The US structured notes market hit a seven-month high as the Bank of America lured investors by distributing US$1.6 billion of papers in March.
On top of that, banks sold $4.4 billion of securities in April – $1 billion up on January and February and contributing to $11.1 billion of sales in the first three months of the year.
Wall Street gains have boosted structured note sales as around 60% of the papers are linked to equities – generally the Standard & Poor’s 500 (SPX).
The market closed at 1,313.32 (May 30) – shy of the 1422 52-week high, but well ahead of the 1075 52-week low. The SPX is currently enjoying the best quarter since 1998 as the US economic climate improves.
The SPX has surged 28% since October and is generating 14.6 times reported earnings.
A big seller last month was $121.1 million of one-year notes tied to Ford Motor Company stock issued by North Carolina bank The Charlotte.
The security pays 10% a year and a 4.51% bonus on maturity – if Ford shares rise 10% over their initial level. If the stock drops, investors risk losing money on the security.
UBS, Switzerland’s biggest bank, has sold US$946.2 million of one-year structured notes linked to the Russell 1000 Growth Index – the largest single US notes transaction for more than two years.
The securities yield twice the gains and losses of the index, which follows the performance of companies with the fastest earnings growth, including Apple, Exxon and Mobil.
Structured notes are securities that let investors bet on debt with derivatives to while earning fees and raising money for banks.
A derivative is a financial contract with a value related to stocks, bonds, currencies or commodities.
