Barclays launches gold-, energy-heavy calendar; overall structured market still hesitant, distributor says

By Kenneth Lim

Boston, Feb. 26 - Barclays Bank plc launched a calendar of reverse convertibles with a bias towards gold and energy names.

The offerings reflect the high volatility in those sectors and the interest of opportunistic investors, a distributor said.

Meanwhile, the overall structured products market is doing better than in previous months, but remains weaker than the year before, the distributor said.

Barclays offers reverse convertibles

Barclays launched its calendar of reverse convertibles for early-March pricing.

The offerings include gold mining-related products - 15% notes linked to Barrick Gold Corp. and 20% notes linked to Freeport-McMoRan Copper & Gold Inc. They also include energy-related notes - 20% notes linked to Arch Coal, Inc. and 20% notes linked to Consol Energy Inc.

All the reverse convertibles will mature Sept. 10, 2009.

The reverse convertibles will return par at maturity unless the underlying stock closes below a barrier level during the life of the notes and finishes below its initial level. Otherwise investors will receive a number of shares of the underlying stock equal to par divided by the initial stock price, or the equivalent cash amount.

Volatility and opportunity

Gold and energy are two sectors that have been highly volatile amid the turmoil in the U.S. economy and its stock markets, the distributor said.

"Issuers can offer reverse convertibles with higher coupons and lower barriers when the volatility of the underlying stock is higher," the distributor said. "That makes the product more interesting for investors, because they have the potential to make extremely good returns that they otherwise wouldn't normally get when things are more calm."

The volatility also attracts opportunistic investors, the distributor said.

"Basically when there's uncertainty, there's an opportunity to make money if you know what you're doing," the distributor said. "There are some investors who thrive in these environments, and they're looking for products like these that can offer them the really high coupons."

Slight volume improvement

The structured products markets have picked up slightly in February compared to previous months, the distributor said.

"I think things are a little better this month," the distributor said. "We're starting to see a little more stability in the markets. Investors are beginning to look harder for investments that offer better returns. They're not satisfied with the low yields on their cash savings or Treasuries. I think we're seeing some of that.

"Also, it's the start of the year, so people tend to be more active in allocating their money now. I think we're starting to get past a bit of the panic from October and people are starting to invest a little more actively now."

But the year remains weak compared to 2008, the distributor said.

"I don't know if we're seeing a recovery back to 2007, first-half 2008 levels," the distributor said. "It's too early to tell, although actually I'd be surprised if we saw a recovery so soon. But as long as we're not falling, that's good."

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