BA/ML said Japanese lifers'...........>

US CORPORATES: BA/ML said Japanese lifers' "further shift away from hedging

currency risk makes perfect sense as the cost of (US) dollar hedging has risen

sharply and recently approached 200bps on an annualized basis. We think this

issue of unhedged foreign buying is a much broader phenomenon - beyond the

Japanese lifers and Asia - as the dollar is down about 8% this year and toward

the lower end of its range from the past couple of years. Furthermore many

investors no doubt believe the dollar found a floor when the Fed made it

surprisingly clear at the most recent (September) FOMC meeting that the rate

hiking cycle is alive and well."

- They quipped, "Let's do the un-twist. The effect of currency unhedged foreign

buying is to slow the "twists," i.e. it leads to decompression (see: Floor on

weak dollar = decompression) and steepening pressure on the maturity spread

curve. However, these effects should be rather shallow and short-lived, as

otherwise there would be upward pressure on the dollar, which would lead to less

unhedged buying."