Sunday, October 13, 2013

Structured Note Issuance Summary-October-7-11,2013 summary

During the week of October 7-11, 2013 structured note issuance has been 1.2 BN across various issuers and asset classes. Most of the issuance (760 MM) is driven by Interest Rate Linked notes and 399 MM of the issuance is driven by Equity linked products. There has been some activity in currency linked issuance this week. For Details of the distribution refer to the chart below. Surprisingly majority of the structured note issuance is linked to Interest rate linked by single issuer. This week, structured notes were issued with variety of flavors and interesting themes. Majority of this issuance comprised of Interest Rate 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 ( Caterpillar, The Biogen, Emerging markets ETF, Pulte group). Notable notes this week were tied to S&P GSCI™ Excess Return index (20 MM) issued by JP Morgan. This note belongs to the class of leveraged and Yield Enhancement type. JPM created a note Cusip:48126NWT0with a size of 20 MM paying 12.6% return when S&P GSCI™ Excess Return index is above initial level of 473.2521 with a 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 getting twice the return capped at 12.6% return 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 leveraged return.
Interest rate linked issuance limited to standard, step up callable notes and Fixed rate notes.Majority of issuance volumes came from John Deere Capital group. I think this issuance is more related to their debt issuance driven to meet cash requirements for their operations. There has been some issuance activity in Currency segment of the markets. In the Currency markets BRL and MXN two Latin American currencies formed main underlying assets for the notes created by JPM and Goldman. Goldman issued note linked to BRL with protection on losses up to 30% depreciation in the BRL exchange rate and potential to gain 30% if the currency appreciates above 3%. 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 Fixed Rate notes and Floating rate return notes. These two notes were issued on USD Yield Curve Now moving on to issuers side and understanding their market penetration or competitor analysis provides some interesting insights. This week John Deere Capital with its large issuance of interest rate 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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