16 October 2017 Special Report: Argentina • Position for the upturn dated forward rates as shown below. The first is simply to concatenate the short end LEBACs and longer end BOTEs. The second is to fit a spline curve first as a parametric representation of the two curves, then adjust it (effectively shifting up the BOTEs) so that the overlapping data points (at March 2018 tenor) between the two curve match. These are inputs to price the floaters. A peek into monetary policy path Forward 1M rate 27 5% 225% 17.5% 12 5% — S0irewiill Lebec sand Bates - with LebeicyBOTES • Mc memo Mar- 1 e — ROTES — 1 hoc 7.5% 1.0v-17 1-Oct-16 Sane earsere ant 1.0ct-12 1-Oct.20 BOPOM 20s have been a popular choice in positioning for carry, but BOCANs look superior for those that tolerate lower liquidity. In particular, we believe, BOCANs could benefit from a tightening spread between LEBAC yields and BADLAR. We expect higher-for-longer LEBAC rates to attract a larger share of savings while a growing economy will demand more credit from banks. Altogether these two should translate into higher demand and lower supply of funds, which means higher BADLAR rates vs. LEBACs. t..E:BACSIBADLAR basis is closes to high end of range Lebac/Sadler basis 6.0 7.0 60 5.0 4.0 30 20 10 0.0 26.apr-16 sour. a_ Bent 26-Jull6 26-Oci-16 26-Jan-17 26.APi-17 26,110-17 LEBAC yields have moved first on the tightening of monetary policy, which has driven up the basis Page 4 between 1M LEBAC rate and BADLAR to a recent peak of 600bp (chart) before it started to recede. Despite convergence during the past month, the current basis (close to 500bp) remain significantly higher than historical average and we see it likely further converge to 400bp area in the coming months. This dynamics should help boost the relative value of the BOCANs vs. BOTEs - and also vs. BOPOM 20s. As we delineate in our previous report Argentina Local Markets - The Way of the Bu