How I Stopped Worrying and Learned to Love the Bond…

and More of My Favorite Themes for 2014

Jeffrey Rosenberg

Chief Investment Strategist for Fixed Income

December 2014

• How I Stopped Worrying and Learned to Love the Bond

• Dude, Where’s My Duration?

• Shorten your duration, but don’t own Short Duration

• Promises, Promises… Why do I believe?

• Balancing Credit and Interest Rate Risk

• What’s in Your Model?

• “Won’t Get Fooled Again”

• You Can Lead a Horse to Liquidity…But You Can’t Make Him Borrow

• “Like a Rolling Loan”

• The Dukes of Moral Hazard

• The Five Stages of Greece

My Favorite Themes

2

Investment Themes and Recommendations

Themes Recommendations

How I stopped worrying

and learned to love the

bond

Promises, promises…

Why do I believe?

Treasury / Agency: “Low for longer" may be shorter than the market expects – that means big

shifts in rates led by the front end of the yield curve, leading to our underweight for short treasuries.

Inflation Protected: Although we only expect a modest increase in inflation, longer maturity TIPS

show better value and we favor duration hedged TIPS exposure in longer maturities.

Municipals: With ratios greater than 100% and fears of systemic risk from Puerto Rico declining,

many bonds look attractive, particularly in the longer maturity buckets (10+ years).

Shorten your duration,

but don't own Short D

Bank Loans: If the economy outperforms, “low for longer” will be limited to ultra-short strategies (<

2yrs) leaving the 2-5 year segment (incl. bank loans) exposed to the failures of forward guidance.

Balancing credit and

interest rate risk

High Yield: Ample global liquidity continues to defer the credit cycle. However, relatively low yields,

greater liquidity risk and limited upside lead us towards a more tactical allocation to high yield.

Agency Mortgages: An improved outlook with tapering risks generally behind us, attractive

spreads relative to higher quality IG corporates, and high liquidity creating better portfolio flexibility.

Corporates: Tight spreads, rising credit risk and expensive valuations relative to other investment

opportunities shift our allocation here to underweight.

Securitized Assets: Fed policy continues to benefit housing, underwriting its recovery, but a more

selective approach is warranted as prices have recovered and are skewed to the downside.

What's in your model? Stocks beat bonds again in 2014 as global policy accommodation, though slowing in the US, still

supports asset inflation where stocks have greater room to appreciate and bonds look vulnerable.

Why nations fail

Non-USD: Tapering signals a shift in US monetary policy and dollar appreciation undermines non-

USD fixed income. Peripherals have approached full valuation.

EM: EM has a bifurcated outlook as flows could be challenged with dollar strength from Fed

normalization while some areas of EM adequately compensate for the risk.

3

How I Stopped Worrying and Learned to Love the Bond

Steepening Yield Curve in 2013….Flattening in 2014

Source: Bloomberg.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

3 Year Treasury 30 Year Treasury

4

Yield Curve Flattens as the Fed Moves to Tighten

2s/10s Curve vs. the Fed Funds Rate

Source: Bloomberg.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

-100

-50

0

50

100

150

200

250

300

350

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Fed

Fu

nd

s T

arg

et

Rate

(%

)

2s10s C

urv

e (

bp

s)

2s/10s Curve Fed Funds Target Rate

5

Fed Forward Guidance Guides Market Pricing

Promises, Promises… Why do I believe?

Source: J.P. Morgan, Federal Reserve.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

2014 2015 2016 2017 2018 2019 2020 2021 2022

Yie

ld (

%)

Fed's Median Target Fed Funds Rate (Jun.) Fed's Median Target Fed Funds Rate (Sept.)

Fed's Longer Run Target Fed Funds Rate (Sept.) Forward OIS Rate

6

Summertime and the Central Banks are Easy

Mismatch between potential policy rate paths and market expectations

Source: J.P. Morgan, Federal Reserve Bank of Philadelphia, Federal Reserve. Market data as of 11/6/2014.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Dec-14 Dec-15 Dec-16 Dec-17

Fed

Fu

nd

s R

ate

Path

Current Market Pricing of Future Fed Funds Rate

Median of FOMC dots

Mean of Monetary Policy Rules

7

The Flows Follow the Returns

Cumulative Fixed Income Flows

Source: Morningstar, EM flows from EPFR.

-25

-20

-15

-10

-5

0

5

10

15

20

25

-200

-150

-100

-50

0

50

100

150

200

2014 F

low

s (

$ in

bn

)

2013 F

low

s (

$ in

bn

)

2013 2014 YTD

8

Out of the Frying Pan, Into the Fire

The March and October FOMC Market Reaction Illustrated the Risks to Shorter Maturity Yields

Source: Bloomberg.

-10

-5

0

5

10

15

20

0 5 10 15 20 25 30

Ch

an

ge (

bp

s)

March FOMC October FOMC

9

Duration Contributions by Fixed Income Sectors

Source: Barclays, JP Morgan, BlackRock. Data labels show total modified duration.

Dude, Where’s My Duration?

1.9

2.5

4.4

4.1

5.3 7.0

5.6 6.8 5.0

7.1

7.1 7.2

10.3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Du

rati

on

Co

ntr

ibu

tio

n a

s %

of

To

tal D

ura

tio

n b

y

Cu

rve S

en

sit

ivit

y

Short Duration Long Duration

10

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Yie

ld (

%)

Inflation Expectations

Real 5Y Rate

Nominal 5Y Rate

Real Rates and Inflation Expectations

Source: Bloomberg.

Two Kinds of Duration

11

Won’t Get Fooled Again

Treasury yield vs. Inflation

Source: Bloomberg; Realized inflation represented by CPI Urban Consumers % change year over year.

-4

-2

0

2

4

6

8

10

12

14

16

18

1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

Ra

te (

%)

10 Year Treasury Yield Realized Inflation

12

What is Normal?

Real Fed Funds vs. Recessions

Source: Bloomberg; Realized inflation represented by Core CPI Urban Consumers % change year over year.

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Real

Fe

d F

un

ds R

ate

NBER Recession

13

From Highly Accommodative to (Merely) Accommodative

Real Fed Funds Historical Distribution

Source: Bloomberg; Realized inflation represented by Core CPI Urban Consumers % change year over year.

0%

5%

10%

15%

20%

25%

< -2% -2% -1% 0% 1% 2% 3% 4% > 5%

Real

Fed

Fu

nd

s R

ate

Dis

trib

uti

on

Real Fed Funds Rate (%)

Accommodative Highly

Accommodative

Neutral Tight

14

You Can Lead a Horse to Liquidity…

Global central bank total assets

Source: Federal Reserve, ECB, PBOC, BOJ, Bloomberg.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

$ t

rill

ion

s

PBOC ECB Federal Reserve BOJ

15

But You Can’t Make Him Borrow

Mortgages and Consumer Loan Growth

Source: New York Fed - Household Debt and Credit Report.

YoY Growth

All Mortgages Auto Loan Credit Card Student Loan

As of Q2 2014 2.82% 11.18% 0.15% 12.47%

-10%

-5%

0%

5%

10%

15%

20%

25%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Yo

Y G

row

th R

ate

Mortgages Consumer Loans

16

Zero Interest Rates Subsidizes the Debtor

Consumer Balance Sheet Repair

Source: Federal Reserve, BEA.

70

80

90

100

110

120

130

140

8

9

10

11

12

13

14

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Ho

useh

old

Lev

era

ge R

ati

o (

Ho

useh

old

Deb

t /

Pers

on

al

Dis

po

sab

le I

nco

me,

%)

Deb

t S

erv

ice R

ati

o (

%)

Debt Service Ratio Household Leverage Ratio (RHS)

17

The Fed’s Absolution (for Original Sin)

US Wealth vs. Savings Rate

Source: Federal Reserve, BEA.

0

2

4

6

8

10

12

14

16

400

450

500

550

600

650

700

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Sav

ing

s R

ate

(%

)

Ho

useh

old

Net

Wo

rth

as a

% o

f P

ers

on

al

Dis

po

sab

le I

nco

me

Household Net Worth as a % of Personal Disposable Income Savings Rate (RHS)

18

Income Growth Stabilizes… But Will It Grow?

A Recovery Without Income

Source: US Census, Bureau of Labor Statistics.

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

45,000

47,000

49,000

51,000

53,000

55,000

57,000

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Av

era

ge H

ou

rly E

arn

ing

s Y

oY

Gro

wth

(%

)

Med

ian

An

nu

al

Inco

me (

2013 D

ollars

)

Median Household Income (2013 dollars)

AHE YoY Growth of Production and Nonsupervisory Employees (RHS)

AHE YoY Growth of All Private Employees (RHS)

19

The Wages of Fear

Forward Looking Measures of Wages Suggest Increases

Source: NFIB, BLS.

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

0

5

10

15

20

25

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

EC

I Y

oY

Ch

an

ge (

%)

% o

f F

irm

s S

urv

eyed

NFIB: Companies Planning to Raise Compensation (9M Lead)

ECI: Wages and Salaries: Private Industry Workers (RHS)

20

The Monetary Policy Rorschach Test

Short Term Unemployment Improves, While Long Term Continues to Lag

Source: Deutsche Bank, Bureau of Labor Statistics, Congressional Budget Office.

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

76 80 84 88 92 96 00 04 08 12

%

ST Unemployment Gap LT Unemployment Gap

21

It’s Hard to Get Good Policy Advice These Days…

Evolution in the Estimated Degree of Cyclical Decline in the Labor Force Participation Rate

Source: Council of Economic Advisors, BlackRock estimates from papers listed above.

Author Pub. Date Time Period Structural –

Trend

Structural –

Other Cyclical

Sherk (Heritage Foundation) Sep. 2014 2007 - 2013 40% 30% 30%

Aaronson, Cajner, Fallick, Galbis-Reig,

Smith and Wascher (Fed) Sep. 2014 2007 Q4 - 2014 Q2 45% 32% 23%

Council of Economic Advisors Jul. 2014 2007 Q4 - 2014 Q2 52% 32% 16%

Fujita (Philly Fed) Q1 2014 2007 Q4 - 2014 Q1 45% 39% 15%

Congressional Budget Office Feb. 2014 2007 Q4 - 2013 Q4 50% 17% 33%

Fallick & Pingle (Richmond Fed) Sep. 2013 2007 Q4 - 2013 Q2 75% 9% 16%

Bengali, Daly and Valleta (SF Fed) May 2013 2007 - 2013 Q1 -- -- Significant

Erceg and Levin (IMF) Apr. 2013 2007 - 2012 25% 15% 60%

Hotchkiss and Rios-Avila (Atlanta Fed) Mar. 2013 2007 - 2012 -- -- 100%

Kudlyak (Richmond Fed) Mar. 2013 2007 - 2012 80% -- 20%

Sherk (Heritage Foundation) Aug. 2012 2007 - 2011 20% 30% 50%

Shierholz (EPI) May 2012 2007 - 2011 33% -- 66%

Van Zandweghe (Kansas City Fed) Mar. 2012 2007 - 2011 42% -- 58%

22

Encouraging Discouragement

Labor Force Participation Rate Decomposition

Source: BlackRock, Bureau of Labor Statistics; Census Bureau; Fujita 2014 “Constructing the Reason-for-Nonparticipation Variable Using the Monthly CPS”.

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Dec

lin

e in

Pa

rtic

ipa

tio

n R

ate

-- Retirement (1.50%)

-- Disability (0.70%)

-- Discouragement (0.45%)

-- School Enrollment (0.45%)

-- No desire for job (0.10%)

3.2% decline in LFPR

from Dec-2007 to July-2014

23

Structural vs. Cyclical Unemployment

Skills Mismatches Indicate Tight Labor Markets and Structural Headwinds

Source: NFIB.

0

5

10

15

20

25

30

35

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

NF

IB S

ing

le M

ost

Imp

ort

an

t P

rob

lem

(%

of

Resp

on

den

ts)

Poor Sales Quality of Labor

24

Repricing Liquidity Risk

Tactical Opportunities in High Yield and Loans

Source: Barclays, S&P LCD. HY yields represented by the Barclays US Corporate HY Index.

96.0

96.5

97.0

97.5

98.0

98.5

99.0

99.5

100

101

102

103

104

105

106

107

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

Lo

an

Pri

ce

Hig

h Y

ield

Pri

ce

HY Price Loan Price (RHS)

25

Shorten your duration, but don’t own Short Duration

Short Duration Bond Fund Yields vs. 2yr Treasury in 1 year

Source: Bloomberg, Short Investment Grade Debt Fund yields provided by Lipper Data SEC yields.

Past performance is no guarantee of future results.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Yie

ld (

%)

Short Invt. Grade Debt Fund 2yr Yield in 1 Year

QE1 QE2 Operation Twist through

May 22nd Taper Comment

26

And Know What You Own

High Yield vs. Loans

Source: Barclays High Yield Index, S&P Leveraged Loan Index.

4.5

5.5

6.5

7.5

8.5

9.5

10.5

HY Yield Loans Yield

27

One Pill Makes You Larger

QE Programs Compared to GDP

Source: Bloomberg, BlackRock.

5%

15%

25%

35%

45%

55%

65%

75%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% o

f G

DP

Fed BOJ (Current) ECB (BlackRock estimates)

28

The Five Stages of Greece…(and Europe and the US)…

Source: Reinhart and Sbrancia 2011. “The Liquidation of Government Debt” NBER Working Paper 16893, March.

Historical Debt/GDP Ratio

29

“This Is It”

ECB Continues to Support Peripheral Bond Spread Tightening

Source: Bloomberg.

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Yie

ld (

%)

Spanish 3 Year Yields Italian 3 Year Yields

"Believe me, it will be enough"

30

Divergence in Economic Performance…

Manufacturing Surveys Have Indicated Strength in US and Weakness in Europe

Source: Bloomberg.

45

47

49

51

53

55

57

59

61

PM

I L

ev

el

US ISM Eurozone Manf. PMI

31

… Leads to Divergence in Financial Markets

Widening of US / EU Interest Rate Differential Coincides with Euro Weakness

Source: Bloomberg.

1.15

1.20

1.25

1.30

1.35

1.40

1.45

0

10

20

30

40

50

60

70

EU

RU

SD

Sp

read

(b

ps)

US - Germany 2 Year Spread Euro

32

Not All Central Banks Are Created Equal

The Exorbitant Privilege – The Fed Matters More

International

Reserves1

Currency

Turnover2

Exchange

Rate Regime3

Debt

Securities

Outstanding4

Global Source

of Yield5

Non-govt.

Debt

Outstanding6

Dollar 60.9% 87.0% 42.4% 40.6% 56.9% 70.6%

Euro 24.5% 33.4% 18.2% 24.7% 14.2% 19.9%

Pound 4.0% 11.8% 3.4% 6.4% 7.8% 4.3%

Yen 3.9% 23.0% 6.6% 13.5% 3.8% 1.2%

Other 6.8% 44.8% 29.4% 14.7% 17.3% 4.0%

1. Allocated official FX reserves. As of year end 2013. Source: IMF.

2. Share of average daily turnover of OTC transactions incl. derivatives in April 2013. Because two currencies are involved in each transaction, the sum of the percentage

shares totals 200% instead of 100% Source: BIS.

3. Effective exchange rate anchors as a share of GDP. Excludes economies tied to composite exchange rate anchors. Source: IMF.

4. Debt securities by residence of issuer, not by currency of issue. Source: BIS.

5. Represents the share of yield in fixed income by currency. Source: Barclays Multiverse Index.

6. Source: Barclays Multiverse Corporate and Securitized Indices.

33

0

20

40

60

80

100

120

140

160

-3

-2

-1

0

1

2

3

4

5

Bre

nt

Cru

de O

il (

$)

5 Y

ear

Real

Yie

lds

5 Year Real Yields Brent Crude Oil (RHS) Gold (RHS 2)

Real Yields Matter for All Currencies

Real Yields, Oil and Gold

Source: Bloomberg.

34

Return to Achnacarry Castle

US Dollar vs . Brent Crude Oil Prices

Source: Bloomberg, Federal Reserve.

65

70

75

80

85

90

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012 2013 2014

Tra

de W

eig

hte

d D

ollar

Ind

ex

Oil P

rice

Brent Oil Price USTW$ Index (R)

35

European Peripherals: Benefits from an Easing ECB Mostly Priced In

ECB Policy Objective – Convergence Benchmark Curves: Bull Flattening in 2014

Source: Bloomberg.

2s/5s

(bps) YTD Δ

2s/10s

(bps) YTD Δ

Spain 57 -60 166 -94

Italy 50 -94 170 -108

Portugal 107 -20 243 -13

Slovenia 78 -79 178 -72

Curves as of 11/7/2014. 0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Yie

ld (

%)

Spain Italy Germany France Portugal

36

Synthetic Spread Divergence Cash Bond Spread Divergence

Source: Barclays, J.P. Morgan, Bloomberg.

Note: The EMBIG Diversified IG Index contains 80% BBB rated countries by market value.

Why Nations Fail: EM Performance Divergence

80

130

180

230

280

330

380

430

55

65

75

85

95

105

115

No

v-1

2

Jan-1

3

Ma

r-1

3

Ma

y-1

3

Jul-1

3

Sep-1

3

No

v-1

3

Jan-1

4

Ma

r-1

4

Ma

y-1

4

Jul-1

4

Sep-1

4

No

v-1

4

EM

CD

X S

pre

ad

s (

bp

s)

IG C

DX

Sp

read

s (

bp

s)

IG CDX EM CDX (RHS)

-120

-100

-80

-60

-40

-20

0

20

40

60

80

100

Sp

read

(b

ps)

EM IG Spread - Global Agg BBB Spread

37

What’s in Your Model?

Correlation Shift in Summer 2013 Corresponded to Rate Uncertainty

Source: BAML MOVE Index, Barclays, Bloomberg.

0

20

40

60

80

100

120

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Inte

rest

Rate

Vo

lati

lity

(b

ps)

Ro

llin

g 2

0 D

ay C

orr

ela

tio

n

Rate and Equity Return Correlation Interest Rate Volatility

38

A Rolling Loan Gathers No Loss

High Yield Default Rates vs. Issuance

Source: BAML, Moody’s.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014E

Issu

an

ce a

s %

of

Mark

et

Siz

e

Defa

ult

Rate

(%

)

Default Rate (LHS) Issuance as a % of Market Size (RHS)

39

“Like a Rolling Loan”

High Yield Spreads vs. High Yield Default Rates

Source: JP Morgan, Moody’s. HY spreads represented by the Barclays US Corporate HY Index.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Tra

ilin

g 1

2 M

on

th D

efa

ult

Rate

(%

)

Sp

read

to

Wo

rst

(bp

s)

High Yield STW HY Default Rate

40

Corporate spreads and mortgage spreads… …have gone in opposite directions

Source: Barclays, Bloomberg.

Balancing Credit and Interest Rate Risk

-40

-30

-20

-10

0

10

20

30

40

50

30Y

Cu

rren

t C

ou

po

n F

an

nie

Mae S

pre

ad

-

Barc

lays C

orp

ora

te A

+ O

AS

(b

ps)

70

80

90

100

110

120

130

140

150

Sp

read

(b

ps)

Barclays Corporate A+ OAS

FNMA Current Coupon 30 Year Spread

41

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

40

50

60

70

80

90

100

110

20

30

40

50

60

70

80

90

100

110

May-07 May-08 May-09 May-10 May-11 May-12 May-13

Pu

ert

o R

ico

GO

Pri

ce

Casin

o B

on

d P

rice

MGM 2014 Harrah's 2018 2nd Lien Puerto Rico 2041 GO (RHS)

When You Got Nothing, You Got Nothing to Lose

Puerto Rico GO Bonds vs. the Case of the Casinos

Puerto Rico bonds following path of casino bonds

Source: Bloomberg.

Past performance is no guarantee of future results.

42

3 Key Action Items

1. Manage duration and curve risk in fixed income

• Utilize FLEXIBLE strategies

2.Rebalance credit and interest rate risks

• Tactically reduce overweights Non-Agency RMBS due to high valuations and limited

upside; tactically allocate to High Yield and Bank Loans (neutral weight)

• Overweight commercial real estate; look for flexible positioning in emerging markets

3.Shorten duration, but don’t own short duration

• Barbell short and long and reduce 2-5 year exposures; implement bond ladders

43

Fixed Income Thought Leadership

2014 Fixed Income Outlook

Monthly Fixed Income Commentary

Timely Special Reports

Point of View

Easy to Subscribe – visit www.blackrock.com

1. Visit www.blackrock.com

2. Find Jeff Rosenberg’s latest monthly and other resources under “Insights – Fixed Income”

3. Subscribe to regular updates through the Literature section under “Resources – Literature”

4. Search by keyword “Fixed Income Market Strategy” and subscribe under “Actions”

44

Important notes

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to

buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of December, 2014 and may change as subsequent

conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by

BlackRock and/or its subsidiaries (together, “BlackRock”) to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy.

There is no guarantee that any forecasts made will come to pass. Any investments named within this material may not necessarily be held in any

accounts managed by BlackRock. Reliance upon information in this material is at the sole discretion of the reader. Past performance is no

guarantee of future results. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of

substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in

emerging/developing markets or smaller capital markets.

The information contained in this material is derived from third-party sources deemed reliable, but BlackRock does not guarantee the

completeness or accuracy of the information.

The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a

corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal

and interest payments. Stock and bond values fluctuate in price so the value of your investment can go down depending upon market conditions.

Investments in non-investment-grade debt securities (“high-yield bonds” or “junk bonds”) may be subject to greater market fluctuations and risk of

default or loss of income and principal than securities in higher rating categories. Investments in the financial services industry may be susceptible

to certain economic, competitive and regulatory developments associated with such industries.

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trademarks are the property of their respective owners.

©2014 BlackRock, Inc., All Rights Reserved.

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