The BlackRock Sovereign Risk Index: A Performance ... BlackRock Sovereign Risk Index: A Performance...

The BlackRock Sovereign Risk Index: A Performance Assessment and Update

A Publication of the BlackRock Investment Institute

October 2011

About The BlackRock Investment Institute

The BlackRock Investment Institute is a

global platform that leverages BlackRock’s

expertise in markets, asset classes, and

client segments. Launched in 2011, the

Institute’s goal is to produce information

that makes BlackRock’s portfolio managers

better investors and helps deliver positive

investment results for our clients.

Table of Contents

The BlackRock Sovereign Risk Index: A Performance Assessment and Update ........................ 2

Quarterly Update ................................... 3

BlackRock Sovereign Risk Index Performance ................................ 4

Conclusion ............................................. 5

Appendix A: A Side-Note on Technical Challenges ........................ 6

Appendix B: Ratings Actions .................. 6

The BlackRock Sovereign Risk Index: A Performance Assessment and Update

} In our June publication, “Introducing the BlackRock Sovereign Risk Index: A More Comprehensive View of Credit Quality”1 , we detailed a framework of fundamental analysis highlighting the relative risk among 44 developed and emerging market countries.

} Our initial analysis was judgmentally based, and contemporaneously validated by a high correlation with sovereign credit default swap (CDS) market spreads. Over recent months we have constructed the back history of this approach running from January 2005 to July 2011, taking care to use ‘real-time’ data (unrevised data, which was available at the time).

} In this quarterly update for the index, we complement our earlier analysis, showing how the BlackRock Sovereign Risk Index (BSRI) has outperformed both ratings agencies2 and sovereign credit default swap spreads in highlighting downgrade risks.

} Further to this, we demonstrate how the BSRI effectively stratified forward-market-returns based on country-specific local-rate issues, with the weakest names substantially underperforming the rest of the index.

} Considering heightened activity within the Eurozone periphery in recent years, we present a case study that focuses on Greece, Ireland, Italy, Spain, and Portugal. We show how the BSRI would have led agency activity over the span of these countries, while leading markets in their shift from complacency.

1 This document can be accessed at: https://www2.blackrock.com/webcore/litService/search/getDocument.seam?venue=PUB_IND&source=GLOBAL&contentId=1111142235

2 ‘Ratings agencies’ refers to Moody’s, Standard and Poor’s, and Fitch within this document.

The opinions expressed are those of the BlackRock Investment Institute as of October 2011, and may change as subsequent conditions vary.

Benjamin Brodsky, CFA Managing Director

Fixed Income Asset Allocation

} [email protected]

Garth Flannery, CFA Director


} [email protected]

Sami Mesrour, CFA Director


} [email protected]

Ewen Cameron Watt Chief Investment Strategist

BlackRock Investment Institute

} [email protected]

[ 2 ] S O V E R E I G N R I S k I N D E x Q U A R T E R l y U P D A T E

Figure 1: BlackRock Sovereign Risk Index Score

2.0

1.0

0.0

-1.0

-2.0

Nor

way

Swed

en

Finl

and

Swit

zerl

and

Can

ada

S. K

orea

Aus

tral

ia

Chi

le

Den

mar

k

Ger

man

y

Net

herl

ands

New

Zea

land

Aus

tria

USA

Mal

aysi

a

Thai

land

Rus

sia

Chi

na

Isra

el

Cze

ch R

epub

lic

Peru UK

Phili

ppin

es

Fran

ce

Pola

nd

Indo

nesi

a

Col

ombi

a

Bel

gium

Bra

zil

Mex

ico

Cro

atia

S. A

fric

a

Turk

ey

Japa

n

Spai

n

Indi

a

Hun

gary

Arg

enti

na

Ital

y

Irel

and

Egyp

t

Port

ugal

Vene

zuel

a

Gre

ece

SEPT

EMBE

R BS

RI

Quarterly Update

The quarterly update for the BlackRock Sovereign Risk Index (BSRI)

is shown below. Previous themes of stable Scandinavian countries

at the far left of the chart and the riskiness of the Eurozone periphery

remain intact, with many emerging market countries faring better

in comparison to their developed market counterparts, despite

their ratings agency ranking.

Two notable moves this quarter are Australia, where increases

to primary budget deficit projections3 have led to deterioration

in the fiscal space component; and Poland where, conversely,

substantial primary deficit improvements have led to a climb up

the index.

Reviewing market movements since our last publication with a

focus on the Eurozone, the table to the right ranks constituent

countries first by sovereign risk according to their BSRI scores in

June, then by their respective sovereign credit default swap (CDS)

spreads at the time, and finally by their current spreads. Between

June and September, the ranking of market spreads has shifted to

align more closely with the BSRI.

Most notably, Italy’s 5-year CDS spread is now over 90bps wider

than Spain’s equivalent instrument; at the time of our white paper,

within which we highlighted Italy as a special case of weakness,

it was more than 90bps tighter than Spain.

3 Increased by the equivalent of c.1.3% of GDP in both 2011 and 2012.

Eurozone Country

BSRI Ranking,

June Publication

5y CDS Spread 13-Jun-

2011

Market Ranking 13-Jun-

2011

5y CDS Spread

21-Sept-2011

Market Ranking 21-Sept-

2011

Finland 1 39 2 79 1

Germany 2 44 3 95 2

Nether-lands

3

39

1

101

3

Austria 4 66 4 155 4

France 5 77 5 188 5

Belgium 6 143 6 274 6

Spain 7 257 8 428 7

Ireland 8 654 9 800 9

Italy 9 165 7 519 8

Portugal 10 677 10 1140 10

Greece 11 1568 11 3229 11

Table 1: Eurozone Ranking Table

Source: BlackRock.

During the interim Standard and Poor’s, Moody’s, and Fitch

have all downgraded Italy between one and three notches. As

discussed in the following section, our backtest work indicates

that the ability of the index to highlight downgrade risk in

advance of actions being taken is well-established.

Source: BlackRock.

[ 3 ]A P U B l I C A T I O N O F T h E B l A C k R O C k I N V E S T M E N T I N S T I T U T E — O C T O B E R 2 0 1 1

4 As CDS spreads are not available for the full backhistory for all countries, there were 96 rather than 97 downgrades in the space where CDS quintiles could be generated, 5 The Barcap index includes 30 of the 44 countries spanned by the BSRI, omitting China, Russia, Peru, Israel, Indonesia, Philippines, Brazil, Croatia, Colombia, India, Turkey, Argentina, Egypt and Venezuela. Greece fell out of this index in July 2010. 6 The average rating bucket for the agencies uses ordinal mapping (e.g. AAA = 1; AA1 = 2; through to 21).

Figure 2: Proportion of Downgrade Actions (By Quintile)

100%908070605040302010

0

5th

Qui

ntile

(Wea

kest

)

4th

Qui

ntile

3rd

Qui

ntile

2nd

Qui

ntile

1st Q

uint

ile(S

tron

gest

)

BSRI Ratings Agency CDS Spreads

PERC

ENT

(%)

Figure 3: Cumulative Excess Return (By Quintile)

0.15%

0.10

0.05

0.00

-0.05

-0.10

-0.15

-0.20

’05 ’09 ’10 ’11’06 ’07 ’08

5th Quintile (Weakest)

3rd Quintile

4th Quintile

2nd Quintile1st Quintile (Strongest)

PERC

ENT

(%)

Figure 4: What Are The Biggest Tail Risks?

100%

75

50

25

0

8/10 2/11 4/11 6/11 8/1110/10 12/10

Municipal Default in US

Commodity Price Inflation

Chinese Real Estate Market

Premature Fiscal Tightening

European Sovereign Debt Funding

PERC

ENT

(%)

Source: BOAML Fund Manager Survey.

Source: BlackRock.

Source: BlackRock.

BlackRock Sovereign Risk Index Performance

As the BSRI pertains to fundamental sovereign risks, we first assess

its leading properties with reference to ratings agency activity, as

these are also based on fundamental risks. Over the backtest period

(January 2005–July 2011) there were 97 rating downgrade actions

within the 44 country universe of coverage, by the 3 principal rating

agencies (Moody’s, Standard and Poor’s, and Fitch).

We stratify the 44 countries into quintiles, first using BSRI scores,

then separately by agency ratings, and finally by their 5-year

CDS spreads. The levels used in each case are the month-end

observations prior to a ratings agency downgrade announcement.

The results of our backtest exercise, in Figure 2, show that the

BSRI has historically a better record for identifying downgrade risk

within the weakest quintile, followed by CDS spreads, followed by

agency ratings. Unlike CDS spreads and ratings agencies, none of

the 97 downgrades were present in any of the 3 strongest

quintiles for the real-time BSRI backhistory.4

The analysis above uses downgrades as grounds for performance

of the BSRI. More relevant grounds to an investor may be the returns

from country-specific sovereign bond indices. Using returns from

the Barclays Capital Global Treasury Index, Figure 3 shows the

cumulative monthly performance, in excess over an equally

weighted index, by BSRI quintiles. The underperformance of the

weakest quintile, defined by the BSRI using real-time data, is stark.

Considering the saliency of European sovereign distress over

the last year, (see Figure 4), for case studies we focus on the

Eurozone ‘periphery’, and compare the country-level BSRI score

with the ratings actions of Moody’s, Standard and Poor’s and

Fitch, for Greece, Ireland, Portugal, Italy and Spain.

In Figure 5 overleaf, we compare the average BSRI score for

the European Periphery with their average agency rating through

time.6 This graph shows a clear lead in the deterioration of

sovereign fundamentals which is highlighted by the BSRI prior

to downgrade actions being taken.

While the lead is substantial in the case above, in fairness it should be

noted that as the BSRI is a continuous series and ratings are discrete,

at the margin continuous series ought to have a technical advantage.

By contrast, the comparison in Figure 6 of 5Y CDS spreads for

these 5 countries against their average BSRI score is more of an

even comparison. Here the BSRI marginally leads spread widening —

but does not mirror the spread tightening of 2009 as the countries’

credit fundamentals were deteriorating, not improving.


10

9

8

7

6

5

4

3

2

-1.0-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.1

’05 ’08 09’06 ’07 ’10 ’11

Average BSRI ScoreAverage Rating Bucket

AVER

AGE

RATI

NG

S BU

CK

ET

AVERAG

E BSRI SCO

RE (INV

ERTED)

Figure 5: Eurozone Periphery, Ratings vs. BSRI

800900

700600500400300200100

0

-1.0-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2

0-0.1

’05 ’08 09’06 ’07 ’10 ’11

AVER

AGE

5Y C

DS

SPRE

AD

(BPS

)

AVERAG

E BSRI SCO

RE (INV

ERTED)

Average BSRI ScoreAverage 5 Year CDS Spread

Figure 6: Eurozone Periphery, CDS vs. BSRI

Figure 7: Varieties of Crises — World Aggregate (1900–June 2010)8

180%

160

140

120

100

80

60

40

20

0

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

WWI-Hyperinflation WWII-More Defaults

Oil-Shock Inflation

Emerging Market Crisis andNordic and Japanese Banking Crisis

Global Crisis and Crash

Panic of 1907

Great Depression

BDCI Index + Stock Market CrashBanking, Currency Default and Inflation Crisis (BCDI Index)

WO

RLD

INC

OM

E W

EIG

HTE

D S

HA

RE

Source: Reinhart (2010) “After the Fall;” http://www.nber.org/papers/w16334.

7 So-named for the trend of diminishing volatility in GDP growth and inflation, in advanced economies, that ran from 1980 until the Great Recession.

8 A composite index of banking, currency, sovereign default and inflation crises, and stock market crashes (world income share weighted; 66 countries spanning c.90% of world GDP).

Source: BlackRock. Source: BlackRock.

Conclusion

Driven by multiple fundamental insights to the nature of sovereign

credit risk, the BSRI presents a useful tool for profiling the strengths

and weaknesses of countries against one another.

Our research suggests these insights can lead rating agency activity,

with an excellent track record at preceding downgrades, and

historically would have highlighted areas of market complacency.

We believe its application to a range of underlying indices, whether

market-weighted, GDP-weighted or otherwise, can reduce risks

for the portfolio, while still benefitting from the inclusion of

stronger sovereign credits.

As a backdrop for the future, we believe the multi-decade compilation

of sovereign and banking crises by Reinhart and Rogoff presents

a compelling case that in recent years financial markets have been

complacent about risks that have always been present (Figure 7).

The low incidence of distress experienced by developed countries

in the post-war years have been distinguished by a phase of

financial repression and subsequently the Great Moderation7 ,

rather than reflect the norm of the years preceding. As more

countries approach their upper limits of sustainable leverage, a

return to a higher incidence of crises seems likely, and the BSRI

should remain a relevant tool for these risks.


Country Agency Date From Rating To Rating

Argentina Fitch 01-Aug-2006 B- B

Argentina Fitch 18-Dec-2008 B B-

Argentina Fitch 12-Jul-2010 B- B

Argentina S&P 23-Mar-2006 B- B

Argentina S&P 02-Oct-2006 B B+

Argentina S&P 11-Aug-2008 B+ B

Argentina S&P 31-Oct-2008 B B-

Argentina S&P 13-Sep-2010 B- B

Belgium Fitch 02-May-2006 AA AA+

Brazil Fitch 28-Jun-2006 BB- BB

Brazil Fitch 10-May-2007 BB BB+

Brazil Fitch 29-May-2008 BB+ BBB-

Brazil Fitch 04-Apr-2011 BBB- BBB

Brazil Moody’s 31-Aug-2006 Ba3 Ba2

Brazil Moody’s 23-Aug-2007 Ba2 Ba1

Brazil Moody’s 22-Sep-2009 Ba1 Baa3

Brazil Moody’s 20-Jun-2011 Baa3 Baa2

Brazil S&P 28-Feb-2006 BB BB+

Brazil S&P 16-May-2007 BB+ BBB

Brazil S&P 30-Apr-2008 BBB BBB+

Chile Fitch 01-Feb-2011 A+ AA-

Chile Moody’s 16-Jun-2010 A1 Aa3

China Fitch 17-Oct-2005 A A+

China Fitch 06-Nov-2007 A+ AA-

China Moody’s 11-Nov-2010 A1 Aa3

China S&P 20-Jul-2005 BBB+ A-

China S&P 27-Jul-2006 A- A

China S&P 31-Jul-2008 A A+

China S&P 16-Dec-2010 A+ AA-

Colombia Fitch 22-Jun-2011 BBB- BBB

Colombia Moody’s 29-Jun-2006 Baa2 Baa3

Colombia S&P 05-Mar-2007 BBB BBB+

Croatia Fitch 21-May-2009 BBB+ BBB

Croatia Moody’s 19-Nov-2008 Baa1 Baa2

Croatia Moody’s 17-Apr-2009 Baa2 Baa3

Croatia S&P 16-Mar-2009 BBB+ BBB

Appendix B: Ratings Actions

Appendix A: A Side-Note on Technical Challenges

Collecting country-level variables for all 44 countries in our

universe was not possible for 2 inputs within our fundamental

framework. Our principal source for stratifying a country’s debt

profile along dimensions of currency and term structure does not

store this information prior to Q4 2009 (and the noncurrent data

that is available only encompasses principal liabilities, excluding

interest payments).

As a result, for the backtest exercise we have used proxies for the

term structure and external debt model-inputs, sourced to Moody’s

and Fitch, from country profiles they had published over the backtest

period. Within future updates we adhere to the primary source of

our June white paper; these secondary sources are only used for

the proof-of-concept historical exercise. It should be noted that

as a result of these input substitutions, the contemporaneous

data-point within these backtest series do not exactly match with

our earlier publication, though correlation across the set is still

very high (0.986).

Another challenge was that some series which commenced after

2005 simply cannot be proxied. The International Monetary Fund

and Economist Intelligence Unit publish long-horizon (5+ years)

projections for inflation and real GDP growth for all the countries

in our index, but these only date back to April 2008 and August

2010 respectively. Consensus Economics by contrast have published

long-horizon forecasts since 1989, but these span only 21 of the

44 countries in our universe. Where coverage is incomplete but

projections are available, the subcomponents have been left empty

for missing countries, and cross-sectional scores have been

calculated across the remaining set of countries.


Croatia S&P 21-Dec-2010 BBB BBB-

Czech Republic Fitch 26-Aug-2005 A A+

Czech Republic Fitch 04-Mar-2008 A+ AA-

Czech Republic S&P 02-Oct-2007 A A+

Egypt Fitch 18-Aug-2008 BBB BBB-

Egypt Fitch 03-Feb-2011 BBB- BB+

Egypt Moody’s 18-May-2005 Baa1 Baa3

Egypt Moody’s 23-Jun-2008 Baa3 Ba1

Egypt Moody’s 31-Jan-2011 Ba1 Ba2

Egypt Moody’s 16-Mar-2011 Ba2 Ba3

Egypt S&P 01-Feb-2011 BB+ BB

Greece Fitch 22-Oct-2009 A A-

Greece Fitch 08-Dec-2009 A- BBB+

Greece Fitch 09-Apr-2010 BBB+ BBB-

Greece Fitch 14-Jan-2011 BBB- BB+

Greece Fitch 20-May-2011 BB+ B+

Greece Fitch 13-Jul-2011 B+ CCC

Greece Moody’s 22-Dec-2009 A1 A2

Greece Moody’s 22-Apr-2010 A2 A3

Greece Moody’s 14-Jun-2010 A3 Ba1

Greece Moody’s 07-Mar-2011 Ba1 B1

Greece Moody’s 01-Jun-2011 B1 Caa1

Greece Moody’s 25-Jul-2011 Caa1 Ca

Greece S&P 14-Jan-2009 A A-

Greece S&P 16-Dec-2009 A- BBB+

Greece S&P 27-Apr-2010 BBB+ BB+

Greece S&P 29-Mar-2011 BB+ BB-

Greece S&P 09-May-2011 BB- B

Greece S&P 13-Jun-2011 B CCC

Greece S&P 27-Jul-2011 CCC CC

Hungary Fitch 12-Jan-2005 A+ A

Hungary Fitch 06-Dec-2005 A A-

Hungary Fitch 10-Nov-2008 A- BBB+

Hungary Fitch 23-Dec-2010 BBB+ BBB

Hungary Moody’s 22-Dec-2006 A1 A2

Hungary Moody’s 07-Nov-2008 A2 A3


Appendix B: Ratings Actions (continued)


Hungary Moody’s 31-Mar-2009 A3 Baa1

Hungary Moody’s 06-Dec-2010 Baa1 Baa3

Hungary S&P 27-May-2005 A A-

Hungary S&P 15-Jun-2006 A- BBB+

Hungary S&P 17-Nov-2008 BBB+ BBB

Hungary S&P 30-Mar-2009 BBB BBB-

India Fitch 01-Aug-2006 BB+ BBB-

India Moody’s 26-Jul-2010 Ba2 Ba1

India S&P 30-Jan-2007 BB+ BBB-

Indonesia Fitch 27-Jan-2005 B+ BB-

Indonesia Fitch 14-Feb-2008 BB- BB

Indonesia Fitch 25-Jan-2010 BB BB+

Ireland Fitch 08-Apr-2009 AAA AA+

Ireland Fitch 04-Nov-2009 AA+ AA-

Ireland Fitch 06-Oct-2010 AA- A+

Ireland Fitch 09-Dec-2010 A+ BBB+

Ireland Moody’s 02-Jul-2009 Aaa Aa1

Ireland Moody’s 19-Jul-2010 Aa1 Aa2

Ireland Moody’s 17-Dec-2010 Aa2 Baa1

Ireland Moody’s 15-Apr-2011 Baa1 Baa3

Ireland Moody’s 12-Jul-2011 Baa3 Ba1

Ireland S&P 30-Mar-2009 AAA AA+

Ireland S&P 08-Jun-2009 AA+ AA

Ireland S&P 24-Aug-2010 AA AA-

Ireland S&P 23-Nov-2010 AA- A

Ireland S&P 02-Feb-2011 A A-

Ireland S&P 01-Apr-2011 A- BBB+

Israel Fitch 11-Feb-2008 A A+

Israel Moody’s 17-Apr-2008 A2 A1

Israel S&P 27-Nov-2007 A+ AA-

Italy Fitch 19-Oct-2006 AA AA-

Italy S&P 19-Oct-2006 AA- A+

Japan Moody’s 11-Oct-2007 A2 A1

Japan Moody’s 30-Jun-2008 A1 Aa3

Japan Moody’s 18-May-2009 Aa3 Aa2

Japan S&P 22-Apr-2007 AA- AA

Japan S&P 27-Jan-2011 AA AA-

Malaysia Fitch 09-Jun-2009 A+ A

Malaysia S&P 27-Jul-2011 A+ A

Mexico Fitch 07-Dec-2005 BBB BBB+

Mexico Fitch 19-Sep-2007 BBB+ A-

Mexico Fitch 23-Nov-2009 A- BBB+

Mexico S&P 31-Jan-2005 A- A

Mexico S&P 08-Oct-2007 A A+

Mexico S&P 14-Dec-2009 A+ A

Mexico S&P 28-Jul-2011 A A-

Peru Fitch 14-Dec-2005 BB BB+

Peru Fitch 31-Aug-2006 BB+ BBB-

Peru Fitch 02-Apr-2008 BBB- BBB

Peru S&P 20-Nov-2006 BB+ BBB-

Peru S&P 14-Jul-2008 BBB- BBB+

Philippines Fitch 23-Jun-2011 BB+ BBB-

Philippines Moody’s 16-Feb-2005 Ba2 B1

Source: BlackRock.


Philippines Moody’s 23-Jul-2009 B1 Ba3

Philippines Moody’s 15-Jun-2011 Ba3 Ba2

Philippines S&P 17-Jan-2005 BBB BB+

Poland S&P 29-Mar-2007 A- A

Portugal Fitch 24-Mar-2010 AA AA-

Portugal Fitch 23-Dec-2010 AA- A+

Portugal Fitch 24-Mar-2011 A+ A-

Portugal Fitch 01-Apr-2011 A- BBB-

Portugal Moody’s 13-Jul-2010 Aa2 A1

Portugal Moody’s 15-Mar-2011 A1 A3

Portugal Moody’s 05-Apr-2011 A3 Baa1

Portugal Moody’s 05-Jul-2011 Baa1 Ba2

Portugal S&P 27-Jun-2005 AA AA-

Portugal S&P 21-Jan-2009 AA- A+

Portugal S&P 27-Apr-2010 A+ A-

Portugal S&P 24-Mar-2011 A- BBB

Portugal S&P 29-Mar-2011 BBB BBB-

Russia Fitch 03-Aug-2005 BBB- BBB

Russia Fitch 25-Jul-2006 BBB BBB+

Russia Fitch 04-Feb-2009 BBB+ BBB

Russia Moody’s 25-Oct-2005 Baa3 Baa2

Russia Moody’s 16-Jul-2008 Baa2 Baa1

Russia S&P 31-Jan-2005 BBB- BBB

Russia S&P 15-Dec-2005 BBB BBB+

Russia S&P 04-Sep-2006 BBB+ A-

Russia S&P 08-Dec-2008 A- BBB+

South Africa Fitch 25-Aug-2005 A- A

South Africa Moody’s 16-Jul-2009 A2 A3

South Africa S&P 01-Aug-2005 A A+

South Africa S&P 25-Jan-2011 A+ A

South Korea Fitch 24-Oct-2005 AA- AA

South Korea Moody’s 25-Jul-2007 A3 A2

South Korea Moody’s 14-Apr-2010 A2 A1

Spain Fitch 28-May-2010 AAA AA+

Spain Moody’s 30-Sep-2010 Aaa Aa1

Spain Moody’s 10-Mar-2011 Aa1 Aa2

Spain S&P 19-Jan-2009 AAA AA+

Spain S&P 28-Apr-2010 AA+ AA

Thailand Fitch 11-May-2005 A- A

Thailand Fitch 16-Apr-2009 A A-

Thailand S&P 14-Apr-2009 A A-

Turkey Fitch 13-Jan-2005 B+ BB-

Turkey Fitch 12-Dec-2007 BB- BB

Turkey Fitch 03-Dec-2009 BB BB+

Turkey Moody’s 11-Feb-2005 B2 B1

Turkey Moody’s 14-Dec-2005 B1 Ba3

Turkey Moody’s 08-Jan-2010 Ba3 Ba2

Turkey S&P 19-Feb-2010 BB BB+

Venezuela Fitch 14-Nov-2005 B+ BB-

Venezuela Fitch 15-Dec-2008 BB- B+

Venezuela S&P 12-Aug-2005 B B+

Venezuela S&P 03-Feb-2006 B+ BB-


This paper is part of a series prepared by the BlackRock Investment Institute and 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 September 2011 and may change as subsequent conditions vary. The information and opinions contained in this paper are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

This paper may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this paper is at the sole discretion of the reader.

This material is being distributed/issued in Australia and New Zealand by BlackRock Financial Management, Inc. (“BFM”), which is a United States domiciled entity. In Australia, BFM is exempted under Australian CO 03/1100 from the requirement to hold an Australian Financial Services License and is regulated by the Securities and Exchange Commission under US laws which differ from Australian laws. In Canada, this material is intended for permitted clients only. BFM believes that the information in this document is correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BFM, its officers, employees or agents. 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. In Latin America this material is intended for Institutional and Professional Clients only. This material is solely for educational purposes and does not constitute an offer or a solicitation to sell or a solicitation of an offer to buy any shares of any fund (nor shall any such shares be offered or sold to any person) in any jurisdiction within Latin America in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that they have not been registered with the securities regulator of Brazil, Chile, Colombia, Mexico and Peru or any other securities regulator in any Latin American country and no such securities regulators have confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk. 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. Any companies listed are not necessarily held in any BlackRock accounts. 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.

FOR MORE INFORMATION: www.blackrock.com

BlackRock is a registered trademark of BlackRock, Inc. All other trademarks are the property of their respective owners.

©2011 BlackRock, Inc. All rights reserved.

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