Market snapshot

Tim Mortimer analyses the continued popularity of leveraged notes in the US and maturity profile of structured products sold there in April. In the UK, it was Investec which led new issuance, with capital-at-risk knockouts the most populous product.

Leveraged return notes remained the flavour of the month in the US in April, commanding 49.3% of a public market that saw 318 new structured products issued. The popularity of the structure is attributable to its attraction to bullish investors trying to maximise returns. Digital notes were the next most popular, with $185 million of notional sold across 21 products, followed by reverse convertibles, which accounted for $125 million of notional sold and an 11.75% share of the market.

The most prolific US provider was HSBC, which sold $223 million of products in the month, making for a more than 21% of share of the new issuance market. HSBC was followed by Bank of America, with a 19.32% market share, and Goldman Sachs, which accounted for 18.96% of all issuance.

The most popular underlying in the US was the S&P 500 Index, which accounted for $641 million of notional sold and was linked to 64 products. The next most popular indexes used as underlyings were the Dow Jones Industrial Average and the Russell 2000. The most popular single-stock underlying asset was Apple, which was used as the reference asset for 22 products. Other frequently used stocks were Freeport-McMoRan Copper & Gold and Halliburton.

In the UK, the provider with the highest notional sales was Investec Structured Products, which had an overall volume of 30.77% of all products sold. It was followed by the Royal Bank of Scotland and its 23.08% market share. Third place was Barclays, with a 7.69% market share.

Capital-at-risk annual kickout notes dominated the UK market in April, accounting for 24.04% of all products issued. Second was the simple growth product type, with a 17.31% share of the market. This was followed by capital-at-risk income products, which made up over 14.42% of all retail products issued.

In the US, almost half (44%) of all products had 12-month maturities. The reverse convertible with the highest coupon was issued by JP Morgan, a three-month product linked to the common stock of Molycorp that paid a coupon of 21% per annum and a barrier of 75%. The average coupon offered by three-month reverse convertibles was equal to 13.3% per annum, with the average barrier of 74.22%.

Market snapshot June 2012