BA/ML corporate bond analysts.........>

US CORPORATES: BA/ML corporate bond analysts expect "strong foreign demand in

1H, weaker in 2H" for US corporate bonds. "We think that in 1H 2018" the higher

costs of US$ hedging "is offset by a broadening investor base and more buying on

a currency unhedged basis. Further supporting strong foreign buying" in 1H 2018

is that US$ hedging cost "for most foreign investors is set to decline

seasonally immediately at the start of 2018, as year-end funding pressures will

be behind us." Foreign investors "rely on foreign banks to provide the US$

hedge, and many of these measure their balance sheets for regulatory capital

purposes only at the turn of the year " so "the seasonal increase in the cost of

dollar funding, which is then reversed in the new year," they said.

- "Additional support for foreign buying in 1H is the Apr1 start to the new

fiscal yr in Jpn, which tends to kick off an increase in buying," they said. "In

2H 2018, foreign buying should decline as lgterm Japanese interest rates breach

1%, the point at which domestic buying starts eating away at foreign buying."