During the week of October 1-4, 2013 structured note issuance has been 2.03 BN across various issuers and asset classes. Most of the issuance (1.8 BN) is driven by Equity linked notes and 115 MM of the issuance is driven by Interest Rate linked products. Interestingly commodity linked issuance has spiked this week. For Details of the distribution refer to the chart below. Surprisingly majority of the structured note issuance is linked to Equity linked.
This week, structured notes were issued with variety of flavors and interesting themes. Majority of this issuance comprised of Equity Index related notes.Read on for more details.
Interactive Issuance analysis
You can click individual asset classes to see how the underlying issuance has happened within each asset type by underlying and Issuer.
Underlying analysis
On the Equity linked notes front there has been strong activity. Notes have been created on variety of underlyings. Index related issuance has been significant. This week issuance included notes created on the indices ( S&P 500, Stoxx 50, Russell 2000) and single names ( Ford, The BlackStone, Emerging markets ETF, Pulte group).
Notable notes this week were tied to Dow Jones index (180 MM) issued by Bank of America and Morgan Stanley. All of these notes belong to the class of leveraged and Yield Enhancement type. Bank of america created a note Cusip:06053F646with a size of 100 MM paying 16% return when Dow Jones Industrial average is above initial level of 15,328 and below 17676 (16% of initial level) with out any cap. On the downside this note will participate in 1:1 downside. Notes are at risk of losing entire principal.
One reason to participate in this kind of note is you are assured of 16% return if index remain at least above initial level. But since principal is at risk this note is suitable only to investors who have captured already some return on their portfolios and can sustain loses to capture the 16% return.
Goldman issued notes Cusip : 38147T506linked to the performance of TOPIX index, paying 1 to 1 index performance on upside and downside. These notes are suitable to institutional investors who have wants to capture the TOPIX performance. These notes payoff is impacted by the USD/JPY currency level as this equity index is traded in Japanese markets. This note belong to a special class of notes called (Quantos).
Interest rate linked issuance limited to standard, step up callable notes and Fixed rate notes.
There has been some issuance activity in Commodity and Currency segments of the markets. Commodity issuance topped 17MM with 3 notes issued around Spot Gold price and Brent crude oil. In the Currency markets this week there is an interesting note issued by JPM with a basket theme. On September JPM issued a 4.66 MM note on to capture performance of currency basket comprising of ( INR, BRL, RUB, AUD). These currencies. This basket Cusip:48126H357
captures twice the performance upside and protected up to 20% loses on the downside. Thesis of the note performance is that currencies in the basket will appreciate at the maturity of october 30,2014. This note is suitable for investors who wants to diversify into currency asset class.
Size of the note types will tell us an indication of what type structures are popular among the investors and where money is flowing. Below chart shows this theme
Popular notes have been market Linked Step up notes and Accelerated return notes. These two notes were issued around Equity indices.
Now moving on to issuers side and understanding their market penetration or competitor analysis provides some interesting insights.
This week BOA and JPM with its large issuances of Equity index linked notes captured 50% of the issuance volume. MS, GS and Barclays captured rest of the issuance market share.
Market penetration is driven by the issuer depth in each of the asset classes. Every issuer has presence in Equity linked issuance. Goldman is only issuer to produce Currency related issuance. Morgan Stanley and JPM are active players in the Hybrid related issuance.
For additional details please refer to the Issuance summary table.
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