Structured products issuance volume picks up with $1.34 billion priced during week

By Emma Trincal

New York, March 30 – The end of the calendar month and the extension of a five-week rally made for a strong albeit short holiday week in structured notes issuance.

Agents sold $1.34 billion in 101 deals in the week ended Thursday. Stock and bond markets were closed on Good Friday in the United States.

Last week appears to be closing the action for March as suggested by the huge role played by BofA Merrill Lynch, which captured almost a third of the total, according to data compiled by Prospect News.

“It was ahead of the holiday and many parts of European markets close on Easter Monday. So everything happened last week,” a sellsider said.

In the final week of February, $1.19 billion were brought to market. January was the best-ending month with a closing week of $2.82 billion, the data showed.

Rebound

The week started with the terrorist attack in Belgium, but stock investors showed resiliency. The five-week momentum generated by a rally that began in mid-February off the year’s lows remained mostly intact even if the S&P 500 index ended slightly lower, pushed down by a decline in oil prices.

“Investors’ confidence has regained momentum and it helps our market a lot,” added the sellsider.

“Things are getting better, and with Yellen’s comments yesterday, it’s definitely helping things.”

In a speech delivered on Wednesday to the Economic Club of New York, Federal Reserve chairman Janet Yellen eased concerns about a near-term rate hike, spurring an equity rally that had lost some steam last week.

“The fear that was in the market in January and early February is starting to dissipate. I don’t know that there is a lot of conviction yet. But definitely knowing that rates could stay low for longer is a nice relief,” the sellsider said.

Structured products issuance volume for the year is down 12.65% to $9.35 billion this year as of March 24.

It is too soon to compare March volume with February’s. So far however the monthly volume from a year ago shows a 45% drop.

Top deals

Bank of America led the week by far, pricing big deals and generating large block trades. The agent priced $855 million in 27 deals, or about 64% of the total.

Five of Merrill’s deals exceeded the $50 million mark, including one sized at approximately a quarter of a billion.

The top deal was distributed by Credit Suisse Securities. It was Credit Suisse AG, London Branch’s $270.66 million of 18-month digital buffered notes linked to the S&P 500 index. Investors received 9% in return at maturity if the index finished at or above 85% of the initial price. On the downside, investors will lose 1.1765% for every 1% that the index declines beyond 15%.

“We see more digitals. People want a small buffer but it’s still the chase for yield that generates some of the larger bids,” the sellsider said.

Bank of America Corp. issued the No. 2 deal – $247.36 million of 14-month leveraged notes tied to the S&P 500 index. There was full downside exposure. The upside offered three-times leverage with a 12.81% cap. BofA Merrill Lynch was the agent.

“These are huge deals...A quarter of a billion...It could be a bunch of rollovers. In fact, given the size, I think these are probably rollovers,” the sellsider said.

BofA Merrill Lynch

Bank of America also priced a pair of leveraged capped note offerings, one for $88.03 million on the S&P 500 index; the other for $77.73 million tied to the Euro Stoxx 50 index.

The first one, an 18-month product offered two-times leverage, a 16.6% cap and a 10% downside buffer. The second product featured a 14-month tenor with triple leverage and a cap of 24.78%. Investors were fully exposed to losses.

The fifth ($58.81 million) and sixth ($51.69 million) top deals were a pair of market-linked step-ups both from Bank of America tied to the Euro Stoxx 50 and the S&P 500, respectively.

Equity-centric market

Volume was unusually concentrated in equity-index underliers last week, with this asset class accounting for 91% of the notional sold. Equity underliers, including indexes, single stocks and funds, amounted to 98% of the total, also an unusually high ratio, which suggested that a lot of the volume was rally-driven.

“When the market recovers after a sell-off, people tend to jump in with leverage to take advantage of it,” a market participant said.

“Obviously this rally has an impact. People are beginning to realize that the market is not tanking. The bears are really just back in hibernation mode. This is boosting investors’ confidence and with that firms can price more products knowing that clients are willing to buy,” said an industry source.

Credit Suisse was the second most active agent after BofA Merrill Lynch with $277 million in four offerings, or nearly 21% of the market. It was followed by HSBC and Goldman Sachs.

“Investors’ confidence has regained momentum and it helps our market a lot.” – A sellsider

“People are beginning to realize that the market is not tanking. The bears are really just back in hibernation mode.” – An industry source

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