The problem with power-reverse duals

Japanese investors have taken a mark-to-market hit from their investments in power-reverse dual-currency swaps. Dealers also look exposed. Is it the end of the road for PRDCs?

The enduring popularity of power-reverse dual-currency (PRDC) notes with Japanese investors may be at an end. Such investors – typically smaller regional and city banks along with cash-rich corporates and other buy-and-hold investors – flocked to the product to seek higher interest rate yields than have been available domestically in the past eight years. This led to a proliferation of dealers prepared to offer such hybrid products, along with significant innovation in the types of PRDCs