Saturday, October 19, 2013

Structured Note Issuance Summary- October 14-18,2013

During the week of October 14-18, 2013 structured note issuance has been 520 MM across various issuers and asset classes. Most of the issuance (450 MM) is driven by Equity Linked notes and 41 MM of the issuance is driven by Interest Rate linked products. There has been some activity in currency linked issuance this week. For Details of the distribution refer to the chart below. Not 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 ( S&P GSCI Cotton Index, Caterpillar, The Biogen, Emerging markets ETF, Pulte group). Notable notes this week were tied to S&P GSCI Cotton Index (5 MM) issued by Morgan Stanley. This note belongs to the class of leveraged and Yield Enhancement type. Morgan Stanley created a note Cusip:61762GAJ3with a size of 5 MM paying 26.25% return when S&P GSCI™ Cotton index is above initial level of 47.26 with a cap. On the downside this note will participate in 1:1 downside after 20% decline in the underlying. Notes are at risk of losing entire principal. One reason to participate in this kind of note is you are getting 26.25% 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. Activity has been subdued this week. There has been some issuance activity in Currency segment of the markets. 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 Leveraged notes and Buffered return notes. Now moving on to issuers side and understanding their market penetration or competitor analysis provides some interesting insights. This week UBS, MS, GS and Barclays captured 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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