During the week of August 12-16, 2013 structured note issuance has been 280 MM across various issuers and asset classes. Most of the issuance (67%) is driven by Equity linked notes and 20% of the issuance is driven by Interest rate linked products. For Details of the distribution refer to the chart below.
Underlying analysis
Issuers have been designing equity linked notes with variety of indices. Notably Wells Fargo issued a large note on Haliburton to the investors. These notes command 8% coupon in this low yield environment. On the downside this note is floored at 76% of the original principal. Definitely a good deal to think of!. After HAL, most of the notes were designed with S&P 500 and EURO STOXX 50 index. There are some interesting notes that are providing good return on the investment. Refer to the chart below for issuance of other underlyings.
Interestingly With in Interest rate asset class some action is happening. There has been a surge in issuance of products linked Yield curve movements. For instance, Morgan stanley has issued a note whose coupon tracks the performance of CMS 5y rate. This fact can be attributed to Bernanke's response to QE related bond purchase tapering action and consequent impact on the yield curve. In general forward curve (a view on future Yield curve from Today;s spot curve) tells how much interest rates are going to rise and fall in the future. Investors can bet on this forward curve by purchasing notes whose performance is tied to CMS rates or yield curve. Some sophisticated investors take a position on the joint performance of the Interest rates and Equity market ( like Russell 2000) index.
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
Now moving on to issuers side and understanding their market penetration or competitor analysis provides some interesting insights.
This week Morgan Stanley with its large issuances of interest rate and Equity linked notes captured 22% of the issuance volume. Typically, they have issued notes based on USD CMS curve, Hybrid notes on the CMS and Russell index.
JPM,Wells Fargo, Goldman and UBS captured market share near mid 20s and high 10s.
Maturity profile of the issuance by issuer provides where volumes are anchored. Interestingly most of the volume matures in 2014 and 2028. This can be attributed to two facts. Notes maturing in 2014 are mostly equity linked notes and that maturing in 2028 are related to Interest rate linked notes.
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