333 S. Grand Ave.

, 18th Floor || Los Angeles, CA 90071 || (213) 633-8200

Monthly Commentary





January 2014
333 S. Grand Ave., 18th Floor || Los Angeles, CA 90071 || (213) 633-8200
2
Monthly Commentary 1/31/14
Overview
The beginning of the New Year meant the end to Ben
Bernanke at the helm of the Federal Reserve was
near. His last policy meeting resulted in a continued
tapering of asset purchases, matching the
announcement received at the prior meeting for an
additional cut of $10 billion in monthly bond
purchases. Ben Bernanke stepped away after guiding
policy through eight years of turbulence. Taking his
place was new Federal Reserve Chairwoman Janet
Yellen, who has to navigate the murky waters of
weaning the worlds largest economy off of the loose
monetary policies that have become the hallmark of
the post-crisis landscape. Treacherously cold weather
has largely obfuscated recent economic reports, and
large currency swings seen in countries such as
Argentina, South Africa, and Turkey further
complicate Chairwoman Yellens task. Whether the
Federal Reserve decides to include the effects these
policy changes will have on emerging economies
remains to be seen. The term Fragile Five has been
assigned to such countries which have seen large
reverberations due to the recent tapering of
purchases. Those countries include Argentina, South
Africa, Turkey, Brazil, and Indonesia. Weakness in
domestic equity markets during January can also be
partially ascribed to the ever impending slowdown in
China, an unwind of consensus bullish views on U.S.
Monthly Commentary
Equities, and in general a re-evaluation of U.S. growth
prospects.
Maybe the most surprising event in January was the
outperformance of fixed income markets relative to
equities. The 1.5% return for the Barclays U.S.
Aggregate Bond Index represents a clear
outperformance compared with the 3.5% total return
loss for the S&P 500 Index during the month. Ending
the month at 2.64%, the 10-year U.S. Treasury (UST)
rate fell 38 basis points (bps) on the back of falling
deficits, falling inflation, and as mentioned a
reversal of what many thought was the consensus
trade to avoid UST. Real Gross Domestic Product
(GDP) growth during the fourth quarter came in at
3.2%, and while slower than third quarter growth of
4.1%, second half growth was the strongest half year
of growth in a decade. Unemployment continued its
march lower to 6.6% while the broader
underemployment rate fell 0.4% to 12.7%. The
interplay between these measurements of labor
market slack, the ability of central bankers to
continue policies of low rates, and low levels of labor
market participation continue to be hotly debated.
On one side are those arguing demographic issues are
largely the reason for the decline in the size of the
labor force and that such changes were largely
structural in nature. On the other are those
-1,500.00
-1,300.00
-1,100.00
-900.00
-700.00
-500.00
-300.00
-100.00
100.00
Fiscal Year Cumulative Federal Budget Deficit
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: U.S. Treasury, Bloomberg
55.0%
57.0%
59.0%
61.0%
63.0%
65.0%
67.0%
1
/
1
/
1
9
4
8
3
/
1
/
1
9
5
1
5
/
1
/
1
9
5
4
7
/
1
/
1
9
5
7
9
/
1
/
1
9
6
0
1
1
/
1
/
1
9
6
3
1
/
1
/
1
9
6
7
3
/
1
/
1
9
7
0
5
/
1
/
1
9
7
3
7
/
1
/
1
9
7
6
9
/
1
/
1
9
7
9
1
1
/
1
/
1
9
8
2
1
/
1
/
1
9
8
6
3
/
1
/
1
9
8
9
5
/
1
/
1
9
9
2
7
/
1
/
1
9
9
5
9
/
1
/
1
9
9
8
1
1
/
1
/
2
0
0
1
1
/
1
/
2
0
0
5
3
/
1
/
2
0
0
8
5
/
1
/
2
0
1
1
U.S. Labor Force Participation Rate
Source: Bureau of Labor Statistics, Bloomberg
1/31/14
63.0%
3
Monthly Commentary 1/31/14
suggesting even after controlling for demographic
changes in the composition of the labor force, large
cyclical effects remain, leaving large levels of slack in
the labor markets.






































Monthly Commentary
0
50
100
150
200
250
300
350
F
e
b
-
1
3
M
a
r
-
1
3
A
p
r
-
1
3
M
a
y
-
1
3
J
u
n
-
1
3
J
u
l
-
1
3
A
u
g
-
1
3
S
e
p
-
1
3
O
c
t
-
1
3
N
o
v
-
1
3
D
e
c
-
1
3
J
a
n
-
1
4
N
e
t

P
a
y
r
o
l
l

A
d
d
i
t
i
o
n
s

(
0
0
0
'
s
)
Nonfarm Private Payrolls - Net Change
BLS ADP Source: Bureau of Labor Statistics, Bloomberg, ADP
Last BLS = 113K
Last ADP = 175K
4
Monthly Commentary 1/31/14
Emerging Markets Fixed Income
Volatility not seen since the summer of 2013 returned
to global markets in January, as mixed economic
reports from the U.S. combined with weak
fundamental and technical backdrops in Emerging
Markets (EM) helped to drag down investor
sentiment. U.S. equities shed nearly 3.5%, their worst
performance in over a year, while UST rallied as a
flight-to-safety bid returned to markets. Benchmark
10-year UST saw yields tumble from 3.03% to 2.64%.
Concerns over U.S. growth emerged this month
following economic releases showing that certain
sectors of the U.S. economy were posting slower
growth than expected or shrinking: durable goods
orders unexpectedly contracted by a wide margin in
December; new home sales declined by a larger rate
than expected in December; the manufacturing
sector expanded at a much slower pace than
consensus expectations for the month of January; and
while the unemployment rate declined (once again,
largely due to workers leaving the workforce) to 6.6%
in January, the 113,000 increase in nonfarm payrolls
for the month was well-below consensus estimates of
185,000. Despite these weaker data points, the U.S.
did post fourth quarter 2013 growth of 3.2%, which
was in-line with expectations. It remains to be seen
how much of the slowdown in U.S. economic data
may be temporarily tied to the unusually bad winter
weather over the past several months, and how much
may be due to a fundamental slowing of the
economy.
In its last meeting under Chairman Ben Bernanke, the
U.S. Federal Open Market Committee (FOMC)
maintained its pace to continue drawing down its
quantitative easing (QE) program by $10 billion per
month. The FOMC press release dated January 29,
2014 noted that through December, "labor market
indicators were mixed but on balance showed further
improvement," and appeared to lack any serious
concerns over January economic reports.
Some of the main EM headlines gripping investors in
the month of January were tied to the currency and
local bond spaces, which experienced widespread
selloffs. Argentina, struggling with inflation nearing
30%, has dwindled international reserves to defend
their currency against mounting depreciation
pressures. When the Central Bank of Argentina
announced it planned to ease currency controls on
dollar purchases, the official foreign exchange (FX)
rate devalued 13% from 6.9 to 8.0 Pesos per U.S.
Dollar (USD). The outlook remains uncertain for
Argentina, given the perceived lack of political will to
implement the widespread economic reforms needed
to halt the economic decline. Additional EM
currencies that sold off sharply in January include the
South African Rand, which fell 5.7%, as well as the
Turkish Lira, which declined 4.8%. South Africa has
Monthly Commentary
Tickers January
Return
Last 3
Months
YTM Spread S&P
Ratings
EMBI JPGCCOMP -0.68% -1.88% 6.06% 360 BBB-
CEMBI JBCDCOMP 0.40% 0.13% 5.73% 347 BBB
GBI-EM JGENBDUU -3.63% -6.58% 7.04% N/A A-

Source: JP Morgan
(Past performance is no guarantee of future results.)
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14
JP Morgan Emerging Markets Bond Index
Performance (1/31/2013 through 1/31/2014)
EMBI
CEMBI
GBI-EM
Source: Barclays Live
5
Monthly Commentary 1/31/14
struggled with twin deficits following widespread
strikes in its crucial mining sector, and its currency
has declined nearly 19.5% versus the USD over the
past 12 months. Turkey has seen a widespread
corruption probe roil the embattled administration of
Prime Minister Recep Erdogan, as well as slowing
Foreign Direct Investment and a widening current
account deficit.
Two additional countries that have seen struggles
over the past year exacerbated in the last month are
Venezuela and Ukraine. Both, but perhaps most
notably Venezuela, have seen mismanaged top-down
policies making international investors wary of their
foreign-exchange and local bond markets. Despite
being oil-rich, Venezuela has been plagued by
shortages of basic goods such as rice and coffee amid
widespread capital controls and price setting by
President Nicolas Maduros Administration.
Consumer prices are rapidly increasing at one of the
fastest rates in the world, with annualized inflation of
56%. Ukraine has been shaken by major protests for
the past three months against President Viktor
Yanukovichs turn away from the West/European
Union toward closer ties with Russia, which has
responded with a gas subsidy agreement and a $15
billion debt package. Yanukovich faces pressure from
both the Kremlin and the gathering momentum of
opposition protestors, who forced him to reorganize
his cabinet. The political and economic uncertainty
has led to a sharply falling currency and declining
dollar reserves amid capital flight.
Despite these headwinds, developed markets abroad,
as well as China, were able to post economic figures
largely in-line with expectations in January. The
manufacturing sector across the eurozone expanded
at a slightly faster pace for January, edging above
consensus estimates. The unemployment rate was
reported as ticking lower in December, thought it
remains stubbornly high at 12%. China posted fourth
quarter 2013 annualized growth slightly above
consensus at 7.7%. In January, the official report for
the manufacturing sector showed expansion, albeit at
a slower pace that was in-line with expectations. In
contrast, HSBCs manufacturing Purchasing Managers
Index (PMI) showed a slight contraction in the sector
that was slightly below consensus. Late January also
witnessed the Chinese authorities stepping in to
bailout a troubled $500 million high-yield shadow
banking trust product, illustrating the governments
willingness to backstop the economy, though it has
been vocal about weeding out excessive lending and
credit.
EMFI mutual funds saw continued outflows in January
amid the increasing headline noise: $4.8 billion left
the asset class, with $1.5 billion exiting hard currency
funds and $3 billion from local currency funds. When
dissected from a sovereign/corporate bond
perspective, outflows were $3.8 billion from
sovereign-benchmarked funds and essentially
unchanged for corporate-benchmarked funds. We
still feel that the new issue pipeline remains relatively
full, with pricing coming at more attractive levels
given the recent noise in the asset class. We will
continue to carefully watch the pipeline for attractive
investment opportunities.







Monthly Commentary
6
Monthly Commentary 1/31/14
Global Developed Credit
January was a mixed month for corporate credit.
Although spreads widened, the decline in interest
rates helped produce solid total returns. Despite
beginning the year with a constructive tone, evidence
of slower growth in China, volatility in emerging
markets and a Federal Reserve determined to wind
down its bond buying program reversed the trend
causing risk premiums to widen. The Barclays U.S.
Credit Index ended the month 4 bps wider posting a
total return of 1.68% and underperforming duration-
matched Treasuries by 31 bps. The Barclays High
Yield Index widened by 22 bps during the month
which resulted in a total return of 70 bps and
underperformed duration-matched Treasuries by 40
bps. The Barclays U.S. High Yield Loan Index posted a
return of 61 bps during the month.
Within the investment grade universe the best-
performing sectors with respect to excess return
included Foreign Local Government (+78 bps); Other
Financial (+60 bps); Other Industrial (+52 bps);
Brokerage (+49 bps); and Building Materials (+38
bps). The worst performing sectors on a relative basis
included Sovereigns (-2.22%); Home Construction (-
1.36%); Metals (-94 bps); Wirelines (-83 bps); and Oil
Field Services (-80 bps). Higher rated debt
outperformed lower quality issues during the month.
In the high yield space all sectors except for retailers
were up in the month of January. The top performers
in high yield were Paper (+2.49%); Brokerage
(+1.50%); Pharmaceuticals (+1.36%); Healthcare
(+1.23%); and Pipelines (+1.05%). The worst
performing sectors were Retailers (-78 bps); Other
Finance (+19 bps); Aerospace/Defense (+30 bps);
Consumer Products (+30 bps); and Electric (+34 bps).
Returns were clustered by quality, with Caa-rated and
Ba-rated debt marginally outperforming single-Bs in
total return. In terms of excess returns, Caa-rated
debt outperformed both Ba-rated and B-rated debt.
Fixed-rate investment grade supply for January was
approximately $126.9 billion, versus $124.1 billion
brought to market in January 2013. Non-corporate
issuers were the most active with $61.6 billion of
investment grade supply. High yield issuers priced a
total of $23.4 billion in January versus $38.3 billion in
new US dollar-denominated bonds in January 2013.
Monthly Commentary
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
F
e
b
-
1
3
M
a
r
-
1
3
A
p
r
-
1
3
M
a
y
-
1
3
J
u
n
-
1
3
J
u
l
-
1
3
A
u
g
-
1
3
S
e
p
-
1
3
O
c
t
-
1
3
N
o
v
-
1
3
D
e
c
-
1
3
J
a
n
-
1
4
Performance of Select Barclays Indices Last 12 Months
U.S. High Yield
U.S. Credit
U.S. Aggregate
Source: Barclays Live
0
20
40
60
80
100
120
140
160
180
B
i
l
l
i
o
n
s

o
f

U
.
S
.

D
o
l
l
a
r
s
Total Fixed-Rate Investment Grade Supply
Source: Barclays Live
7
Monthly Commentary 1/31/14
High yield mutual funds had net outflows of $223
million in January according to Lipper. Meanwhile,
loan fund inflows remained strong with an additional
$3.8 billion flowing into loan funds in January, taking
the positive streak of inflows to 85 weeks. There
were no defaults in January. Overall default activity
was modest in 2013 as both default volume and the
high yield default rate reached six-year lows. Only
$1.1 billion of high yield bonds and loans defaulted
during the fourth quarter of 2013, which represented
the lightest quarterly volume since 2007.
The first month of 2014 also saw a tough start for
developed market equities given the notable negative
swing in sentiment brought about by the turbulence
in of emerging markets. Despite the fact that the
Federal Reserve has started to taper its QE Program,
the 10-year UST yield declined 38 bps during the
month helping corporate credit to produce positive
returns despite indices which generally experienced
spread widening. Investment grade outperformed
high yield in the sell-off but credit held in reasonably
well considering some of the issues occurring
elsewhere on the globe. The default backdrop
remains benign and corporate borrowers continue to
maintain relatively healthy balance sheets which, in
some instances, are laden with cash given the market
-friendly levels of interest rates which have fueled
record levels of debt issuance over the past year.




























Monthly Commentary
8
Monthly Commentary 1/31/14
Agency Mortgage-Backed Securities
The U.S. Agency MBS sleeve of the Barclays U.S.
Aggregate Bond Index had a return of 1.56% for the
month of January, outpacing the overall return of the
Index. This is somewhat unusual as historically the
MBS sleeve has underperformed the overall Index
during a period of falling interest rates. What
occurred was the duration of the Barclays U.S. MBS
Index extended to an all-time high during this period,
and with that longer duration comes some ability for
these assets to go up in price more when interest
rates fall. With the decline in interest rates and rise in
MBS prices over the month of January, the duration
came off its all-time level to stand at 5.3 years as of
month-end. As expected, the lower coupon
mortgages appreciated in price more than the higher
coupon mortgages. An example of this is 30-year
3.00% Fannie Mae (FNMA) mortgages which were up
more than 2 points in January. Higher coupon
mortgages, such as mortgages with a 5.00% or 5.50%
coupon, were up to 1 points for the month.

Prepayment speeds were down in January for the
seventh time in eight months. The only month in the
past eight months that experienced an increase in
these speeds was December 2013. FNMA
prepayment speeds are currently 30% of where they
were at the start of 2013. Freddie Mac (FHLMC)
prepayment speeds are 32% relative to the start of
2013, while Ginnie Mae (GNMA) prepayment speeds
are 41% of where they were at the beginning of 2013.
These speeds are the lowest seen by the mortgage
market since 2009 (also known as the subprime
crisis). If mortgage rates stay at current levels, we
expect prepayment speeds to pick over the next few
months.

The mortgage market heard what the Treasury was
thinking in regards to mortgages at the Structured
Finance Industry Group (SFIG) conference held in Las
Vegas in late January. Dr. Michael Stegman from the
U.S. Treasury Department spoke at the conference
about certain matters on the forefront of investors
minds pertaining to mortgages and mortgage
Monthly Commentary
Conditional Prepayment Rates (CPR)
2013 Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan
FNMA 24.4 24.4 24.0 25.1 22.7 20.5 16.2 12.2 11.5 10.4 10.6 8.7
FHLMC 26.0 25.9 25.3 25.5 23.4 21.5 17.1 13.1 12.0 10.8 11.1 9.1
GNMA 21.9 21.8 23.0 22.2 19.4 18.2 14.9 12.2 12.1 11.2 11.2 9.7
Barclays Capital U.S.
MBS Index 11/29/2013 12/31/2013 1/31/2014 Change
Average Dollar Price 103.68 102.91 104.26 1.35
Duration 5.56 5.62 5.31 -0.31
Barclays Capital U.S.
Index Returns 11/29/2013 12/31/2013 1/31/2014
Aggregate -0.37% -0.57% 1.48%
MBS -0.62% -0.47% 1.56%
Corporate -0.27% -0.25% 1.68%
Treasury -0.33% -0.91% 1.36%
source: eMBS, Barclays Capital
1/31/2014
5.3
0.00
1.00
2.00
3.00
4.00
5.00
6.00
06/08 12/08 06/09 12/09 06/10 12/10 06/11 12/11 06/12 12/12 06/13 12/13
Duration of Barclays U.S. MBS Bond Index
Source: Barclays Live
9
Monthly Commentary 1/31/14
end of 2014. We also continue to notice that the
supply side of the market continues to change with
the recent rise in rates. Gross issuance in January was
around $65 billion which save for one month in 2011
was the lowest gross issuance total since March 2009.
We do not expect to see issuance numbers get
substantially bigger anytime soon unless the market
experiences a meaningful drop in rates.





















Monthly Commentary
securitization. Dr. Stegman addressed several
important points, including the following highlights:

He does not think that the Home Affordable
Refinance Program (HARP) should be extended.
He believes that there are still many borrowers
who can benefit from the existing program but a
change to the problem would affect borrowers
whose purchase happened after the real estate
crash and therefore they are not in need of
financial support. Premium mortgages improved
with the help of this news as the market viewed it
as a lessening of odds of faster prepayments for
higher coupon mortgages.
He does not approve of the Eminent Domain
concept with regards to underwater mortgages.
Instead he favors refinancing legislation to help
these borrowers.
He mentioned the Government Sponsored
Enterprises (GSEs) and suggested the UST prefers
a single securitization provider. He believes it is
important for this provider have a strong TBA
market to help the liquidity and efficiency of the
mortgage process. The concept of full faith and
credit came up in addition to the mention of a
privately held first-loss piece.

These decisions, however, would come about from
what the Federal Housing Finance Agency (FHFA),
headed by Mel Watt, decides as well as what happens
to the Corker-Warner Bill or any other policy that will
determine the fate of the GSEs. In other words, there
are many more factors to consider.

The market received another round of Fed tapering in
January as expected. We continue to believe the
market has priced in the tapering or end to QE by the
10
Monthly Commentary 1/31/14
dollar settlement to borrowers for alleged
mistreatment. Additionally, there have been rumors
that several large investment institutions are also
considering their own lawsuit against Ocwen for their
loan servicing practices. The record JP Morgan
settlement at the end of 2013 seems to have acted as
a catalyst for servicer litigation and our expectations
are that future lawsuits against mortgage servicers
are likely.


Monthly Commentary
Non-Agency Mortgage-Backed Securities
This year began with a sluggish start in the non-
Agency MBS market, mainly due to the lack of
volume. Despite the limited activity, the rally that
started in the third quarter of 2013 continued
through January. Bid list activity was not evenly
distributed with much of the volume being attributed
to the liquidation of the second segment of the ING
portfolio. This accounted for $4.6 billion of current
face, and was concentrated primarily in Alt-A and
prime non-Agency MBS. Insurance companies
continued to be the big players with money managers
also winning their share of bonds. Hedge funds and
other fast money accounts have been fairly quiet on
these lists as many of the bonds were higher dollar
price bonds that were higher in the capital structure.
Yields moved in slightly tighter across all sectors of
the market. Prime bonds are trading at 4% yields to
loss adjusted scenarios, Alt-A bonds at 4.5% and
subprime bonds in the low 5% range.

Fundamentally, January remittance data was very
stable with both prepayment speeds and the pace of
loan liquidations slowing slightly. Prime, Alt-A and
subprime prepays speeds slowed by 1.3 CPR
(Conditional Prepayment Rate), 0.6 CPR and 0.1 CPR,
respectively. Liquidation rates, on average, fell by 0.8
CDR (Conditional Default Rate), 0.2 CDR, and 0.1 CDR
for the same markets. Loan modification rates were
similar to December with 1,958 loans being modified
during the month with the average rate modification
of 2.78%.

News of litigation against loan servicers continues to
grab the headlines. Most recently it was announced
that Ocwen Financial was ordered to pay a $2 billion
86
91
96
101
106
111
116
6
/
3
0
/
1
1
8
/
3
1
/
1
1
1
0
/
3
1
/
1
1
1
2
/
3
1
/
1
1
2
/
2
9
/
1
2
4
/
3
0
/
1
2
6
/
3
0
/
1
2
8
/
3
1
/
1
2
1
0
/
3
1
/
1
2
1
2
/
3
1
/
1
2
2
/
2
8
/
1
3
4
/
3
0
/
1
3
6
/
3
0
/
1
3
8
/
3
1
/
1
3
1
0
/
3
1
/
1
3
1
2
/
3
1
/
1
3
PrimeX Prices
PrimeX FRM.1
PrimeX FRM.2
Source: MarkIt via Morgan Stanley
30
35
40
45
50
55
60
65
70
75
80
6
/
3
0
/
1
1
8
/
3
1
/
1
1
1
0
/
3
1
/
1
1
1
2
/
3
1
/
1
1
2
/
2
9
/
1
2
4
/
3
0
/
1
2
6
/
3
0
/
1
2
8
/
3
1
/
1
2
1
0
/
3
1
/
1
2
1
2
/
3
1
/
1
2
2
/
2
8
/
1
3
4
/
3
0
/
1
3
6
/
3
0
/
1
3
8
/
3
1
/
1
3
1
0
/
3
1
/
1
3
1
2
/
3
1
/
1
3
ABX Prices
ABX 2006-2 AAA
ABX 2007-1 AAA
Source: MarkIt via Morgan Stanley
11
Monthly Commentary 1/31/14
Markets Index, increased 2.6% in December 2013
while the other subindex, the Non-Major Markets
Index, was up 2.0%. January loan loss severities
averaged 59% over $1 billion of loans liquidated
according to Trepp Analytics.



















Monthly Commentary
Commercial Mortgage-Backed Securities
New issuance activity began the year strong in
January with a total of 7 deals priced equating to
approximately $6 billion in issuance, including three
conduit deals totaling $4 billion. February is teeing up
to be another month of substantial issuance as well.
Still, this strong start trails that of January 2013 which
totaled $11 billion. Despite month-end broader
market de-risking, CMBS generically performed better
than expected as both legacy and new issue market
spreads held in, some of which is attributed to the
stronger investor base as seen in recent months with
the insurance and money manager community
stepping in. For the month, legacy AAA spreads
widened by 11 bps to 112 bps over swaps, while on
the new issuance side AAAs recently priced at 95 bps
over swaps with BBBs at 365 bps. The CMBS portion
of the Barclays U.S. Aggregate Bond Index returned
+0.82% in January.
The overall U.S. CMBS delinquency rate continued its
decline in January, dropping 18 bps to 7.25%
according to Trepp Analytics. The 30+ day
delinquency rate by property sector was mixed with
Lodging posting a 56 bps improvement to 7.35%,
Office improving by 33 bps to 7.80%, and the
Multifamily Delinquency Rate dropping by 19 bps to
10.67%. The Industrial and Retail Delinquency Rates
both increased, however, to 10.59% (+13 bps) and
6.13% (+7 bps), respectively. We expect to continue
to see declining delinquency rates stemming from
improving market fundamentals, low interest rates
and increased levels of CMBS special servicer loan
liquidations. Mirroring this improvement, the
Moodys/Real Capital Analytics (RCA) Commercial
Property Price Indices (CPPI) subindex, the Major
12
Monthly Commentary 1/31/14
falling interest rate environment resulted in a higher
return. Likewise, the municipal bond market
combined stable relative value with a long average
duration to produce a 1.95% return for January.
Monthly Commentary
U.S. Government Securities
The U.S. Treasury market started 2014 on a positive
note. The 10-year UST note reached its highest yield
of 2013 on December 31 at 3.03%. It fell on January
2
nd
and continued to fall though the remainder of the
month, ending January at 2.64%. The Barclays U.S.
Government Index returned 1.31% for the month.
Trading activity had the hallmarks of a short squeeze.
A broad spectrum of investors ended 2013 expecting
higher rates. Portfolios were positioned accordingly,
with reduced duration and increased credit risk.
Disappointing U.S. economic data, most notably the
employment report on January 10
th
and heightened
emerging market jitters prompted short covering and
flight-to-quality Treasury buying. This buying helped
to provide an ongoing bid for intermediate and long
U.S. Treasuries.

Short Treasuries were lackluster performers. The two
-year note fell 4 bps in yield and returned 0.17% on
the month. The five-year note was a stronger
performer, falling 23 bps in yield and returning 1.35%.
The 30-year bond yield fell 35 bps, generating a
return of 6.20%.

Treasury Inflation-Protected Securities (TIPS) returned
1.98% in January. TIPS generally underperformed
comparable duration conventional UST, but the
longer average duration of the TIPS market in the
12/31/2013 1/31/2014 Change
3 month 0.07 0.02 -0.05
6 month 0.09 0.05 -0.04
1 year 0.11 0.09 -0.02
2 year 0.38 0.33 -0.05
3 year 0.77 0.67 -0.10
5 year 1.74 1.49 -0.25
10 year 3.03 2.65 -0.38
30 year 3.97 3.60 -0.37
Source: Bl oomberg
Yield Curve
13
Monthly Commentary 1/31/14
Important Information Regarding This Report
Issue selection processes and tools illustrated throughout this presentation are samples and may be modified periodically. Such charts are not the only tools used by the
investment teams, are extremely sophisticated, may not always produce the intended results and are not intended for use by non-professionals.
DoubleLine has no obligation to provide revised assessments in the event of changed circumstances. While we have gathered this information from sources believed to
be reliable, DoubleLine cannot guarantee the accuracy of the information provided. Securities discussed are not recommendations and are presented as examples of
issue selection or portfolio management processes. They have been picked for comparison or illustration purposes only. No security presented within is either offered for
sale or purchase. DoubleLine reserves the right to change its investment perspective and outlook without notice as market conditions dictate or as additional information
becomes available. This material may include statements that constitute forward-looking statements under the U.S. securities laws. Forward-looking statements
include, among other things, projections, estimates, and information about possible or future results related to a clients account, or market or regulatory developments.
Ratings shown for various indices reflect the average for the indices. Such ratings and indices are created independently of DoubleLine and are subject to change without
notice.

Important Information Regarding Risk Factors
Investment strategies may not achieve the desired results due to implementation lag, other timing factors, portfolio management decision-making, economic or market
conditions or other unanticipated factors. The views and forecasts expressed in this material are as of the date indicated, are subject to change without notice, may not
come to pass and do not represent a recommendation or offer of any particular security, strategy, or investment. All investments involve risks. Please request a copy of
DoubleLines Form ADV Part 2A to review the material risks involved in DoubleLines strategies. Past performance (whether of DoubleLine or any index illustrated in this
presentation) is no guarantee of future results. You cannot invest in an index.
Important Information Regarding DoubleLine
In preparing the client reports (and in managing the portfolios), DoubleLine and its vendors price separate account portfolio securities using various sources, including
independent pricing services and fair value processes such as benchmarking.
To receive a complimentary copy of DoubleLines current Form ADV (which contains important additional disclosure information), a copy of the DoubleLines proxy voting
policies and procedures, or to obtain additional information on DoubleLines proxy voting decisions, please contact DoubleLines Investor Services.
Important Information Regarding DoubleLines Investment Style
DoubleLine seeks to maximize investment results consistent with our interpretation of client guidelines and investment mandate. While DoubleLine seeks to maximize
returns for our clients consistent with guidelines, DoubleLine cannot guarantee that DoubleLine will outperform a client's specified benchmark. Additionally, the nature
of portfolio diversification implies that certain holdings and sectors in a client's portfolio may be rising in price while others are falling; or, that some issues and sectors
are outperforming while others are underperforming. Such out or underperformance can be the result of many factors, such as but not limited to duration/interest rate
exposure, yield curve exposure, bond sector exposure, or news or rumors specific to a single name.
DoubleLine is an active manager and will adjust the composition of clients portfolios consistent with our investment teams judgment concerning market conditions and
any particular security. The construction of DoubleLine portfolios may differ substantially from the construction of any of a variety of bond market indices. As such, a
DoubleLine portfolio has the potential to underperform or outperform a bond market index. Since markets can remain inefficiently priced for long periods, DoubleLines
performance is properly assessed over a full multi-year market cycle.
Important Information Regarding Client Responsibilities
Clients are requested to carefully review all portfolio holdings and strategies, including by comparing the custodial statement to any statements received from
DoubleLine. Clients should promptly inform DoubleLine of any potential or perceived policy or guideline inconsistencies. In particular, DoubleLine understands that
guideline enabling language is subject to interpretation and DoubleLine strongly encourages clients to express any contrasting interpretation as soon as practical. Clients
are also requested to notify DoubleLine of any updates to Clients organization, such as (but not limited to) adding affiliates (including broker dealer affiliates), issuing
additional securities, name changes, mergers or other alterations to Clients legal structure.
DoubleLine is a registered trademark of DoubleLine Capital LP.
2014 DoubleLine Capital LP
Disclaimer