Structured notes issuance volume $321 million for week; tally for month is up

By Emma Trincal

New York, Aug. 17 – Agents priced $321 million of structured products last week in 113 deals, according to preliminary data compiled by Prospect News.

Figures for the month through Aug. 12 are very encouraging with $1.327 billion sold in 303 deals versus $729 million during the same time in July, an 82% increase in volume.

But from a year ago, sales for the month to date are down 41% from $2.252 billion.

The strong increase in notional seen this month reflects the price action in the broader market, sources said.

The S&P 500 index finished 3.3% higher last week and has been rallying for four consecutive weeks. Last week’s rally was fueled by encouraging quarterly earnings and signs that inflation may be cooling with the growth of the year-over-year July CPI slightly lower than expected.

“I’m not surprised that we’re having a strong month because the market has gone up over that timeframe,” said Mark Dueholm, chief fixed-income trader at Landolt Securities.

“Volume was light last month. July was very slow. Investors were skeptical about the rally. They did not know if the market was going up or down. Having a few weeks of weekly gains has helped a lot. People are dipping their toes back in the market.”

They’re back

Not that it may make a difference in terms of volume yet, but Barclays has now resumed issuing structured notes for the second week in a row having filed its rescission offer on Aug. 1. The issuer priced eight offerings last week totaling $7 million, according to the preliminary data. These figures are likely to be revised upward. Barclays’ products were worst-of autocallables on three U.S. equity benchmarks, mainly the S&P 500 index, Russell 2000 and Nasdaq-100.

“They’re back in the market and it’s a good thing,” said Dueholm.

“They have come up with some good deals. They did a couple of five-year autocalls on three indices. Earlier this month it was a 10% contingent yield with a 30% cushion for the coupon and a 40% cushion to get the protection at maturity. The other deal paid 8% based on a 40% barrier both for the coupon and at maturity.

“They do a lot of worst-of. The coupon is higher, and you can price enough of a cushion. Worst-of remain popular.”

A sellsider also welcomed the return of the previously No. 1 issuer.

“Their rescission offer is very positive for investors who are able to sell back at par,” he said.

“Their pricing is pretty aggressive. For brokers and distributors, it’s great to have an additional issuer on the platform.”

Barclays had to offer to buy back $14.8 billion of structured notes (non-ETNs) after an error led the bank to over-issue beyond its shelf capacity in the U.S. for more than two-and-a-half years.

Indexes, baskets

As usual, equity indexes were the dominant underlier last week with 52% of the issuance volume sold in 56 deals totaling $167 million. The breakdown within index products revealed that single index underliers were the main subcategory with $91 million or more than half of the notional sales of index notes. Worst-of came second with $67 million, a 40% share. Unequally weighted baskets of indexes accounted for $9 million.

While baskets remain smaller than worst-of or single indexes, the number and sizes of those deals has increased lately.

Some issuers do not hesitate to be more creative, departing from the traditional mix of international equity indexes to introduce more dispersion. Such was the case of GS Finance Corp., which priced $2.41 million of two-year leveraged buffered notes on a basket that included the Invesco S&P 500 High Beta ETF with a 35% weight along with the Russell 2000 index, the Nasdaq-100 index, the Euro Stoxx 50 index and the iShares MSCI Emerging Markets ETF.

“Baskets provide a fresh story. Structured notes always need to find the next narrative,” the sellsider said.

“It gives you some differentiation. You can also have compelling terms because an underlying basket is relatively inexpensive. You wouldn’t be able to price comparable terms on the S&P.

“The investment rationale is to still maintain a domestic exposure and usually remaining overweigh the U.S.

“But it’s mainly used to provide better economics and some diversification.”

Stocks

Single stocks represented only 8% of the total with $26 million in 33 deals.

JPMorgan Chase Financial Co. LLC priced the largest stock offering with $7.18 million of three year autocallable notes linked to Tesla, Inc. The 22.25% annual contingent coupon paid quarterly is based on a 50% coupon barrier, which is identical to the barrier level at maturity.

The tally for unequally weighted baskets of stocks exceeded the volume of notes tied to single stocks, which is unusual.

One of those basket deals was Credit Suisse AG, London Branch’s $22.46 million of five-year notes linked to a basket consisting of Alphabet Inc. with a 30% weight, Amazon.com, Inc. with a 30% weight, Meta Platforms, Inc. with a 15% weight, JPMorgan Chase & Co. with a 12.5% weight and Walt Disney Co. with a 12.5% weight.

ETFs

ETFs surpassed in volume the size of single-stock issuance but not as a tool to express sector views, which is their main use. Rather the higher-than-usual volume was due to the frequent use of the SPDR S&P 500 ETF Trust in several deals as opposed to the index.

GS Finance employed the SPDR S&P 500 ETF Trust in a callable yield note offering for $20.73 million. UBS is the agent.

Canadian Imperial Bank of Commerce priced another one for $10.17 million also distributed by UBS.

Commodities, rates

In the commodities space, Morgan Stanley Finance LLC issued about $10 million of 14-month buffer absolute return gears linked to the Brent Crude Oil Futures Contracts. The buffer size was 20%.

One rate-linked offering was brought to market by Citigroup Inc. in a $14.5 million issue of three-year floating-rate notes. The interest rate is equal to the two-year U.S. Dollar SOFR ICE swap rate with a floor of 3.7% per year. Interest is payable quarterly. The payout at maturity will be par.

New money, rolled money

A total of $122 million of callable notes priced last week in 64 deals, or 38% of the weekly issuance volume. Leveraged products on the other hand made for 20% of the total.

This breakdown is not far from the year-to-date average, which is 42% for callable versus 25% for leverage. Issuance volume of callable products has plummeted this year, down to $21.3 billion, from $39 billion, a 45% drop.

Such decline contributed to the 16.7% reduction of total issuance volume this year as the tally dropped to $50.8 billion from $60.98 billion.

Most market participants have the same read on the decline of callable issuance, which they interpret as market-dependent.

“Issuance volume for autocalls has two components: One, when money gets rolled over; and two, when new money comes in. If nothing gets called, you have no rolls. That’s why volume is down,” the sellsider said.

Turning the corner

“That said, when the market is really going to rebound we’ll see a substantial amount getting invested. It’s going to pick up at some point.”

Advisers given the opportunity are likely to continue to buy those products in the future.

“Things are not as bad as they seem,” he said.

“Pretty much everything we see invested in this structure is new money. That amount I think is still growing. The other component will pick up with the market recovery.

“People still like autocalls. The strategy remains very popular.”

The top agent last week was JPMorgan with $68 million in 29 deals, or 21.1% of the total.

It was followed by UBS and Citigroup.

The No. 1 issuer was JPMorgan Chase Financial with $76 million.

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