Market providing for variety of views on U.S. dollar, analyst says

By Sheri Kasprzak

New York, Aug. 31 - A recent offering of 95% principal-protected bear notes linked to a basket of Asian currencies and an offering of principal-protected notes linked to another basket of Asian currencies, all versus the U.S. dollar, indicates that the market will provide for investors whatever take they may have on the dollar's performance, one analyst said Friday.

Barclays Bank plc priced $5 million in 95% principal-protected bear notes linked to a basket of Asian currencies. The investment bank also priced $1.775 million in fully principal-protected notes linked to another basket of Asian currencies.

"If you have a very strong view, the market will provide something for you," said Tim Mortimer, managing director of Future Value Consultants, a London-based firm that analyzes derivatives products.

Mortimer said, however, that the exact currencies may not be that important.

"Who knows why they're there?" Mortimer said. "The pricing probably varies a little."

Barclays notes 'very different'

The Barclays notes are linked to two very different baskets. The volatility of those particular currencies, Mortimer added, has been rather low, which may make them more appealing to U.S. investors given the current market conditions in the States.

The 95% principal-protected notes are linked to the Chinese yuan, Indian rupee, Thai baht and Korean won and the fully principal-protected notes are linked to the yuan, rupee, Indonesian rupiah, Japanese yen and Malaysian ringgit.

A market source noted earlier this week that the notes may be in response to slight improvements in those currencies and perceived weakness in the U.S. dollar.

"With weakness in the dollar recently, some investors are looking to other currencies and Asia seems to be the place they're going again and again, at least over the past few weeks," said the market insider.

Note terms

The 95% principal-protected notes have a one-year term and pay 95% of the principal amount plus the principal amount times the product of the 300% participation rate and the basket performance, assuming the basket performance is equal to or greater than 0%.

If the basket performance is less than 0%, investors will receive $950 for every $1,000 in principal.

The fully principal-protected notes have a two-year term and pay the principal amount plus the principal amount times the product of the 205% participation rate and the basket performance if the basket performance is equal to or greater than 0%.

If the basket performance is less than 0%, investors will receive par at maturity.

Reverse convertibles abound

Elsewhere, Mortimer said he found interesting the recent influx of reverse convertibles.

"They seem to weave in and out of fashion," Mortimer noted.

A huge rush of offerings was announced late Thursday and another round of offerings was released on Friday.

One of the reverse convertibles with a larger coupon announced Friday was a $2.5 million offering of 20.95% notes linked to NYSE Euronext, Inc. from Lehman Brothers Holdings, Inc.

The six-month notes pay par at maturity unless the stock falls below the 80% knock-in level during the life of the notes and ends below the initial share price of $73.07. The notes will then pay a number of shares equal to $1,000 divided by the initial share price.

During August, the stock traded between $69.61 on Aug. 16 and $76.50 on Aug. 10.

In July, the stock ranged between $73.53 on July 3 and $83.22 on July 13.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.