By Angela McDaniels
Tacoma, Wash., Dec. 6 - Deutsche Bank AG, London Branch issued $4 million of 0% PowerShares DB US Inflation exchange-traded notes due Nov. 30, 2021 linked to the DBIQ Duration-Adjusted Inflation index and the DB 3-Month T-Bill index, according to a 424B2 filing with the Securities and Exchange Commission.
These are the first ETNs to give investors the opportunity to take long exposure to changes in the market's expectations of future inflation implied by the difference in yields between a notional long position in Treasury Inflation-Protected Securities and an offsetting notional position in Treasuries with approximately equivalent terms to maturity, according to a news release from Deutsche Bank and Invesco PowerShares Capital Management, LLC.
The price of each ETN is based on a gain or loss of $0.10 per ETN for each one-point increase or decrease in the level of the inflation index, as applicable, combined with the monthly returns of the T-Bill index, less an investor fee.
The principal amount of TIPS generally increases with inflation and decreases with deflation, as measured by the Consumer Price Index. The companies noted that TIPS market prices are also sensitive to changes in interest rates, which can diminish their ability to provide pure exposure to inflation on a mark-to-market basis.
Up to $200 million planned
The company issued 80,000 notes at par of $50. All of them may be held initially by Deutsche Bank Securities Inc., the underwriter. The company plans to issue up to $200 million of notes. Additional notes may be offered from time to time at prevailing prices at the time of sale.
Deutsche Bank Securities may charge investors a purchase fee of up to $0.075 per security. Invesco Aim Distributors, Inc. will receive a portion of the investor fee in consideration for its role in marketing the securities under its "PowerShares" brand.
Issue details
The inflation index seeks to isolate a long exposure to the market's expectation of future inflation and is designed to produce a one-point increase in the level of the index for every 0.01% increase in the market's expectation of future inflation by measuring the duration-adjusted combined performance of a notional long position in a hypothetical portfolio of five-year, 10-year and 30-year Treasury Inflation-Protected Securities and corresponding notional short positions in futures contracts on Treasuries with roughly equivalent terms to maturity as the TIPS.
The payout at maturity will be the product of (a) the then-current principal amount multiplied by (i) one plus the return of the T-Bill index plus (ii) $0.10 multiplied by (iii) the inflation index return multiplied by (b) the fee factor.
The current principal amount is $50 until Dec. 31. It will then be reset on the first day of each month as the product of (a) the previous current principal amount multiplied by (i) one plus the return of the T-Bill index plus (ii) $0.10 multiplied by (iii) the inflation index return multiplied by (b) the fee factor.
The T-Bill index return is (a) the index's closing level minus its closing level on the last calendar day of the previous month divided by (b) its closing level on the last calendar day of the previous month.
The inflation index return is the index's closing level minus its level on the last calendar day of the previous month.
The fee factor is one minus 0.75% per year multiplied by a fraction, the numerator of which is the number of days elapsed since the last monthly reset date and the denominator of which is 365.
The notes are callable at any time. They are also putable at any time, subject to a minimum of 50,000 notes or an integral multiple of 25,000 notes in excess of that and a repurchase fee of up to $0.075 per note. The company noted that unless and until Deutsche Bank Securities sells at least 50,000 securities, no holders will be able to put their securities for repurchase.
If the daily repurchase value of the notes is above $100 for three consecutive trading days, the company will automatically effect a two-for-one split of the notes. If the daily repurchase value is below $25 for three consecutive trading days, the company will automatically effect a one-for-two reverse split of the notes.
The notes have been approved for listing on the NYSE Arca under the symbol "INFL."
| Issuer: | Deutsche Bank AG, London Branch
|
| Issue: | PowerShares DB US Inflation exchange-traded notes
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| Underlying indexes: | DBIQ Duration-Adjusted Inflation index and DB 3-Month T-Bill index
|
| Amount: | $4 million
|
| Maturity: | Nov. 30, 2021
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| Coupon: | 0%
|
| Price: | Par of $50
|
| Payout at maturity: | Then-current principal amount plus (a) T-Bill index return plus (b) $0.10 multiplied by inflation index return, all reduced by a fee of about 0.75% per year
|
| Put option: | At any time, subject to minimum of 50,000 notes and repurchase fee of up to $0.075 per note
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| Call option: | At any time
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| Initial index levels: | 502.62 for inflation index; 236.9063 for T-Bill index
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| Pricing date: | Dec. 5
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| Settlement date: | Dec. 8
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| Underwriter: | Deutsche Bank Securities Inc.
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| Fees: | Up to $0.075
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| Listing: | NYSE Arca: INFL
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| Cusip: | 25154W225
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