Deutsche Bank plans another issue of notes linked to DB Balanced Currency Harvest index

By Sheri Kasprzak

New York, July 13 - Deutsche Bank AG, London Branch announced plans recently to price yet another offering of zero-coupon principal-protected notes linked to the investment bank's Balanced Currency Harvest index.

A market analyst, Tim Mortimer, managing director with Future Value Consultants, a London-based company that analyzes derivatives products, said in a recent interview that the strategy is one of the oldest in the structured products marketplace.

Mortimer said the strategy may be getting play again because investors are looking for something like it now, adding that investment banks need to keep things like this in their bag of tricks because investors may end up looking elsewhere for such a strategy.

The idea, Mortimer noted, is to take the currencies with the highest interest rates against the currencies that have relatively low interest rates.

Strategy pits currencies against each other

At each quarterly re-composition, the sponsor will select the G10 currencies with the two highest and the two lowest interest rates and subsequently selects the currencies with the three highest and three lowest interest rates from the remaining G10 and non-G10 currencies. The five selected currencies with the highest interest rates maintain a long position in the index and the five with the lowest maintain a short position in the index.

140% participation rate

Assuming the final index rate is positive, the notes pay par plus the principal amount times the 140% participation rate times the index return.

If the return is zero, the notes pay par at maturity and if the return is negative, the notes also pay par at maturity.

Similar offerings

Deutsche Bank has previously announced plans to price other offerings linked to the Deutsche Bank Balanced Currency Harvest index.

The most recent, announced July 5, has a 135% participation rate and also has a two-year term. Those notes pit three high interest-rate currencies against three low interest-rate currencies, all G10 currencies.

Those notes are expected to price July 26.

Ekportkredit's commodity index notes

Svensk Eksportkredit ASA's planned Elements linked to two Rogers International Commodity indexes provide linkage to specialized areas of commodities, said one market source recently.

"It's transparent, low cost, you've got a tracker in the index," said the market insider. "It's different and quite interesting."

Another market source said the notes are very similar to Barclays Bank plc's iPath Exchange Traded Notes.

"It wouldn't surprise me," said the equity structurer of the commodity index-linked notes from Svensk. "They look very similar to the iPath notes. I mean, the Rogers indexes aren't exactly the [Dow Jones] AIG Commodity index."

Barclays has successful priced several iPath notes linked to the DJ AIG index.

The zero-coupon notes are linked to the Rogers International Commodity index - Metal Total Return and the Rogers International Commodity index - Energy Total Return.

The 15-year notes pay par plus the index return, minus an annual investor fee equal to 0.75% times the proportion of days elapsed at maturity. Beginning 90 days after issuance, the investors may put back the notes for repurchase on a weekly repurchase date, with a minimum put requirement of $5 million in securities.

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