Issuer Free Writing Prospectus Filed Pursuant to Rule 433 Registration Statement No. 333-137902 Dated March 9, 2009 Expressing macro-economic views through Interest Rate Structured Products March 2009 Deutsche Bank Securities, Inc. A Passion to Perform. [Deutsche Bank Logo] slide00 | ![]() |
Why Interest Rate Structured Products? |X| One of the deepest and most liquid underlying derivatives markets - Enables a wide array of products to be created and customized for different requirements |X| Ability to express views on fundamental macro economic variables and drivers - Short Term Rates - Long Term Rates - Yield Curve Slope, i.e. differential between long-term and short-term rates - Inflation |X| Interest Rate Structured Products can serve multiple purposes within a core portfolio - Yield Enhancement - Protecting Real Returns (Inflation linked structures) - Hedging (E.g. Bearish Long Term Rate Structure for a Treasury Portfolio) [Deutsche Bank Logo] slide01 | ![]() |
Market Overview (1) The Fed has acted quickly to lower short term rates [GRAPHIC OMITTED] - Risk-free rates in the short term fall close to zero - Yield on Treasury Bills was negative for a short while - Creates a lack of viable alternatives for short term liquidity [GRAPHIC OMITTED] - The drop in long-term rates has largely been driven by extremely heavy technical flows - Massive rally in long maturity Treasury Bonds - Fixed income investors seek protection against a reversal of this trend (to lock-in their gains) [Deutsche Bank Logo] slide02 | ![]() |
Market Overview (2) The inflation markets are pricing in significant deflation going forward [GRAPHIC OMITTED] - Market prices for TIPS and CPI Swaps imply years of deflation - Partly explained by commodity prices and economic slowdown, but a large part is due to technical flows (deleveraging) - However a reversal could come quickly, given current policy bias - Investors seek to hedge their portfolios against a pickup in inflation, taking advantage of attractive market levels created by recent dislocation [GRAPHIC OMITTED] - Volatility spiked towards the end of 2008, but has come down in the start of 2009 - Creates opportunities for investors depending on their outlook on rates Selected Themes and Opportunities [Deutsche Bank Logo] slide03 | ![]() |
Selected Themes and Opportunities Short-term rates to remain low / range-bound? - - Fed is unlikely to hike until economy shows sign of recovering (more likely to risk a hike in inflation to escape the liquidity trap) - - At the same time, the market is pricing relatively high implied volatilities Range Accrual Notes Long-term rates too low? - - The increasing supply of treasuries could eventually put upward pressure on yields - - The levels of inflation priced into rates may be too low, even after taking into account a steep deflationary environment in the first half of 2009 CMS-Linked Notes Steepener Notes Is the market overestimating deflation risk? - - Massive increase in money supply could be inflationary once the credit market unfreezes - - A recovery of commodity prices would restore inflation CPI-Linked Notes [Deutsche Bank Logo] slide04 | ![]() |
Selected Themes/Opportunities(1) Short Term Rates to Remain Low/Range bound? |X| Fed is unlikely to hike rates until economy shows sign of recovering (more likely to risk a hike in inflation to escape liquidity trap) |X| At the same time market is pricing in high implied volatilities Opportunities |X| Range Accrual Notes - Designed for investors who think monetary policy will keep short term rates low for an extended time [GRAPHIC OMITTED] [Deutsche Bank Logo] slide 05 | ![]() |
5y Libor Range Accrual Short Term Rates Remaining in a Tight Range Sample Terms Issuer Deutsche Bank (Aa1/A+/AA-) Maturity 5 years Coupon (3mLibor + 2.75%) x N/D (floating) OR 4.80% x N/D (fixed) N = number of days in coupon period when 3mLibor is inside the range D = total number of days in coupon period Quarterly,30/360 Range 0.60% - 3.60% Call Not Callable Payoff Under Hypothetical Scenarios [GRAPHIC OMITTED] Rationale |X| Investors receive a coupon or 3m Libor + 2.75% (or 4.80% for the fixed range accrual) for the proportion of days that 3mL sets within a range o Currently 3mL is at 1.18% and Fed Funds target rate is 0.25% |X| Designed for investors who think monetary policy will keep short term rates low, but not too close to zero |X| 100% Principal Protected at maturity (senior unsecured obligation of DB) |X| Possibility of earning above-market coupons while 3mL remains within the range |X| Main Risks: o Subject to issuer credit risk o Notes could yield zero coupons if 3mL is above 3.60% or below 0.60% o Mark-to-market volatility (influenced by market factors like rates, volatilities, credit spreads, liquidity, among others) [Deutsche Bank Logo] slide06 | ![]() |
Selected Themes/Opportunities (2) Long Term Rates too low? |X| Long-term swap rates are near all-time lows |X| The spread between long-term swap rates and treasury rates is close to zero |X| The increasing supply of Treasuries could eventually put upward pressure on yields (currently absorbed by massive flight to quality) Opportunities |X| CMS "Caps" (essentially call options on interest rates) can by used by investors to benefit from a rise in long-term rates while limiting downside xposure |X| 10ySteepener Note can be used to monetize term premium in the Yield Curve [GRAPHIC OMITTED] [Deutsche Bank Logo] slide07 | ![]() |
CMS-Linked Note Benefit from a rise in long-term rates Issuer Deutsche Bank (Aa1/A+/AA-) Maturity 3 years Coupons Zero Coupon Redemption 100% + 16x(10yCMS - 3.80%) Subject to a minimum redemption of 85% Set in arrears Payoff Under Hypothetical Scenarios [GRAPHIC OMITTED] Rationale |X| Investors make money if 10y swap rate (10y CMS) is higher than 3.80% after 3 years o 16x Leverage o If 10y swap rate increases to 5.50%, the redemption would be 127% o However if the 10y swap stays at current levels or falls, the redemption will be 85% |X| This is a directional view suitable for investors with a view that the 10y swap rate will increase in the course of the next 3 years |X| 85% Principal Protected at maturity (senior unsecured obligation of DB) |X| Main Risks: o Subject to issuer credit risk o Redemption below 100% if 10y swaps don't increase o Secondary market price of the notes can be significantly influenced by market factors like rates, volatilities, credit spreads, liquidity, among others [Deutsche Bank Logo] SLIDE08 | ![]() |
10y Steepener Note Monetizing Term Premium in the Yield Curve Sample Terms Issuer Deutsche Bank (Aa1/A+/AA-) Maturity 10 years Coupon 7 x (10yCMS - 2yCMS) Quarterly, 30/360 Capped at 9.50% and Floored at 0.00% Set in arrears Payoff Under Hypothetical Scenarios [GRAPHIC OMITTED] Rationale |X| Investors receive coupons that are a multiple of the spread between the 10y Swap (10yCMS) and the 2y swap (2yCMS) o At the current spread of 1.32%, a multiple of 7x would deliver a coupon of around 9.2% o If the curve steepens further, investors can receive up to 9.5% coupons |X| 100% Principal Protected at maturity (senior unsecured obligation of DB) |X| Main Risks: o Subject to issuer credit risk o Notes can yield zero coupons if 10y swaps are equal or less than 2y swaps o Secondary market price can be influenced by market factors like rates, volatilities, credit spreads, liquidity, among others) [Deutsche Bank Logo] slide09 | ![]() |
Selected Themes/Opportunities (3) Inflation Expectation too low? |X| Massive increase in money supply likely to be inflationary once credit market unfreezes |X| A recovery of commodities prices would help restore inflation |X| Quantitative easing and increasing national debt could ultimately pose structural inflation risk, which is not currently priced in by the market |X| Long term deflation (Japan scenario) is unlikely given the quick and far reaching monetary policy reaction [GRAPHIC OMITTED] [Deutsche Bank Logo] slide10 | ![]() |
3y CPI-Linked Note Benefit from Rising Inflation Sample Terms Issuer Deutsche Bank (Aa1/A+/AA-) Maturity 3 years Coupons Zero Coupon Redemption 100% + 1.25x Inflation Subject to minimum redemption of 85% Where: Inflation = CPI(maturity-3m)/CPI(sett. date-3m)-1 CPI = CPI for All Urban Consumers Non- Seasonally Adjusted Payoff Under Hypothetical Scenarios [GRAPHIC OMITTED] Rationale |X| Investors make money when inflation is positive over a 3 year period o 1.25x Leverage o If inflation is positive, the redemption will increase beyond 100% o If inflation is negative (deflation), the redemption will be less than 100% o Minimum redemption of 85% |X| 85% Principal Protected at maturity (senior unsecured obligation of DB) |X| Main Risks: o Subject to issuer credit risk o Redemption below 100% if there is deflation o Secondary market price of the notes can be significantly influenced by market factors like inflation breakevens, interest rates, volatilities, credit spreads, liquidity, among others [Deutsche Bank Logo] slide11 | ![]() |
Conclusion |X| Macro economic parameters such as the level of interest rates, inflation etc have a significant impact on any financial portfolio either through first or second-order effects |X| Interest rate linked products allow investors to directly express views on these macro-economic variables and therefore should be a core part of an investors structured product exposure |X| These products can serve as a variety of purposes ranging from yield enhancement to real return protection to hedging exposures in other parts of the portfolio |X| A deep and liquid underlying derivatives market combined with Deutsche Bank's market leading product platform means that products can be easily customised and efficiently tailored to investors specific requirements [Deutsche Bank Logo] slide12 | ![]() |
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