During the week of November 25-29, 2013 structured note issuance has been 2.2 Bn across various issuers and asset classes. Most of the issuance (938 MM) is driven by Equity Linked notes and 1.1 Bn of the issuance is driven by Interest linked products. There has been some activity in commodity 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 few issuers.
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.
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 ( KB Home, Pioneer Natural Resources, Face Book, Delta Air group,WebMD group, Netflix, Yelp and so on). There has been significant activity around basket linked notes. Looks there is high appetite from institutional investors to conduct their portfolio balancing process.
Notable notes this week were tied to J.P. Morgan Enhanced Beta Select Backwardation Alternative Benchmark Total Return Index (234 MM) issued by JPM. This note belongs to the class of Yield Enhancement type. JPM created a note 48126NTE7with a size of 234 MM paying Market performance at maturity date (11/27/18). On the downside this note is exposed to one to one downside underlying performance. Motivation behind participating in this kind of note is to gain exposure to futures market without directly investing in the future contracts.
Underlying index for this note is a proprietary rules based index developed by JP Morgan and called as J.P. Morgan Enhanced Beta Select Backwardation Alternative Benchmark Total Return Index.The J.P. Morgan Enhanced Beta Select Backwardation Alternative Benchmark Total Return Index was developed and is maintained and calculated by J.P. Morgan Securities plc (“JPMS plc” or the “Index Calculation Agent”). The Index is a notional dynamic index that tracks the return of seven weighted synthetic excess return sub-indices (each, an “Index Constituent” and, collectively, the “Index Constituents”) that reference futures contracts on 22 specified commodities, plus the return on three-month U.S. Treasury bills. Performance of index is governed by the proprietary rules based futures rebalancing technique.
The notes provide the opportunity to obtain an uncapped return linked to the performance of the Index at maturity, subject to the daily deduction of the Investor Fee. These notes are considered as open transactions that are not debt instruments. Therefore they might be taxed at long term capital gains as long as these notes are held for atleast 1 year.
Interest rate linked issuance limited to standard, step up callable notes and Fixed rate notes. Activity has been subdued this week.Citigroup, Wells Fargo are major issuers of these products.
This week we have seen commodity note issuance tied to Silver has again coming from bank of america.
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 interest rate linked 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.
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