ASSET SWAP CALCULATOR HELP FOR SWPM -ASW Use ASW to calculate the relative value of a selected bond

through the interest rate swap market. You can use SWPM -ASW to determine if it is better to enter into an asset swap versus purchasing a floating rate instrument. Issuers can use SWPM -ASW to determine how much money can be saved in interest costs by issuing a fixed rate bond and swapping the fixed payments for floating payments. 1) Instructions 2) Swap Calculation Components 3) BLOOMBERG MARKETS Articles & Related Literature TO ACCESS: {ticker symbol} <yellow key> SWPM -ASW <Go> T 4.5 02/15/36 <GOVT> SWPM -ASW <Go> US172967BU43 <CORP> SWPM -ASW <Go> SWPM ASW <Go> <HELP> for personal assistance, <MENU> to return.

1) Instructions. 1) Instructions 2) Description of Display: ASW Main 3) Description of Display: Curve 4) Description of Display: Cashflows 5) Underlying Swap 6) Funding Leg 7) -Cross-Currency Spreads 8) Amortizing schedule 9) Save 10) Floaters. 11) Shortcuts.

1) Instructions Once you select a bond or saved asset swap, enter SWPM -ASW <Go>. Additional instructions appear on the screen. NOTE: To access a saved asset swap, enter: /{ticker symbol} {yellow key} <Go>. 1 <Go> for more information on saving an asset swap (goes to 9) Save) For a list of asset swaps available to you, enter /ALL <CORP> <Go>. Alternatively you can find your list of saved asset swaps in SWPM, Options in the top red toolbar, List all deals. NOTE: For the time being the new ASW functionality does not handle bonds with options (callables, convertibles).

2) Description of Display: ASW Main The Display includes two components: the main ASW frame (here described), its details (discussed below in sections 5 and 6). Information regarding the bond selected appears at the top of the page above the Asset Swap Manager toolbar, such as: issuer, bond Corp Ticker, coupon, maturity, bid/ask price, bid/ask yield, pricing source. The Asset Swap Manager toolbar has several drop-down menus: - OPTIONS: allows retrieving a deal among those saved and sending a saved deal to another Bloomberg user. - NEW DEAL: gives access to the full spectrum of interest rate derivatives that we handle in our swap manager (SWPM <Go>). - SAVE DEAL: you can save a deal just by clicking this button. Once the asset swap is saved, this button will display EDIT DEAL, so that you can change the details of your asset swap transaction at any time. -VIEW: goes in depth into every component of the asset swap transaction: - The Main ASW screen; - The Curve screen; - The Cashflow screen; - The Underlying swap transaction (described in chapter number 5); - The Funding leg (described in chapter number 6), visible only if a funding leg has been added. - ADD FUNDING: permits to add a 4th leg to the structure for funding purposes (also called Repo-leg). Once the 4th leg has been added, this button will display REMOVE FUNDING, so that you can remove the funding leg at any time. The Deal bar allows you to name the deal by inserting arbitrary names: - Counterparty: counterparty name for the deal; - Ticker: four-digit code identifier. If, for instance you save /ABCD, you can retrieve the deal by typing {/ABCD <CORP> <Go>}; - Series: a number ranging from 1 to 9999 that further specifies the deal. It is not compulsory to add a Series number; - Deal#: ticker of the asset swap deal (three or four-legged). It appears after saving the structure and it allows to retrieve the deal by typing {/SP###### <CORP> <Go>}. There are also other 4 deal numbers (one for the bond leg, one for the underlying swap, additional two to separate the legs of the underlying swap); - DETAIL: in the deal details you can specify the privilege type of the deal (user or whole firm), custom Id).

The Bond section includes: - Buy/Sell: Choose to buy or sell the selected bond in the white drop down field. For transparency, if you hold a fixed-bearing-coupon bond and select the Sell options, you alienate the principal of the bond and its cashflows to usually receive a floating rate note. - Par Amt: The par amount traded for the Bond leg and its offsetting leg in the underlying swap. It must be a positive number. For a list of scaling factors, move your cursor to the second highlighted field and choose M (thousands) or MM (millions). - Curr: the currency of the underlying bond. - Discount Crv: the code of the appropriate discounting swap curve. You can change it by entering anther curve from one of those listed in SWDF. You can also choose the side of the market bid/mid/ask. - Day Cnt: the Day Count, the method by which accrued interest, yield-to-maturity, and coupon periods are calculated. - Workout: the workout date and price used to construct the bond's cash flows. The workout date is the most likely redemption date of the bond. You can modify the workout price and generate a premium/discount. The Bond section includes: - Float/Fixed: Choose to asset swap your bond against fixed or floating payments in the white drop down field. For transparency, if you hold a fixed-bearing-coupon bond you can decide to receive either a floating rate note or alternatively a fixed stream of cashflows. Analogously, if you hold a floater bond you can decide to receive either a fixed stream of cashflows or a different floating rate note. - Notional: the original notional of the non-offsetting leg of the underlying swap. If you hold a fixed-bearing-coupon bond this will be the notional of the floating rate note within the underlying swap. It must be a positive number. For a list of scaling factors, move your cursor to the second highlighted field and choose M (thousands) or MM (millions). - Curr: The target currency for the resulting floating rate instrument in the asset swap. For a full list of currencies, move your cursor to the highlighted field. If you select a different currency the discount and the forward curves of the resulting leg will also change accordingly. - Discount Crv: the code of the appropriate discounting swap curve. You can change it by entering anther curve from one of those listed in SWDF. You can also choose the side of the market bid/mid/ask. - Forward Crv: the code of the appropriate discounting swap curve. You can change it by entering anther curve from one of those listed in SWDF. You can also choose the side of the market bid/mid/ask. - Day Cnt: the Day Count, the method by which accrued interest, yield-to-maturity, and coupon periods are calculated. - Pay Freq: The frequency of coupon payments. For a list of choices, move your cursor to the highlighted field. Curves and Settlement: - Curve: the settlement date of the swap curve and pricing source. -Valuation: the reference date for determining all cash flows.

- Trade settlement: trade settlement date of the deal. - All Values in: currency in which all the values are expressed, it gives a list of choices in case of a cross currency asset swap. - FX Rate: spot FX rate used in case of a cross currency asset swap. It can be changed. Gross Spread and Valuation: - Market Value: market value of the bond-leg. - Accrued: accrued of the bond-leg. - Implied value: the theoretical price of the bond derived by valuing the cash flows at a zero-spread to the swap's implied zero curve. - Include accrued: option to include accrued in the underlying swap. The calculator always includes accrued in the bond-leg. Regarding the swap-legs it includes accrued on both legs by default, but allows you to exclude accrued in the underlying swap (offsetting leg and remaining leg). If you want to include accrued only in the offsetting leg, modify your defaults either in the Curve tab at the bottom of the page or in the effective dates of the underlying swap (where you have the flexibility to partially include the accrued up to an arbitrary effective date). - Z-SPREAD: The amount to adjust the swap curve to make the bonds net present value equal its market price. The bond's market price is an indication of the value assigned to the bond's cash flows by the bond market. The swap market implied zero curve is used to determine the swap market's value for that same set of cash flows at a zero spread. implied zero curve. The Z-spread quantifies the difference of opinion about the bond's cash flows in the two markets using an approach similar to that of an OAS model. In the Z-spread calculation, the cash flows are again valued using the zero rates implied from the swap curve. The single spread added to each zero rate is solved for, in turn solving for the bond's market price. When the gross spread/Z-spread is small, the two spreads are close. The spreads diverge for bonds from weaker credits, with the Z-spread tending to be the higher of the two. - Money: the difference between the implied value and the market price multiplied by the par amount of the bond. - Spread (bp): the difference between the implied value and the market price, in basis points; also, the sum of the spreads in the Asset Swap Calculator section of the screen. Asset Swap Calculator: - Calculate: the calculation method. For a list of choices, move your cursor to the highlighted field. You can calculate the asset swap spread (given by default), the bond price and the swap price (for saved asset swaps). - Bond Price: The bond's price. After you open the ASW screen, press the arrow down button on your keyboard to enter in the cell. - Yield (%): the bond yield. - Z-SPREAD: you can modify this number and calculate the new bond price and asset swap spread. - Swap Price: The transaction price of the asset swap. It defaults at par. - Cash Out: The difference between the market price (Bond Price) and the trade price (Swap Price). A more detailed explanation of the cash out can be found in the main screen of the underlying swap.

- Money: The Cash Out multiplied by the par amount. - Spread (bp): The difference between the market price (Bond Price) and the trade price (Swap Price), in basis points. - Swap rate: The fixed coupon rate of the offsetting interest rate swap (par at flat over the floating leg) in %. - Bond Coupon: The coupon paid on the underlying bond in %. - Money: The present value difference of the bond's coupon payments versus the offsetting swap's fixed coupon payments. The money calculation is (swap price * par amount) - bond price. - Spread (bp): The difference between the bond's coupon and the offsetting swap's fixed coupon, in basis points. - Redemption Premium/Discount: The % amount above/below par of the principal redemption payment. It is also populated in case the par amount of the bond leg is different from the original notional of the remaining leg. - Money: The present value of the bond's Redemption Premium/Discount. - Spread (bp): The value of the Redemption Premium/Discount. - Swapped Spread: The realized spread for the asset swap, including all the effects of funding and off-market swap pricing (e.g., the effect of entering a non-par swap rate for a par trade price), in basis points.

3) Description of Display: Curve The Curve screen is accessible by paging forward (<PAGE FWD>) from the main screen or by pressing the Curve red tab at the bottom of the page. It displays data from the deal's underlying curves and allows you to perform curve related analytics. You can select the curve for which you would like to display rates, term discount factors, and day count and frequency conventions. You can also override the values of the term rates, perform a global shift of the curve, and specify the interpolation method. The following fields appear on the screen: - Curve#: curve data appears for the curve number you selected. The curve numbers are compiled from the discount curves, forecast curves, and FX basis curves used in the swap deal. - Bid/Mid/Ask: The rates on the selected market side for the curve number appear. Change to Bid, Mid, or Ask, to display rates on the selected market side for the curve. If you change any rates in the curve grid that are on the market side of a curve on which a leg is valued, then the market value of the swap changes. For example, consider a plain vanilla fixed-float swap where the market sides for the discount curves on both legs, and for the forecast curve on the float leg, are set to Mid on the Main Screen. If you navigate to the Curve Screen and change the values for the rates on the Mid side of the curve, then the swap market value changes. However, if you retrieve the bid side of the curve and change any of the Bid rates, the market value does not change because none of the legs use the bid rates in its valuation. - EXPORT TO EXCEL: grey button. Will launch Excel and download the entire data grid on the screen to a corresponding grid of cells in the Excel spreadsheet. - #: The point on the curve. - Term: The term to maturity of the particular point on the curve. -Rate: The annualized interest rate for the specified term point on the curve. To override any rate or rates on the curve, enter the new rate or rates in the respective fields, then press <Go>. The rate(s) entered become part of the curve and the market value and risk analytics are recalculated using the new curve. If any of the rates are set to zero, or the rate fields are blanked out, new implied par curve rates are filled in for the missing points. - Discnt: The discount factor for the specified term point on the curve. Daytype/Freq Conventions: - Cash Rates: The day count convention for curve rates with terms less than or equal to one year. - Swap Rates: The day count convention for curve rates with terms greater than one year. - Rate Source: The source of the curve rates (e.g., LIBOR, User Rates, or Futures-Based). To Change the rate source, enter SWDF <Go>. {1 <Go> for more information on SWDF} - Interpolation Method: The methodology applied to interpolate between points on the curve. To change your default, enter SWDF <Go>. Global Change Fields: - From/To: The range of term points to be shifted.

- Shift: The number of basis points to shift the indicated range of term points. How to Import Curve Rates from excel: - Open the appropriate spreadsheet in Excel. - Select the Curves tab at the bottom of the Main Screen. - Drag and drop the desired column of rates from the Excel spreadsheet into the rate column of the Curves Screen. The rates fill in starting with the upper left rate on the Curves Screen. NOTE: You can only import rates into the Curves Screen. You cannot import terms or discount factors. Valuation: - Curve: the settlement date of the swap curve and pricing source. -Valuation: the reference date for determining all cash flows. - Trade settlement: trade settlement date of the deal. - All Values in: currency in which all the values are expressed, it gives a list of choices in case of a cross currency asset swap. - FX Rate: spot FX rate used in case of a cross currency asset swap. It can be changed. Market Value (left): market value of the bond-leg. Accrued (left): accrued of the bond-leg. Premium (left): . Include accrued (left): option to include accrued in the offsetting-leg of the underlying swap Market Value (right): market value of the underlying swap. Accrued (right): accrued of the underlying swap. Premium (right): premium of the underlying swap Include accrued (right): option to include accrued in the remaining-leg of the underlying swap. Quick calculator in the bottom of the screen (all the details are changeable from the ASW Main screen), it allows you to appraise how shifts in the curves affect asset swap spread and Z-spread: - Bond Price: The bond's price. - Calculate: the calculation method. - Swap Par Cpn: The fixed coupon rate of the offsetting interest rate swap (par at flat over the floating leg) in %. - Asset Swap Spread (bp): the difference between the implied value and the market price, in basis points; also, the sum of the spreads in the Asset Swap Calculator section of the screen. - Workout: the workout date and price used to construct the bond's cash flows. The workout date is the most likely redemption date of the bond. - DV01:

- Z-SPREAD: The amount to adjust the swap curve to make the bonds net present value equal its market price. - REFRESH: click this button to re-calculate.

4) Description of Display: Cashflows - The Net Cashflow Screen displays the combined cashflow dates, absolute and discounted amounts for the aggregate of Bond leg, offsetting leg of the underlying swap and remaining leg of the underlying swap. - The Bond Cashflow Screen displays the cashflow dates, absolute and discounted amounts for the bond leg. - The Swap Cashflow Screen displays the cashflow dates, absolute and discounted amounts for both legs (offsetting and remaining) of the underlying swap. - EXPORT TO EXCEL: grey button. Will launch Excel and download the entire data grid on the screen to a corresponding grid of cells in the Excel spreadsheet.

5) Underlying Swap All the details about the underlying swap embedded into the asset swap deal can be found in two ways: from the main toolbar (View and then Swap Deal) or from the Swap section (grey DETAIL button) of the ASW Main screen. All the fields described in this chapter pertain to the Underlying Swap: Main Screen: - Counterparty: counterparty name for the deal; - Ticker: four-digit code identifier. If, for instance you save /ABCD, you can retrieve the deal by typing {/ABCD <CORP> <Go>}; - Series: a number ranging from 1 to 9999 that further specifies the deal. It is not compulsory to add a Series number; - Deal#: ticker of the underlying swap deal (two legs). It appears after saving the structure and it allows to retrieve the deal by typing {/SP###### <CORP> <Go>}. There are also other 4 deal numbers (one for the bond leg, one for the asset swap deal, additional two to separate the legs of the underlying swap); - DETAIL: in the deal details you can specify the privilege type of the deal (user or whole firm), custom Id). Offsetting leg: - Pay Fixed/Receive Fixed: Identifies whether the fixed leg is pay or receive based on the selection on the ASW Main screen. - Leg#: The Cusip number associated with the swap offsetting leg. This is assigned by Bloomberg once you save the swap. - Ticker: The leg or group of legs. A double slash (//) precedes all leg tickers. You can only use letters for the ticker. - Notional: The amount used to determine the leg cashflows, it defaults to be equal to the Bond Leg (in order to offset all its coupon payments). Each (M) equals '000. -Curr: The currency of the offsetting leg cashflows. It defaults to be the same as the Bond Leg. - Effective: The date interest begins to accrue, it defaults to the start of the bond but it can be modified to any date (also modifiable by including/excluding accrued in the ASW screen). - Maturity: The termination date of the leg, which defaults to the maturity of the bond. - FirstPmt: The nominal date on which the first coupon payment is scheduled. It matches the nearest coupon payment of the bond. - NxtLastPmt: The nominal date on which the next to last coupon payment is scheduled. It matches the nearest coupon payment of the bond. - DiscountCrv: The swap yield curve number. It defaults to the curve number that corresponds with the Curr field. - Bid/Mid/Ask: The market side of the discount curve used in the leg valuation. This is obtained from the user's default settings. You can change the market side on the screen to see what the valuation would be for a different market side. However, when you save the deal, the market side on the screen is not saved. Rather, when you retrieve the deal, the market side from your default settings is used in the valuation.

- Cpn: The fixed rate of interest paid/received over the life of the leg. It matches the coupon of the bond but it can be changed if the user requires. - Calc Basis: The basis on which fixed cashflows are calculated defaults to bond equivalent. - Pay Freq: The frequency at which the cashflows are calculated. Same frequency as the bond. - Day Cnt: The day count convention used for calculating fixed interest payment periods. The first field sets the number of days in a month and the second field sets the number of days in a year. In combination, these fields determine the day count fraction for a period. - Unwind Cpn: The fixed rate of interest that was paid/received to terminate, or unwind, the swap. - Unwind Annuity: The difference between the underlying fixed interest rate of the swap and the unwind coupon used to terminate the swap, expressed as a percentage. Remaining leg: - Pay Fixed/Receive Fixed: Identifies whether the floating leg is pay or receive based on the selection on the ASW Main screen. - Leg#: The Cusip number associated with the swap offsetting leg. This is assigned by Bloomberg once you save the swap. - Ticker: The leg or group of legs. A double slash (//) precedes all leg tickers. You can only use letters for the ticker. - Notional: The amount used to determine the leg cashflows, it is set up on the ASW front screen but can be modified in the underlying swap page. Each (M) equals '000. -Curr: The currency of the remaining leg cashflows. It defaults to be the same as the Bond Leg but it will differ in case of a cross-currency asset swap. - Effective: The date interest begins to accrue, it defaults to the start of the bond but it can be modified to any date (also modifiable by including/excluding accrued in the ASW screen). - Maturity: The termination date of the leg, which defaults to the maturity of the bond. - FirstPmt: The nominal date on which the first payment is scheduled. It depends on the bond payment schedule and the frequency of the floating leg selected. - NxtLastPmt: The nominal date on which the next to last coupon payment is scheduled. - DiscountCrv: The swap yield curve number. It defaults to the curve number that corresponds with the Curr field. - ForwardCrv: The curve number of the floating rate index used to calculate implied forward reset rates for the float leg. It defaults to the curve number that corresponds to the Curr field. - Bid/Mid/Ask: The market side of the discount curve used in the leg valuation. This is obtained from the user's default settings. You can change the market side on the screen to see what the valuation would be for a different market side. However, when you save the deal, the market side on the screen is not saved. Rather, when you retrieve the deal, the market side from your default settings is used in the valuation. - Index: Floating libor Index ticker. - Latest Index: The appropriate interpolated libor index. - Spread: The number of basis points over/under the floating rate index the floating rate payer is obligated to pay. It represents the ASW spread.

- Reset Freq: The frequency at which the floating rate index is reset. - Pay Freq: The frequency at which the cashflows are calculated. - Day Cnt: The day count convention used for calculating fixed interest payment periods. The first field sets the number of days in a month and the second field sets the number of days in a year. In combination, these fields determine the day count fraction for a period. The other pages, Curves, Cashflow, Risk, Horizon can be visualized by pressing the Tab at the bottom on the page and are parallel to the ones described in SWPM. Please click here for more insight: {1 <Go> for more information on SWPM}.

6) Funding Leg This leg can be added for funding purposes and provides the value of the asset swap under an arbitrage perspective. You would borrow money at a spread over/under libor to fund the purchase of a bond and then asset swap the bond. Therefore the price of the swap will be a function of the differential between the Gross Spread (asset swap spread) and the funding rate. The introduction of a 4th leg impacts not only the P/L but also the risk profile of the structure. Also you can fund the purchase on a libor index which differs from the remaining legs one, therefore arbitraging imperfections of the yield curve. To add it click on the top bar on ASW Main the Add Funding button, once added the button will display the indication Remove Funding. You can appraise the details of the funding leg by selecting on the top bar on ASW Main the View option, then Funding Leg: Detail: - Leg#: The Cusip number associated with the swap leg. This is assigned by Bloomberg when you save the swap. - Ticker: The leg or group of legs. A double slash (//) precedes all leg tickers. You can only use letters for the ticker. - Notional: The amount used to determine the leg cashflows. Each (M) multiplies the notional amount by 1000. The notional defaults on the total clean value of the bond position and can be modified at any times. - Curr: The currency of the leg cashflows. - Effective Date: The date interest begins to accrue. It appears as a nominal date and should be entered as a nominal date without business adjustment. - Maturity Date: The termination date of the leg. It appears as a nominal date and should be entered as a nominal date without business adjustment. - Bus Day Adj: The method used to adjust cashflow dates to business days when necessary. - Index: The index on which the floating rate is based. - Spread: the appropriate repo spread/funding spread. - Reset Freq: The frequency at which the floating rate index is reset. - Pay Freq: The frequency at which the cashflows are calculated. - Roll Date Convention: Choose the method to use in order to generate cashflow dates. For example, 'Backward' means, starting from the Next To Last Payment Date, generate periodic dates backwards based on payment frequency. Reset: The Reset Screen appears for Floating legs only. It displays the historical and current dates and reset rates for a floating leg. Click on the gray EXPORT TO EXCEL button to launch Excel and download the entire data grid on the screen to a corresponding grid of cells in the Excel spreadsheet. Amortization: The Amortization Schedule Screen allows you to create and view three types of changing notional schedules: Amortizing, Accreting, or Rollercoaster. For each schedule, there are three possible methods of calculating the changes in notional amount:

Percent of Notional, Amount in 1000's, and Balance. A better description of the Amortization feature is available below ( 8) Amortizing schedule). Custom: The Custom Schedule Screen allows you the flexibility to customize many of the features associated with the funding leg cashflow schedule, such as start and end dates for the accrual periods, payment dates, and reset dates, spread above reset index, paid down schedule, fee payments, and whether your own cashflow payments are calculated as a percentage coupon or the actual amounts, with a leverage or deleveraged.

7) -Cross-Currency Spreads You can change the currency of the Remaining Leg from the main screen of the Asset Swap Manager, therefore creating a cross-currency asset swap. You can currently create 4 types of cross-currency asset swaps: - fixed-floating asset swaps of fixed bearing coupon bonds, - fixed-fixed asset swaps of fixed bearing coupon bonds, - floating-floating asset swaps of floaters, - floating-fixed asset swaps of floaters. Once created a cross-currency asset swap, the following fields appear on the Main ASW screen: - the new discounting curve will be based on the entire Basis Swap Curve (not only a point), - if the Remaining Leg is floating, the foreign currency Libor index will default to the currency standard (EUR006M for EUR, US0003M for USD,) and can always be modified selecting a different frequency, - the notional of the Remaining Leg will be multiplied for the most recent spot FX rate, - the notional of the Offsetting Leg will not be multiplied for the FX rate but it will remain in the original currency (if you wish, you can also modify the currency of the Offsetting Leg in the underlying swap front screen, therefore producing a threecurrency ASW), - FX rate field: The most recent spot exchange rate for the selected currency. You can override this value, - All values in: The currency in which the market values of the legs and the deal are reported. For cross-currency swaps, you can choose one of the leg currencies from the dropdown menu to be the report currency. For single-currency swaps, all values are reported in that currency, - Finally, in the Curves page, you can display the entire basis curve and eventually modify it. Once created a cross-currency asset swap, the following fields appear on the Underlying Swap screen: - the new discounting curve will be based on the entire Basis Swap Curve (not only a point), - if the Remaining Leg is floating, the foreign currency Libor index will default to the currency standard (EUR006M for EUR, US0003M for USD,) and can always be modified selecting a different frequency, - the notional of the Remaining Leg will be multiplied for the most recent spot FX rate, - the notional of the Offsetting Leg will not be multiplied for the FX rate but it will remain in the original currency. You can create an asset swap with 3 currencies from this screen, - FX rate field: The most recent spot exchange rate for the selected currency. You can override this value,

- All values in: The currency in which the market values of the legs and the deal are reported. For cross-currency swaps, you can choose one of the leg currencies from the dropdown menu to be the report currency. - in the Curves page, you can display the entire basis curve and eventually modify it, - in the Cashflow page, vectors of the forward FX rates used to convert future cashflows and the 2 different discounting curves are produced.

8) Amortizing schedule The Asset Swap Manager now also supports sinkable bonds. The amortizing schedule replicates the bonds one and applies to all the asset swap legs (three or four depending on the type of asset swap) as a default. You can decide to switch off the sinkable feature for one of the legs if you wish. For transparency, the bonds amortizing schedule is imported in Percent of Notional terms. The amortizing schedule depends on the effective date of the asset swap transaction, for instance, for a bond: - amortizing the Original Notional by 20% a year over 5 years, - if you enter in the asset swap transaction after the first amortization has taken place, the amortization that applies to the bond and swap notionals will increase to 25% a year over the remaining 4 years. You can visualize the amortization in the detail of the Underlying Swap screen; the page displays: -Type: The type of schedule. Choices include: -Amortizing: Decreasing notional schedule. -Accreting: Increasing notional schedule. -Rollercoaster: Notional schedule may increase or decrease at different times. - Amount: - The method used to calculate the changing notional amounts. Choices include: -Percent of Notional: The notional amount on the cashflow date is calculated as the stated percentage of the original notional. Amounts specified after the previous payment date, up to and including the next payment date are accumulated into the next payment date for calculations. -Amount in 1000's: The amount in 1000's to be deducted (amortized) or added (accreted) from the original notional. Amounts specified after the previous payment date, up to and including the next payment date, are accumulated into the next payment date for calculations. -Balance: The actual amount or remaining balance of the original notional. The latest balance amount is used for the next payment date if multiple balance amounts are specified after the previous payment date, up to and including the next payment date. - Amort Dates (Pay/Rcv):The scheduled amortization dates. Amort Dates may be different from the payment/cashflow dates. Amort amounts that fall between two payment dates are accumulated into the ending amort payment date for type "Percent of Notional" and "Amount in 1000's". The amount specified as the latest between two payment dates (inclusive on ending payment date) is used for the ending payment date for type "Balance".

9) Save In order to save an ASW transaction, just go on the Main ASW screen and click the Save button on the red toolbar at the top of the page. Once you save the security, the Save button will display Edit and will allow you to modify details of the structure in the future. When you create and store an asset swap, you can assign a ticker symbol to each counterparty. You can use this ticker, plus the security's fixed coupon and maturity, to retrieve the structure. Bloomberg adds a slash (/) to identify the security. You must add the (/) to the ticker when you retrieve the derivative (i.e., /ASW 8 5/6/10 <CORP> <Go> represents a derivative with the ticker ASW, a fixed coupon of 8%, and a maturity of May 6, 2010). ASW allows you to save the entire structure and parts of it, retrieve them and evaluate them separately; specifically: - the entire asset swap deal (3 or 4 legs), accessible thereafter through the (/) sign, - the underlying swap deal (2 legs), accessible thereafter through the (/) sign, - the offsetting leg, accessible thereafter through the (//) sign, - the remaining leg, accessible thereafter through the (//) sign, - the funding leg, accessible thereafter through the (//) sign. To display a list of all previously stored asset swaps you have two options: - enter /ALL <CORP> <Go>; - go to SWPM and click on the Options button on the top red bar, List all Deals. When you retrieve a saved asset swap, the function calculates the swap price.

10) Floaters Is market practice to asset-swap floating rate notes against fixed or variable. The former strategy aims to increase the portfolio duration and modify the liability profile, the latter aims at maintaining the variable features by building the forward structure on more convenient dates, resets rates and dates. Both strategies are used by money managers and treasurers on both same-currency and cross-currency asset swaps. The screen for a floater differs from the standard on the following fields: - the Asset Swap Spread (gross spread) is calculated on a floating leg built on a libor index with pay frequency and day-count analogous to a standard fixed leg in the same currency (i.e. Annual for Europe). - MARGIN: quoted margin on the indexing libor index for the underlying bond. - BENCH: indexing libor index for the underlying bond. - FIXED COUPON: fair fixed coupon of the Remaining Leg.

11) Shortcuts Shortcuts are tails that allow you to access the asset swap calculator with a predetermined set of features: ASW 100.32 (price tail, it calculates gross and z spread), it is the most popular tail and returns all the output given a bond price. ASW G20.05 (overrides the gross spread and calculates bond price) ASW Z20.12 (overrides the gross spread and calculates bond price) ASW EUR (foreign currency in the cross currency) ASW 15MM (overrides the notional) ASW FXFX (fixed bond against fixed rate) ASW FLFL (float bond against float rate) ASW B (buy) & ASW S (sell) Example: CT10 Govt ASW B 99-13 FXFX JPY Returns an ASW for a price of 99-13, buy, fixed-fixed cross currency where bond leg and offsetting leg are in USD and remaining leg in JPY.

2) Swap Calculation Components

1) The Swap Transaction 2) - Premium Bond 3) - Discount Bond 4) Valuation Methodology 5) Gross Spread 6) - Special Note for Non-Par Structures 7) - Gross Spread vs. Z-Spread

1) The Swap Transaction When an investor swaps a fixed coupon bond into a floating rate note, at least three parties are involved in the transaction: the customer, dealer, and counterparty. The customer sells his bond to a dealer (at its current market price) and buys a floating rate note from the dealer at par. The dealer then enters into an offsetting swap with another counterparty to hedge the floating rate obligation.

2) - Premium Bond For a premium priced bond, the dealer pays the customer any premium due on the bond. The dealer recovers this value over the life of the agreement because they receive a higher coupon from the bond than he pays on the swap.

3) - Discount Bond For a discount bond, the customer must make a cash payment up front to compensate the dealer for the swap payments that exceed the cash flows from the bond.

4) Valuation Methodology A bond's value in an asset swap is determined by the following parameters: - The market price/yield of the bond. - The price of the asset swap package (many asset swaps are executed at par). - The fixed and floating swap coupons. - Any funding adjustment applied to the cost of paying up-front premiums. - Any 4th leg funding spread. - The nature (fixed or floating, currency) of all the legs involved. All of the valuations are carried out using the zero-coupon rates implied by the swap curves that match the currencies of the bond and the targeted currency. For example, a U.S. dollar bond swapped into sterling is valued against the rates implied for the U.S. swap curve, the sterling swap curve, the basis curve and the expected currency exchange rates. Finally, the day type and payment frequency for both the fixed and floating legs of the swap are used to determine the exact payment projections. The value of the asset swap is expressed as a spread over/under the floating index of a plain vanilla swap. The Main ASW page and the subsequent pages apply slightly different approaches to value the asset swap cash flows. On the Main ASW page, the asset swap value is broken down into three components:

- The difference between the market price and the asset swap trade price. - The difference between the swap fixed coupon and the bond's coupon. - The adjustment for Redemption Premium or Discount. Typically, the asset swap trade price is either par or the bond's market price. The trade price is used to establish the default swap rate. A par trade price implies a par swap rate (whose payment dates coincide with those of the bond). For a non-par trade price, the fixed swap rate is appropriately adjusted. Subsequent pages of the ASW screen and the underlying swap display a different approach: the bond cashflows are offset by an analogous leg (same coupon as the bond, not the par-flat swap rate as in the previous method) and the ASW spread is the spread over the remaining leg given that the price of the swaps accounts for the cash-out. This methodology is more transparent and handy for trading purposes and it actually determines the values for ASW spreads on the Main ASW screen. It is also clearer in determining P/L and sensitivities for the entire structure and at an individual leg level.

5)-Gross Spread The intrinsic value of the asset swap is calculated by first valuing the bond's cash flows using the swap curve's implied zero rates. A spread is then computed using the swap's floating leg day type and frequency, such that the value of the spread matches the difference between the computed value of the bond flows and the bond's market price. This spread is called the "gross spread". NOTE: The gross spread is not sensitive to changes in the trade price, and fixed swap rate. Only the bond's market price, the underlying zero curves, and the bond's cash flows are used to calculate this value. If the swap fixed coupon equates to the trade price, the sum of the trade price and swap rate spread components match the gross spread.

6) - Special Note for Non-Par Structures If you change the swap's notional amount, there is a measurable impact on both the gross spread and the swapped spread. You must account for the difference between the bond's market value and the net present value of the cash flows, discounted using the swap curve over a larger or smaller swap principal. For example, suppose the valuation difference is 5 price points and this translates to a spread of 70 basis points (bp). If the swap notional

is changed from 1,000,000 to 1,050,000, the spread declines to approximately 67 bp because the 5 point profit is spread out over a larger principal amount. By changing the swap notional amount on the Main ASW screen you will affect only the Remaining Leg, by changing the bond par amount on the Main ASW screen you will affect both the Bond Leg and its offsetting leg.

7) - Gross Spread vs. Z-Spread The bond's market price is an indication of the value assigned to the bond's cash flows by the bond market. The swap market's implied zero curve is used to determine the swap market's value for that same set of cash flows. To the extent that there is a discrepancy, the gross spread is viewed as the coupon of a swap market annuity whose value equals the magnitude of this discrepancy. Most importantly, all cash flow valuations are done at a zero spread to the implied zero curve. The Z-spread quantifies the difference of opinion about the bond's cash flows in the two markets using an approach similar to that of an OAS model. In the Z-spread calculation, the cash flows are again valued using the zero rates implied from the swap curve. The single spread added to each zero rate is solved for, in turn solving for the bond's market price. When the gross spread/Z-spread is small, the two spreads are close. The spreads diverge for bonds from weaker credits, with the Z-spread tending to be the higher of the two and closer to CDS spread on the same reference entity and seniority.

.3) BLOOMBERG MARKETS Articles & Related Literature (internal & external) 1) A Derivative for Asia's Season of Financial Discontent 2) Avoiding That One Default That Can Ruin Your Whole Day 3) Need an Efficient Way to Value an Asset Swap? 4) Example : API - Asset Swap Calculator (ASW<GO>)(Japanese) 5) Stripping Methods in ASW 6) XASW - ASW Rich/Cheap Bond Search 7) Finding Credit Market Arbitrage Opportunities 8) Finding Credit Market Arbitrage Opportunities (Traditional Chinese) 9) Asset Swap Spreads historically for 4 Securities 10) Example: Fixed Income Override 11) Spread Basics DOCS 89026 DOCS 575090 DOCS 1836 DOCS 1156930 DOCS 1036336 DOCS 2002258 DOCS 2003083 DOCS 2022406 DOCS 1228023 DOCS 2014359 DOCS 1043487

THANKS, MIRKO