27 March 2015 US Fixed Income Weekly In the portfolio managers survey conducted by Stone McCarthy Research Associates, the systematic reduction in overexposure to credit is even more pronounced. As of last week, portfolio managers have a tactical allocation of 34.7% in corporate bonds versus the 23.7% in the Barclays US Aggregate Index. This 11% deviation from benchmark is the smallest in two years and nearly two percentage points lower compared to a year ago. The SMRA surveyed response of allocations to Treasuries also corroborates our excess returns model. Portfolio managers became very underweight in Treasuries in the second quarter of last year but gradually scaled back into this sector toward year end, and they closed the gap even more in January. Although, the SMRA survey showed a sharp drop in portfolio allocations to Treasuries in February that our model has yet to capture. SMR survey vs. Barclays US Aggregate Index. Portfolio allocation to corporate bonds 40 I Prom/ 35 30 •••••••• 25 2. .............. - ------------------- 55 _I 2.0 5 0 2011 Portfolio 1.6 Peter* ss 14 /2 SMRA surveyed sore formates 11 --- &arca', US AGG shoe Corporates 2011 2013 2014 2015 10 2012 2013 2014 2015 2011 3nagers over-allocation in corporate bonds —Allocation vs. benchmark:COW-nes Saeer Seem MoCerry Rematch Amami ISMIT4 SaroWsintecosarel Oman* Sat Scarce an McCann /Menet, Stevan IMAM Ileciies elan *I Datain SMR survey vs. Barclays US Aggregate Index: Portfolio allocation to Treasuries AS Percent 40 35 ----------------------------------- 30 25 ss - 10 SMRA surveyed share Treasuries Itarcara US Aµ >hare. Treasuries 0 2011 2012 2013 2014 2015 Source Mom McCarthy itnedeol Anonnt 15M/VV. 6.ean Mem, W Damian Sant Portfolio managers under-allocation in Treasuries (6) m (e) (10) (11) (12) Percent 2012 2013 2019 2015 2011 -Allocation vs. berldiMark: Treasuries Son MreAffIvRossivol Amman MS( Ifl' Motes and O