UBS plans notes tied to CPI; Credit Suisse to sell more Asian index, currency related notes

By Sheri Kasprzak

New York, June 15 - The week kicked off with a very optimistic structured products offering from UBS AG. The investment bank plans to price principal-protected notes linked to year-over-year changes in the Consumer Price Index, according to a free-writing prospectus from the Securities and Exchange Commission.

"It's most interesting to me because it's a pretty optimistic view," noted one market insider reached Monday.

"Four years, to be fair, is not a very long amount of time for notes of this nature. We've seen some of these before. I think the principal protection is a good thing, especially given the way the economy has been."

Notes have four-year term

The four-year notes pay par plus the unpaid interest accrued at the applicable interest rate for the monthly interest period ending at maturity.

For each monthly interest period occurring during the fixed interest rate period, the rate will be 3.5% per year. For each monthly interest period occurring after the fixed interest rate period, if on the relevant CPI determination date the sum of the CPI year-over-year change plus the spread is greater than zero, the rate will equal the CPI year-over-year change plus the spread. Assuming the sum of the CPI year-over-year change plus the spread is negative or zero, the interest rate is zero.

The spread is expected to be between 2.7% per year and 3.2% per year with the actual spread to be determined on the trade date.

Credit Suisse's additional Asian notes

Also on Monday, Credit Suisse announced plans to sell another offering of buffered return enhanced notes linked to a basket of Asian indexes and currencies. The offering is identical to a sale announced late last week.

The basket includes the Hang Seng China Enterprises index, the Kospi 200 index, the MSCI Taiwan index, the Hang Seng index and the MSCI Singapore index, as well as related Asian currencies, including the Hong Kong dollar, Korean won, Taiwan dollar and Singapore dollar.

The notes weight the indexes and the corresponding currency together. The Hang Seng China Enterprises index and the Hong Kong dollar comprise 34% weighting in the basket. The Kospi 200 and the Korean won comprise 21%, the MSCI Taiwan index and the Taiwan dollar comprise 22% and the Hang Seng index and the Hong Kong dollar comprise 15%. The MSCI Singapore and the Singapore dollar comprise 8%.

The notes pay out twice the appreciation of the basket of indexes multiplied by the performance of their respective currencies relative to the U.S. dollar, up to a 21% maximum return. If the basket declines by more than 10%, the investors will lose 1.1111% of their investment for every 1% the basket declines by more than the 0.9 buffer.

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