The role of Government bonds in an institutional portfolioOlivier de Larouzière, Head of Interest Rates, Natixis Asset Management18-19/04/2013

Intended for professional clients only.This material may not be distributed, published, or reproduced, in part or in whole

22

Performance of euro-zone government bonds over the last 3 years

As of 28/03/2013 Natixis Souverains Euro(cumulative, nof)

Benchmark(cumulative, nof)

Excess return

1Y 7.52 7.98 -0.47

3Y 16.30 12.56 +3.74

The figures given refer to previous years. Past performance is a not a reliable indicator of future performance.

3

The increasing weight of country selection as alpha driver

• Country selection has been essential in Natixis Souverains Euro’s outperformance since 2008.

*Source: Point, calculations Natixis AM, as of 12/31/2012

Contribution of the strategies to the global excess-return

-150%-100%

-50%0%

50%100%150%200%

2004

2005

2006

2007

2008

2009

2010

2011

2012

Global Duration Global Curve allocation Country allocation

4

Is it really a low yield environment ?

• Record levels for Core countries but the average sovereign yield still has potential (5 year maturities) :

Source: Natixis AM, EMTS, Bloomberg (03/28/2013)

5 Yr yields

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Jul-0

8

Jul-0

9

Jul-1

0

Jul-1

1

Jul-1

2

Germany France ItalySpain Portugal EMTS 5-7 Index

5

Country and Curve spreads

Source: Natixis AM, Bloomberg (03/28/2013)

• Many opportunities on spreads versus Germany and curve trades :• Example of Italy :

Italy : spread and curve

0%

1%

2%

3%

4%

5%

6%

7%

Jan-1

0

Apr-10

Jul-1

0

Nov-10

Feb-1

1

Jun-1

1

Sep-1

1

Jan-1

2

Apr-12

Aug-1

2

Nov-12

Mar-13

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

5 Yr Spread vs Germany 2-10 Yr slope (r.h.s.)

6

Natixis Souverains Euro - tracking-error

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Sep-0

7Ja

n-08

May-08

Sep-0

8Ja

n-09

May-09

Sep-0

9Ja

n-10

May-10

Sep-1

0Ja

n-11

May-11

Sep-1

1Ja

n-12

May-12

Sep-1

2

Ex Ante Tracking Error Ex Post Tracking Error

6

Source: Natixis AM (28/03/2013). The figures given refer to previous years. Past performance is a not a reliable indicator of future performance.

Managing a risk budget in a highly volatile environment

• The granularity of the sovereign universe is low, therefore you need to multiply the number of strategies with intra-country spreads and diversifications for additional sources of excess-return and reduce the overall tracking-error.

Natixis Souverains Euro performance statistics

As of 28/03/2013(I share, net

of fees)

TE Sharpe ratio Information ratio

Portfolio BM Portfolio

1Y 0.81 2.20 2.87 -0.53

3Y 1.03 0.87 0.71 1.06

Since 7 Sept. 2008

0.91 1.11 0.99 0.86

7

Managing versus a benchmark in the € sovereign universe

• Market capitalization index :the concentration is huge on Germany+France+Italy : 68% currently (JPM Index)

Source: Natixis AM, JP Morgan (03/28/2013), Barclays (03/28/2013)

• Rating defined index :the composition can be unstable and behaviors are very different (barclays sovereign index by ratings) :

Composition of € sovereign index

0%

5%

10%

15%

20%

25%

30%

France

German

y

Italy

Spain

Netherl

ands

Belgium

Austri

a

Irelan

dProt

ugal

Finlan

d

Return Volatility Return VolatilityAAA 6.5% 4.9% 17.3% 5.0%BBB 15.7% 9.1% 6.3% 23.4%

1 Year 3 Years

8

Suggestions in terms of benchmark evolution

• Rating defined index :the composition can be unstable and behaviors are very different :

Clear integration every notion of GDP, debt and many other financial ratios by Credit ratings

A good solution to the risk problematic of sovereign bonds and very easy to implement! For example, on AAA: EuroMTS Eurozone AAA Government, ML EMU Direct Governments AAA Rat. 1-3Y, IBOXX Euro Sovereign AAA

• GDP weighted index :

Indexes combining the classic “market capitalization”weightings and the annual GDP of the countries

Putting forward the notion of GDP but also considering the liquidity of these debts for the sake of the investors

A very interesting alternative, but complex to apprehend, which could be used for new « thematic » funds. For example, Barclays Capital GDP weighted bond index

9

High volatility and low yields: a difficult environment from a risk/return point of view?

10

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

• The credit premium remains stable in proportion of sovereign yields :

(3-5 Yrs barclays index)

Sovereign rates versus Credit

Source: Natixis AM, Barclays (12/10/2012)

• Low yields on all asset classes :

(3-5 Yrs barclays index)

5 Yr € average yields

0%

1%

2%

3%

4%

5%

6%

7%

8%

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Sovereign rate Corporate rate

11

Sovereign volatility versus credit

Source: Natixis Asset Management , Barclays (03/28/2013)

• During crisis volatility rises and is currently higher on sovereigns :(12m rolling volatility on 5yr barclays index)

0%

1%

2%

3%

4%

5%

6%

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Sovereign Credit

12

Sovereign versus credit : country allocation

• For Local countries (Spain and Italy) : spread levels increase significantly and continuously. Correlation between Percentage change of spread (PCS) of Sovereigns and Credit increase with OAS.• For Core countries (France and Netherlands) : significant decrease in correlations even with stable corporate spreads

=> Significant divergence of behaviour across countries

Source: Barclays (10/01/2012)

13

Shifting from Euro bonds to Global bonds?

14

Allocating to Government bonds ex Euro? The case of US Treasuries

• The US bond markets now reacts a lot less to macro data (ISM, ADP,..) simply because the Federal Reserve has bought considerable amounts of Treasuries since 2008.• The Fed now buys 35-40% of offered bonds versus 10-15% at the beginning of QE2 :

Source: Natixis Asset Management , Bloomberg (03/25/2013)

15

Allocating to Government bonds ex Euro? Correlations

• Correlation is very high and stable between Euro and G4 (US, UK, Jap, Euro).• Emerging markets bring a strong diversification :

Source: Natixis Asset Management , Barclays (01/14/2013)

12M rolling correlation of normalized returns

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Emerging Markets / G4 Euro / G4 Euro AAA / G4

16

Allocating to Government bonds ex Euro? Volatility

• Emerging markets can be very volatile but in 2012 all volatilities converged :

Source: Natixis Asset Management , Barclays (03/28/2013)

12 M Rolling volatility of normalized returns

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Emerging Markets Euro Euro AAA G4

1717

How to adapt to this context ?

• Need for specialisation but also to coordination:

Important role of analysts (country, credit)The allocation must be based on risk factors

• Need for relevant risk measures :

Take into account the credit risk of sovereign debts (use DTS : Duration x Spread)

• Need for alternative scenarios (strategies) :

Buy options or volatility in order to limit the risk of divergence versus the central scenario

The Portfolio Manager has to be selective because of the convergence of the asset classes

(rates, volatility)

18

Appendices

Awards 2013

Citywire Awards – Olivier de Larouzière

• Olivier de Larouzière ranked 1 out of 28 in the 2013 Citywire ranking of the Best managers in the euro zone Bond - Lipper Global France category over a 3-year period (21 March 2013)(1)

• Olivier de Larouzière is rated in the euro zone Bond - Lipper Global Europe category(2)

Lipper Fund Awards 2013 – Natixis Souverains Euro R/C

• Best fund in “Bond Euro zone” category in the European Universe over 10 years and in the Swiss Universe over 5 and 10 years (3)

19

The figures given refer to previous years. Past performance is a not a reliable indicator of future performance. Referring to any ranking or award does not guaranteefuture results of the fund or the investment manager. (1) Source: Lipper, within a universe of funds marketed in France and belonging to the same Lipper category (Bond Eurozone) which comprises 116 constituents over 3 years. (2) Source: Citywire. 28 March 2013 (3) Source: Lipper as of 31/12/2012. Universe: funds authorized for sale in Switzerland/in Europe. Performance certificates reward funds with performance ranking them first of their category over one or several periods. Performance calculation as of 31/12/2012.Methodology available on: www.lipperweb.com.

20

Olivier de LarouzièreHead of Interest Rates, Senior Portfolio Manager

Olivier de Larouzière began his career in 1994 at Ecureuil Gestion, the fund management arm of the French Savings Bank. He successively managed money market, European and global fixed income funds. He joined BNP-Paribas in 1998 as fixed income proprietary trader and then Credit Lyonnais Asset Management in 2001 as senior fixed income portfolio manager. Olivier de Larouzière joined Ixis Asset Management in 2003 as Head of Euro Aggregate investment team. In 2005 he became Head of the Euro Government and Aggregate investment team. In 2007, Olivier de Larouzière began working as head of the Interest Rates and Currency team within Natixis Asset Management. Since 2010, Olivier has been the head of the Euro Fixed Income team.

Olivier de Larouzière holds a diploma of Advanced Studies in Mathematics Applied to Economic Studies from the University of Paris IX - Dauphine.

Olivier de Larouzière has 17 years of experience and has been working within our company for more than 9 years.

Biography

21

Legal information

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24/01/2013

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