week, we can provide an
indication of whether the market is consistently looking to buy more within a specific segment, whether the increase was a one-
off within the observation period, or whether it was a reversal from a previous increase in selling pressure.

Frequency
Our trade recommendations are more the product of inspiration than perspiration and, hence, are not created according to any
set timetable. Our rate forecasts are reviewed at least once a month prior to the publication of the Rabo research teams monthly.
We update our Rich/Cheap model on a weekly basis prior to the publication of Rabo Rate Directions.

FX Strategy
Regular publications concerned: FX Daily; FX Outlook (Weekly); FX Snapshots (Quarterly); EM FX Watch; Technical Outlook
Latest update: 25/05/2016

Qualitative methodologies used

FX is driven by a wide range of variables. These include political and economic news, interest rates and central bank guidance. A
large and significant volume of FX trading is carried out by systematic accounts which use rule-based trading techniques. These
fall into many categories such as momentum systems. It is important to be aware of how these accounts are likely to trade in
certain market environments since flow can have significant value in analysing FX markets. Certain currency pairs in certain
conditions will enter a particular phases such as risk-on/risk-off, value, smart beta etc. It is important to attempt to recognise these
phases and the shocks or events that may throw them off course. Correlations to other assets can be key. Sometimes a currency
does not trade on the back of its countrys fundamentals and instead it can exhibit high correlations to another asset such as a
certain commodity. The real value of an FX strategist is knowing which strategy to apply to which market and when.

Quantitative methodologies used

In 1983 Meese and Rogoff presented findings that a random walk model is superior to all structural models in forecasting FX rates.
The results have provided ample fodder for academics and strategists since. In 2002 Cheung et al found that none of the
fundamental models (uncovered interest rate parity, sticky price monetary model etc.) consistently outperforms a random walk.
However, Brooks et al in 2001 found that fundamentals such as the current account and portfolio flows are the main determinants
of exchange rates while Kilian and Taylor indicted that the predictability of exchange rates improves as the forecast period is
lengthened. Academic evidence suggests that economic variables such as interest rates, prices, money and output do not perform
well. Models based on the Taylor rule and net foreign asset flows are better. Moosa and Burns and others have shown that models
can outperform a random walk if forecasting accuracy is measured in terms of the ability to predict direction. In practice various
models can be of use in FX forecast at certain times. However, the value of any FX predictive model is likely to prove inconsistent
over time.

Purchasing power parity (PPP) is a useful starting point for FX forecasting though it must be accepted that currencies can be
undervalued or overvalued for many years so it is of little short-term value. If a currency is either very over or undervalued it can
offer some insight into central bank behaviour.
Absolute PPP suggests that the level of the exchange rate will be that which equalizes the levels of prices across various countries
this is often known as the Big Mac measure.

Relative PPP suggests that a currency associated with a higher inflation rate is expected to depreciate vs. a lower inflation rate
currency. Inflation reduces the real purchasing power of a currency. Relative PPP relates the change in two countries inflation rates
(from a base period of stable price pressures) to the change in their exchange rate. The implication is that the FX rate will
compensate for the change in the inflation differential.

Uncovered interest rate parity may not be statistically significant but can offer direction. Uncovered interest rate parity implies
that the expected return on a domestic asset will equal the exchange rate-adjusted return on a foreign currency asset. It can be
adjusted for forward rates (covered interest rate parity) and for real interest rates. Expectations of how returns can change can
therefore be a key determinant of assets prices. Liquidity and riskiness of assets must also be taken into consideration.

FX quant models

We often refer to quantitative models for forecasting currencies.

There are usually three components to these:

1. Fundamental. Above we have explained some issues with these models in the context of predicting movements in FX.
However, factors such as inflation indices, current account positions and foreign debt can be influential factors.
2. Technical (see below), these include momentum indicators and key support and resistance levels.
3. Market driven factors include volatility skews, options positioning, and correlations to other assets.

Proprietary models
We have used heat maps to examining the fundamentals of currencies within the same risk group. We determine z-scores for each
variable (current account/GDP ratio, CPI inflation rate, debt ratios etc) and use these to determine which countries are most
exposed.

Fundamentals determine which currencies behave as safe havens. In an ideal world a safe haven currency would have both a
current account and budget surplus. There would be strong levels of liquidity a coherence central bank and high levels of trust
and stability in government and legal systems. A safe haven currency will have significant impact of the behaviour of the central
bank in that country.

Technicals

Technicals assume that FX trends can be exploited. Moving averages and measures of moving average convergence divergence
(MACD) can be easily followed.

Fibonacci extension: When there is no previous important top as a point of reference for the buyers, Fibonacci extension allows an
analyst to obtain higher targets as shown on the monthly USD/ZAR chart. The 76.4% Fibonacci retracement level tends to provide
a relatively solid support. Risk/reward is skewed in favour of establishing long positions.

Patterns: Price action can form various patterns which can have predictive qualities. For example, a break higher from a flag can
indicate a new phase of an upside trend.

Head and Shoulders is a famous reversal pattern. By measuring the distance between the head and the neckline, we obtained a
level as a potential target on the downside. That said, we have to take into consideration that Fibonacci retracement levels will
provide support.

Charts can reveal that some currency pairs are capable of producing a certain rhythm. For example: after a multi-month rally,
USD/TRY tends to pause and consolidate its gains before another leg higher resumes.
According to the Elliott Wave principle, the markets tend to move in waves. A long-term trend is formed by five waves with the
wave three the longest

Frequency
FX forecasts are checked at least once a week and more frequently when a market events dictate.

Credit - Corporates
Regular publications concerned: Corporate Bulletins; Thematic reviews; Corporates Daily
Latest update: 25/05/2016

Qualitative methodologies used

Our prime focus for publication purposes is non-financial corporates in the Benelux countries. Most large corporates incur debt (of
varying descriptions) and therefore require cash to both service and to repay it. We assess the companys ability to service its
obligations in a timely fashion. Ordinarily an issuers ability to service its debts is driven by external factors such as a) the success of
its products, b) market conditions, and c) competition from peers. Essentially we are estimating changes in creditworthiness
(relative to peers) rather than an absolute position.

The more leveraged a company, the more critical the cash generation is. We therefore look at the markets in which the company
operates; i.e. aspects such as the type of product, be it simple, or complex, whether there are usually repeat sales and whether the
goods are essential, or discretionary. Profits may depend on whether the product is freely available (many producers) or if
production is limited by high barriers to entry in the sector.

We are primarily concerned with the durability of companies cash flows. Ultimately cash flows repay debt, although
managements priorities for the deployment of cash have a role as well; i.e. debt repayments, investments, dividends, share buy-
backs. For analytical purposes, cash generation is very important; a growing internal cash generation helps to control leverage.
We look at each industry sector to assess the dynamics and cash generating features. For example real estate development usually
consumes large amounts of cash over a number of years. In contrast, supermarkets are sometimes able to generate positive cash
flow from their working capital position.

The incidence of credit events (e.g. internallydriven such as share buy-backs, or externally-driven, such as M&A, or litigation) can
alter a companys credit profile radically. Predictable companies naturally tend to retain stable creditworthiness.

Strategy

We expect issuers to have a clear, well-defined strategy which sets out to capitalise on the companys strengths. As well as
product-related ambitions the issuers usually provide some financial targets, which should be achievable without implying undue
risk-taking.

Management

The abiding principle we adhere to is that actions speak louder than words. We assess management chiefly by their record of
actions, rather than pronouncements. Communication is a key to success, so to the extent that management is clear and decisive
this is likely to be reflected in the strength of the company.

Management expounds its strategy and we form an opinion on the likelihood of success, which may be measured over a number
of years. Untimely changes, setbacks or failures can be negative for the issuers credit standing.

We also look at the structure of management, for example to determine whether there is a concentration of executive power.
Regarding the composition of the board of Directors, a mix of diverse backgrounds, e.g. with international experience is
preferable. A successful management succession process indicates that forward planning is effective.

Financial
We consider financial ratios and metrics, such as interest cover, leverage and cash generation. The ratios vary according to the
relevant industrial sector, but in most cases there are peer companies for comparison purposes. Also off balance sheet items may
be material e.g. operating leases, or pension deficits; we factor in a balance sheet equivalent.

Typically, an investment grade (high quality) manufacturer needs to maintain an interest cover of several times, modest
borrowings (debt/EBITDA<4x) and a consistent operating cash flow. However ratios will vary according to the dynamics of the
sector and the company. Ideally debt maturities should be spread over many years; i.e. not front end-loaded.

NB: The commentary above is a snapshot of our valuation methodology and is not intended to be exhaustive.

Frequency
We typically re-assess a companys creditworthiness when a) results are published; or b) a material credit event occurs.

Credit Financials
Regular publications concerned: Asset-backed morning comment, Financials Daily, The Week in Credit Financials, Focus on ABS,
Focus on Covered Bonds, Bank Bulletin, Insurance Bulletin, Regulation Update
Latest update: 17/05/2016

Qualitative methodologies
The team does not provide explicit forecasts on debt instruments issued by financial institutions. Neither buy/hold/sell
recommendations nor point or range forecasts for specific sector spread indices are given in our publications. Implicit
recommendations are given following extensive qualitative analysis on three levels.

The first level is bottom-up name analysis, where we track company developments of specific issuers. The focus is here on
analysing earning reports, where we discuss our view on earnings, capital generation and the outlook. The impact of other news,
such as litigation and management changes, is taken into consideration as well when forming a view on the debt instruments of
the company.

The second level is instrument analysis, where we track development of specific debt instruments on the full debt capital stack of
European banks and insurers, ranging from AT1 to securitisations. This analysis mainly consists of following market developments,
both in new issuance and in the secondary market. Specific analysis is done on the structure of these instruments, and in case of
securitisations and covered bonds, also to the asset pool as the secured collateral.

The third level is top-down analysis, where we focus in the impact of macro-economic and regulatory developments on the names
and instruments we follow. The macro analysis is mainly focused on the Benelux, as it is an important element for the credit
strength of the loan book of our core coverage. Moreover, the rates environment is important to consider as well, especially for
the solvency of insurance companies. The regulatory analysis consists of monitoring and scrutinising new laws and/or proposals.
For this reason, we also monitor the political arena very closely on this subject.

Quantitative methodologies used

The team does not make use of specific quantitative models, other than a limited use of cash flow models for securitisations. These
models, with specific parameters on for example prepayment speeds, are all run through the standard Bloomberg ABS interface.

Market based information for the debt instruments we cover is systematically stored in several databases, which are updated on a
daily basis. On the basis of this data, we are able to create specific curves, custom spread indices and create new issuance tables
and monitor overall market developments. This information is also used to determine fair value for new issues and to provide
estimations for new issuance premiums.

Frequency
Implicit recommendations can be changed on a daily basis, depending on news and other developments.

Agri Commodities
Regular publications concerned: ACMR monthly, ACMR specials, ACMR Outlook
Latest update: 26/05/2016

Qualitative methodologies used

Rabobank ACMR price forecasts are released in the ACMR monthly or in special reports if needed to the full distribution list. Price
forecasts are limited to forecasts of major exchange traded agri commodities including wheat (CME Chicago, Euronext), corn (CME
Chicago, Euronext), soybeans (CME Chicago), soybean oil and meal (CME Chicago), palm oil (MDE-Bursa) sugar (ICE #11), cocoa
(ICE NY, ICE London), coffee (ICE Arabica, ICE Robusta) cotton (ICE #2).

The forecast are done for quarters (Q1-Q4) and reflect the expected average exchange price for these quarters looking forward for
a period of about 1 to 1.5 years.

Price forecasts are based on fundamental agri commodity analysis combined with technical analysis, managed money positioning
and Rabobank exchange rate forecasts.

Fundamental analysis is performed for major export and import regions, aggregated up to a global level on a crop marketing year
basis and use when available official reports as a historic baseline. Fundamental forecasts are broadly derived as follows:

1. Production forecasts are based on acreage and yield forecasts.

2. Acreage forecasts are based on planted acreage expectations, considering farmer margins, short and medium-term weather
forecasts, planting progress as well as typical and weather related conversions of planted acreage into harvested acreage.
3. Yields forecasts are starting of as trend yield projections and are adjusted based on historic weather as well as weather
forecasts.
4. Demand forecasts are based on GDP and population growth, dietary changes, waste and early harvest assumptions, adjusted
by official trade and stock reports, combined with official weekly/monthly demand reports.
5. Trade flow forecast are based on local supply and demand estimates and reports, weekly/monthly/annual official trade flow
reports from various sources.
Price forecast models are based on forecasts which are also taking into account what is already priced in current exchange prices
and which events can be expected with a high likelihood that can impact the prices at the futures exchanges.

Fund positioning takes into account the figures reported by CFTC, which are also shared with clients in Rabobanks COT
Commitment of Traders reports.

Technical analysis is based on in-house as well as external analysis. Exchange rate forecasts are done by FMR and used in the
ACMR models as large volumes of agri commodities are traded globally and exchange rates significantly impact exports/imports
of certain regions and thus have a strong impact on the availability and ending stocks of these commodities in different countries
and therefore also reflect back into futures prices at the above mentioned exchanges. The price forecasts also include political or
other uncertainties and risks and are adjusted to reflect these factors. The most important risk/uncertainty factors are usually
described in the monthly reports together with the price forecasts and are largely referred to in the report in which the price
forecast is published.