PRICING DATA BVAL Pricing Overview For Government .

PRICINGDATABVAL Pricing Overviewfor Government,Supranational, Agency& Investment-GradeCorporate Bonds

BVAL PRICING OVERVIEWFOR GOVERNMENT,SUPRANATIONAL, AGENCY& INVESTMENT-GRADECORPORATE BONDS3 B VAL Evaluated PricingScreen – BVAL GO 4 Step One – Direct Observations5 S tep Two – ObservedComparables7 P revious BVALPrice — Stabilization Factor7 BVAL ScoreBloomberg’s BVAL Evaluated Pricing Service provides transparentand highly defensible prices for fixed income securities across theliquidity spectrum. The key to BVAL’s methodology is its real-timeaccess to market observations from a wealth of contributed sources.This accumulated mass of market data is the main driver of aninnovative and quantitative approach that first corroborates marketlevels on actively traded bonds and then derives a comparablerelative value price for those securities that are less liquid.This methodology aligns with Bloomberg’s trusted capabilitiesas the financial industry’s leading analytics platform and sourceof fixed income information. In addition to sophisticated algorithmsthat generate evaluated prices, the BVAL methodology assigns aBVAL Score based on the amount and consistency of market dataused in our models.8 SummaryThis BVAL methodology overview covers government, supranational,agency and investment-grade corporate bonds for bullet and callableas well as fixed- and floating-rate structures.BVAL AT A GLANCEThe BVAL GO function, availableon the Bloomberg Professional service, enables clients to view BVALEvaluated Prices, the BVAL Score,related metrics and useful informationavailable to Bloomberg Data Licenseclients via data feeds. Throughout theBVAL GO function, you canexamine how BVAL pricingmethodologies are applied and thedepth of data supporting the algorithms.The interface provides a level oftransparency unavailable anywhereelse. This visibility greatly assists ourclients in making highly informedfixed income valuation decisions.PRICING OVERVIEW 2

BVAL EVALUATED PRICING SCREEN — BVAL GO BVAL’s unique pricing transparencystarts on the Terminal. Figure 1 showsBVAL’s Evaluated Pricing screen, whichsummarizes all the information used inthe pricing methodology of a uniquebond (“Target Bond”). Simply loadthe Target Bond on your BloombergTerminal and type BVAL GO .The Final BVAL Price is derived usinga two-pronged approach based ona combined sequence of proprietaryBVAL algorithms: Step One — Direct Observationsuses trades, executable levels andindicative quotes on the Target Bond. Step Two — ObservedComparables uses directobservations on comparable bondsto derive a relative value price onthe Target Bond when directmarket observations on theTarget Bond are insufficient.To corroborate the results ofeach algorithm, market data is runthrough both steps. To derive aFinal BVAL Price, the results arethen appropriately weighted andaggregated based on the relativestrength of each algorithm. In this way,BVAL produces a high-quality pricefor every Target Bond regardless ofthe quantity of market data available.Figure 1 – BVAL Evaluated Pricing Screen — BVAL GO STEP 1: DIRECTOBSERVATIONSMARKET DATA Filter for trade sizeand apply time-decay Trades E xecutable Bids/Asks Indicative Bids/AsksRaw marketdata validatedfor marketauthenticity andconsistencySTEP 2: OBSERVEDCOMPARABLESRELATIVE VALUE MODEL Creates par issuer curves Creates reference curvesfrom liquid peer curves Residual basis adjustmentsfor coupon, size, ageLeveragequalifiedmarket datain proprietaryquantitativealgorithmsApply verifiedmarket data incapital-structurecurves and sectorsurfacesPRICING OVERVIEW 3

STEP ONE — DIRECT OBSERVATIONSDirect Observations uses Bloomberg’sproprietary screening algorithm toanalyze real-time market data receivedfrom BVAL’s pricing contributors.This sophisticated algorithm works toinclude TRACE trades and indicativemarket quotes from global andregional banks, broker-dealers andexchanges as well as executablelevels from Bloomberg’s electronictrading platform. This contributedcontent is filtered and time-decayedto include only the highest-qualityobservations; if these observationsare corroborated, they are used tocompute an independent DirectObservations price. If trade datareceived meets certain thresholds,the Direct Observations price will beheavily weighted by trades. The DirectObservations algorithm uses eitherprice or spread over benchmark inputsaccording to asset-class convention togenerate a bid, mid and ask price forevery Target Bond.DIRECT OBSERVATIONSSCREENFigure 2 shows the BVAL DirectObservations screen, whichsummarizes the information usedto price a Target Bond in the DirectObservations model. Key highlightsinclude the Final BVAL Price, theFinal BVAL Score (out of 10 —discussed in further detail below),the Direct Observations Price, theprice and weights assigned to trades,executable bids/asks and indicativebids/asks, the number of weightedmarket observations used in thealgorithm and their standard deviation.The market inputs used in the DirectObservations algorithm are clearlydisplayed in color code and timesequence for every Target Bond.Mouse over any green square to getfurther trade details, including dealerbuy/sell or dealer-to-dealer reportingentity, spread, size, date and time.Figure 2 – Direct Observations Screen — Market DataPRICING OVERVIEW 4

STEP TWO — OBSERVED COMPARABLESObserved Comparables usesBloomberg’s proprietary relative valuealgorithm to price bonds with limitedor no market observations. A TargetBond with insufficient market data ispriced relative to comparable liquidbonds. In this final step, BVAL usestwo different algorithmic approachesbased on a Target Bond’s asset classand technical characteristics:Bullet Par Issuer Curve ModelUsed for investment-grade bulletbonds (fixed and floating) acrossgovernment, supranational, agencyand investment-grade corporatesectors. This methodology firstnormalizes the Target Bond fortechnical characteristics, namely highcoupon premiums, size of issue, agein the market and not-rated status.This information is then used to derivea bullet par issuer curve based ondirect market observations acrossan issuer’s term structure. A TargetBond with no market observationis algorithmically priced using theappropriate maturity point on its parissuer curve. If a par issuer curvecannot be derived from direct marketobservations on bonds within thesame issuer, then an appropriatereference curve is created using acombination of comparable liquid parpeer curves within the same industry,credit quality and seniority rank in thecapital structure.Callable Option-Adjusted-Spread(OAS) ModelUsed for agency, supranational andinvestment-grade callable bonds, thismethodology uses the liquid bulletpar issuer curve as the benchmarkcurve and quantitatively determines theOAS/Duration of the Target Bond. Ifa liquid bullet par issuer curve cannotbe derived, an appropriate referencecurve is created using a combinationof comparable liquid peer curves withinthe same industry, credit quality andseniority rank in the capital structure.An OAS/Duration of the callable TargetBond is then calculated to derive anObserved Comparables price.OBSERVED COMPARABLESSCREEN — BULLET PAR ISSUERCURVE MODELFigure 3 shows the ObservedComparables screen, whichsummarizes all the information usedto price a Target Bond. Key highlightsinclude the Observed ComparablesPrice, the Observed ComparablesScore (out of 5 — discussed infurther detail below), the weightof the Observed Comparablesalgorithm used in the Final BVALPrice, the bullet par issuer curve andcorresponding reference curves, thederived point used to price the TargetBond, the Observed Residual and thePredicted Residual.Figure 3 – Observed Comparables Screen (investment-grade bullet) — YTMPRICING OVERVIEW 5

OBSERVED COMPARABLESSCREEN — CALLABLEOAS MODELFigure 4 shows the ObservedComparables screen, whichsummarizes the information used toprice a Target Callable Bond. This isa robust two-pronged methodologythat recognizes the OAS associatedwith a callable bond relative to anissuer’s yield-to-maturity (YTM) bulletcurve. To illustrate, the ObservedComparables screen is split to showthe bullet reference curve and OASto the benchmark reference curve fora Target Callable Bond. Additionalkey screen highlights include theObserved Comparables Price, theObserved Comparables Score (out of 5— discussed in further detail below),the Observed Comparables PriceWeight used in the Final BVAL Price,OAS, the Observed Residual and thePredicted Residual.Figure 4 – Observed Comparables Screen (Agency callables) — OAS to DurationNOT-RATED BONDSFor bonds with no publicly availablecredit ratings (“Target NR Bond”),BVAL estimates credit quality usingcredit spreads on all comparablepublicly rated bonds issued at thesame time and within the sameindustry, region and currency. BVALthen uses its proprietary pricingmethodology and factors in a spreadpremium to reflect the less-liquidnature of a Target NR Bond versusits publicly rated peers.PRICING OVERVIEW 6

PREVIOUS BVAL PRICE —STABILIZATION FACTORIn addition to the two-prongedapproach detailed above, BVALhas implemented a stabilizationmechanism to reduce price volatilityfrom one snapshot to the next. Thisfactor is used only in connectionwith the Observed Comparablesalgorithm when the current snapshothas weaker market data relative tothe previous Final BVAL Price. Inthese cases, the Previous BVALPrice is algorithmically weighted andcombined with the newly derivedObserved Comparables Price toappropriately manage price volatilityon less-liquid bonds.BVAL SCOREThe BVAL Score is a proprietaryand innovative metric designedto gauge the level of market dataused in constructing the Final BVALPrice. The BVAL Score measuresthe amount and consistency ofmarket data used in our models. ABVAL Score is calculated for eachalgorithm — Direct Observations andObserved Comparables — which arethen appropriately weighted to derivea Final BVAL Score. The Final BVALScore is measured on a scale of1 (the lowest) to 10 (the highest).Given that the BVAL Score measuresthe amount and consistency of marketdata used, the Direct Observationsmethodology can receive a maximumBVAL Score of 10. ObservedComparables derives a price usingcomparable bond observations andcan, therefore, receive a maximumBVAL Score of 5.PRICING OVERVIEW 7

SUMMARYThe Final BVAL Price is a product ofBloomberg’s proprietary quantitativeapproaches and methodologies.The algorithms used, along withBloomberg’s wealth of information,analytics and transparency, are all keyfeatures that set BVAL apart from itscompetitors. Distinct from a singletechnique approach, BVAL is able tocorroborate its pricing by employingmultiple methodologies to produceseparate prices for a Target Bondbased on the amount of quality marketdata used in each step. These pricesare ultimately combined to derive aFinal BVAL Price.BVAL’s multi-method approachensures that if market data isinsufficient, the Target Bond will bepriced nonetheless. The BVAL Score,which measures the amount andconsistency of market observationsused in the BVAL algorithms, is avaluable and unique concept createdspecifically by Bloomberg’s evaluatedpricing service. The transparencyavailable on the Bloomberg Terminalvia BVAL GO , the ability to integrateBloomberg’s Enterprise feed into ourclients’ infrastructure via Data Licenseand the access to a global team ofevaluators in New York, London andAsia with significant capital marketsexperience are second to none. Qualitypricing, broad-based asset-classcoverage, timely distribution and fulltransparency establish BVAL as thehighest standard in the evaluatedpricing industry.PRICING OVERVIEW 8