Commodities deals continue to flood market; Barclays brings iPath commodity-linked deals

By Sheri Kasprzak

New York - A flow of offerings linked to commodities in recent sessions led market insiders to reflect on the fairly new underlyer in the structured products market.

"Commodities are reasonably new for us," said one market insider Tuesday afternoon. "They're not so new everywhere else but investors seem to be more comfortable with them as an asset class here in the U.S."

Another market source Tuesday said that investors are eager to seek out commodities-linked structured products because commodities are an asset class that are difficult to access beyond a structured note.

"It's a tricky place to be unless you do something like a structured note," said the market insider.

Barclays Bank plc joined the commodities-linked-notes bandwagon on Tuesday, pricing eight issues of iPath exchange-traded notes - long lauded for their transparency - linked to commodity indexes. The notes cover the Dow Jones - AIG Agriculture Total Return sub-index, the Dow Jones - AIG Copper Total Return sub-index, the Dow Jones - AIG Energy Total Return sub-index, the Dow Jones - AIG Grains Total Return sub-index, the Dow Jones - AIG Industrial Metals Total Return sub-index, the Dow Jones - AIG Livestock Total Return sub-index, the Dow Jones - AIG Natural Gas Total Return sub-index and the Dow Jones - AIG Nickel Total Return sub-index.

All are $250 million in size.

In other commodities-related news, Lehman Brothers Holdings, Inc. priced another $210,000 in 100% principal-protected return-enhanced notes linked to a basket of 10 commodities. The latest pricing brings the total notes sold to $7.426 million.

In upcoming offerings, JPMorgan Chase & Co. said it plans an offering of six-year principal-protected notes linked to the Dow Jones - AIG Commodity Index.

Barclays's commomdity iPaths

Moving back to the iPath notes, all are 30-year issues that pay par times the index factor on the final valuation date minus the investor fee.

The index factor, on any given day, is equal to the closing value of the index on that day divided by the initial index level.

The investor fee is equal to 0.75% per year times the principal amount times the index factor, calculated daily.

Lehman notes linked to 10 commodities

Those three-year Lehman notes are linked to 10 commodities.

The zero-coupon notes are linked to equal weights of light sweet crude oil, No. 2 fuel heating oil, grade A copper, primary nickel, special high-grade zinc, sugar No. 11, cocoa, coffee robusta, class III milk and number 2 wheat.

Assuming the final basket level is greater than the initial level, the notes pay par plus the principal amount times the basket return times an upside participation rate of 130%.

The notes pay par at maturity if the final basket level is equal to or less than the initial level.

JPMorgan's upcoming notes

In other commodities offerings, JPMorgan said in November it plans to price principal-protected notes linked to the Dow Jones - AIG Commodity Index.

The six-year notes pay par at maturity plus an additional amount, equal to the principal amount times the index return times the participation rate, assuming the additional amount is not less than zero.

The participation rate is expected to be at least 128%. The exact rate will be determined at pricing.

The notes are expected to price Nov. 16.

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