A reversal of power

Investor demand for power reverse dual currency structures has fallen off a cliff as these once high coupon-paying instruments have morphed into zero coupon bonds with lock-in periods of up to 30 years. Issuers have also incurred significant costs. Is this finally the end for PRDCs? Wietske Blees reports

What once proved a ‘fail safe’ bet has come back to haunt investors in Japanese power reverse dual currency (PRDC) notes. Betting the Japanese yen would not appreciate as much as the forwards implied against higher-yielding foreign currencies such as the US dollar and Australian dollar, the notes offered high returns for what seemed to be a relatively low risk.

In their simplest form, PRDC notes allow investors – traditionally hampered by low domestic interest rates in Japan – to benefit from