During the week of October 28-31, 2013 structured note issuance has been 3.32 Bn across various issuers and asset classes. Most of the issuance (1.52 Bn) is driven by Equity Linked notes and 1.72 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 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.Bank of america issued 15 MM silver price tied note and further interesting market summary details. 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 ( Pulte group, Gilead Sciences,Tesoro,Aruba, JP Morgan Proprietary index, UBS Commodity index, Pandora and so on). Notes based on SPX (383 MM) and Euro Stoxx index (419 MM)have been created. Looks there is high appetite from institutional investors to conduct their portfolio balancing process.
Notable notes this week were tied to Euro Stoxx 50 Index (229 MM) issued by Bank of America. This note belongs to the class of leveraged and Yield Enhancement type. Bank of America created a note Cusip:06053F851with a size of 229 MM paying 47% coupon income at maturity date (9/30/16). On the downside this note is exposed to one to one downside underlying performance. One reason to participate in this kind of note is you are getting at least 47% coupon return or higher.
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. There has been some Range accrual note issuance.
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%.
This week we have seen commodity note issuance tied to Silver and WTI crude oil. We will discuss later the details of the Silver note.
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.
Commodity Note issuance has spiked this week. Bank of america issued a note tied to Silver price.06053F885 This note pays coupon of 11% or 16% or 22% depending on being called at each of the call dates before the maturity of the October 2014. This note is called as Strategic Accelerated Redemption Securities. This structure is monetizing view that Silver will rise slightly but not extremely. For further analysis contact Gatick Financial Services
For additional details please refer to the Issuance summary table.
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