Holiday week was top week of year so far with $1.46 billion, but yearly volume is down 3%

By Emma Trincal

New York, April 3 - The past holiday week turned out to be a record week in sales, according to data compiled by Prospect News. Agents priced $1.46 billion versus $363 million the week before, and the number of deals jumped to 248 from 128.

Last week's volume was the highest on record for the year to date, making for 14.81% of the year-to-date total.

However, sources pointed to the holidays falling in March this year to explain the slight decline seen in the volume for the month and also, for the first time this year, the year to date.

Agents sold $3.05 billion for the month, a 5.48% decline from March 2012, which recorded $3.23 billion. The number of offerings was roughly the same: 687 in March last year versus 678 last month.

More surprising was the first-time decline observed this year, albeit a small one, for the year-to-date figures.

Agents sold $9.85 billion so far this year versus $10.15 billion last year, a 2.97% decline, or a difference in notional of about $300 million. The number of deals for the same period fell 6.5% to 2,021 from 2,161.

The figures are from Jan. 1 to March 30. Last year, the March 31 date also fell on a weekend. The data does not include exchange-traded notes. It also does not include "structured coupons" or longer-dated, lightly structured fixed-income deals such as step-ups or fixed-to-floaters.

Sources would not draw negative conclusions, at least not yet.

"It's very difficult to explain why issuance varies from one month to the next. I don't know. It's probably because of Easter. It was early this year," a structurer said.

Moderate decline

"Last week was horrific. Nobody was around. Even if people were in the office, the end client wasn't there. There were some inquiries, but nothing could get done. The account was out for the week. People left Wednesday," a sellsider said.

"But this will have more of an impact in April. For March, most of the big deals were already sold earlier in the month."

The sellsider downplayed the slight decline for the year-to-date figures.

"It's noise. A $300 million difference on a $9.8 billion volume is not that significant. It's such a small amount out of a large notional. You can make that up in one or two deals," he said.

Tighter spreads

The sellsider offered another explanation for the possible beginning of a downward trend, if any, as he said that there is no evidence that we're seeing a decline yet.

"Last year at this time the steepeners were coming in in large size," he said.

"In March 2012, credit spreads were between 200 and 250 basis points. It was much wider than what they are now. We're now at 50 to 75 basis points. We're even tighter than in March 2011 when spreads were in the 75-100 range.

"So with spreads today ... pricing conditions are worse. Now the spreads are making the options not as compelling as they were last year. I bet that's where your $300 million gap comes from."

Tighter spreads have an impact on the structures of all deals, he added.

"Because the spreads are not there, you can't buy the downside protection. You're able to keep the upside, but you're seeing smaller buffers, less protection or even none.

"People were used to certain structures. Now it's too expensive to buy protection. A lot of people are saying 'I can't get what I had before, maybe I should take some money off the table.'"

Commodities revival

Commodities are in favor again, according to data, which showed a big increase in sales of commodities-linked notes not just last week but for the month.

The top deal last week may have somewhat skewed the data, although it was not the only one to be brought to market.

Goldman Sachs Group, Inc. priced $96.73 million of 0% notes due April 10, 2014 linked to the Dow Jones - UBS Commodity index. The payout at maturity was par plus the index return with full downside exposure.

Commodities notes represented 15.5% of the total, or $226 million. The week before only saw two deals totaling $5 million.

The large Goldman Sachs tracker deal was not the only one in this asset class.

Bank of America Corp. priced $32.6 million of Accelerated Return Notes linked to the Merrill Lynch Commodity Index Extra Precious Metals Plus - Excess Return index. The structure offered a 300% participation rate subject to a 12% cap. Investors were fully exposed to declines in the index.

Barclays Bank plc issued $28.55 million of Accelerated Return Notes linked to the gold spot price. The notes, sold by BofA Merrill Lynch, had the same structure except for a 20% cap.

"I don't really understand the bid on commodities right now," the structurer said. "One driver would be a weaker dollar, and we're seeing the opposite right now. You have no storm, no war; supply is at full capacity. We don't see a drought like last year at this point. In fact, the forward curve on corn and soybeans for instance is down. I don't see any reason to be bullish on this asset class. I guess it may be a value play: Prices have gone down, so you're seeing buyers looking for opportunities," he said.

For the month, commodities issuance has doubled in volume to $298 million from $150 million, which represents a jump in market share to 9.75% of the total monthly volume from 4.65% last year.

On a year-to-date basis, however, this asset class is still lagging as it shows a decline by one-third from last year to $682 million.

Leverage, step-ups

Last week was the last of the month. As always, the result was a strong dominance by Bank of America, which prices all its deals at the end of the month.

Agents sold 20 deals of $20 million or more in size last week for a $762 million total. Bank of America sold 80% of this group.

The agent topped the league tables with $645 million, or 44.5% of the entire weekly issuance. The law of numbers helped UBS, which took the second slot with 71 deals totaling $211 million. Despite its large commodities offering, Goldman Sachs was third with $164 million in 14 deals.

Two structures prevailed last week: leverage and step-ups.

Leveraged deals with no downside protection totaled $389 million in 19 deals. Bank of America priced 10 deals in this category, which made for 87% of these types of leveraged notes sales, according to the data.

The biggest deal in this group was Bank of America's $89.82 million Accelerated Return Notes due May 29, 2014 linked to the S&P 500 index. The upside leverage factor was three and the cap, 11.73%.

Market-linked step-up notes, also the signature of Bank of America, prevailed as well.

The top one was Bank of America's $42.86 million of 0% autocallable market-linked step-up notes due March 28, 2016 linked to the S&P 500. The structure featured two annual call dates with a call premium of 8.5% a year from now and 17% in two years.

At maturity, if the index was greater than the step-up value -130% of the initial level - the payout was the index return. If the final index level was above the initial level but not higher than the step-up value, the payout was par plus 30%. Investors were fully exposed to any index decline.

"The digital enables you to outperform the index," the structurer said.

"The idea is to finance this outperformance by using the implied dividend over the next three years to produce a digital call. It's not a bad structure. It looks like an autocallable with a digital payout and full participation in the upside."

"It's noise. A $300 million difference on a $9.8 billion volume is not that significant." - A sellsider

"I don't really understand the bid on commodities right now." - A structurer

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