Structured products tally for week $955 million; BofA closes calendar month with $749 million

By Emma Trincal

New York, Dec. 1 – It was another blockbuster week for BofA Securities, which closed its calendar during a volatile shortened holiday week. On the eve of Thanksgiving, the agent priced 29 structured products deals totaling $749 million, or 78.5% of the tally of $955 million for the week ending the month, according to preliminary data compiled by Prospect News.

Just as impressive was the record of Barclays Bank plc as last week’s top issuer with $523 million brought to market in 18 offerings, or 54.8% of the total.

Barclays rising

Bank of America’s private wealth distribution platform has used Canadian issuers such as Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Royal Bank of Canada to diversify its clients’ credit exposure, explained a sellsider. For a long time, the Canadian banks dominated BofA’s open architecture, but this year, non-Canadian issuers, in particular Barclays, have caught up.

BofA Finance itself is now the top credit under BofA Securities’ distribution platform with $3.55 billion issued in 504 trades so far this year.

Next is Bank of Nova Scotia with 108 deals totaling $2.12 billion.

Barclays has now reached $1.64 billion within Bank of America’s private wealth platform, ahead of CIBC ($1.38 billion), Toronto-Dominion Bank ($801 million), Credit Suisse AG, London Branch ($753 million) and Royal Bank of Canada ($657 million), according to Prospect News.

“They’ve been using a lot of Canadian issuers. But Barclays’ push could be because they’re trying to diversify credit. It could be Barclays’ paper and someone else doing the hedging,” a sellsider said.

Black Friday

It would have been a great time to strike short-volatility trades last week as fears around the newly identified Covid-19 variant Omicron hit the stock market hard on Friday, pushing the Dow Jones industrial average down 2.5%, its biggest one-day drop since October 2020. Also on Black Friday, the Russell 2000 index fell nearly 4%.

The new Covid-19 variant first detected in South Africa was deemed to be a “variant of concern” by the World Health Organization. The CBOE volatility index reacted with a 50% spike on fears that the new variant may be more transmissible than the Delta variant, which may cause travel restrictions and perhaps shutdowns.

Fears of a recession, coupled with a worrisome inflation picture, which may prompt the Federal Reserve to reverse its accommodative stance, led to a flight to safe-haven bonds with the 10-year Treasury falling below 1.5% on Friday after starting the week at 1.69%.

“We’ve seen the market seesaw since Friday. But investors are coming out buying the dip,” said a sellsider.

“The uncertainty is growing with the new Omicron variant. But there is also the Fed.

“Instead of tapering $15 billion a month as they originally stated, the Fed may do more. Goldman Sachs sees them doing $30 billion a month and predicts the first rate hike in June.

“The combination of Omicron and inflation could really make the supply chain issue worse. We’re seeing intensified uncertainty.”

Autocallable step-ups

But the big sell-off on Friday did not interrupt the course of the calendar sales with BofA’s index-linked leveraged notes and market-linked step up dominating the flow as they usually do at the end of each month.

Leveraged products accounted for 42% of the tally with $400 million sold in 17 deals, or twice less in volume than the year-to-date average market share of 21%.

Autocallable market-linked step-up notes were the second most popular trade with $264 million sold, or 28% of the total.

Those products pay a cumulative call premium annually and a minimum return (step) at maturity if the notes are not called along with uncapped one-to-one participation if the gain exceeds the step level.

“People like those deals because you can get some income replacement plus uncapped participation at maturity,” said the sellsider.

“There are no CDs out there. This type of product, especially with long tenors, will back test pretty well.”

Pure income plays such as snowballs and autocallable contingent coupon notes only made for 19% of the total last week, well below the 62% average for the year to date.

Not surprisingly, equity indexes led the way last week with $754 million in 31 deals, or 79% of the total.

Baskets of banks

Ninety-five deals were priced on single stocks and baskets of stocks totaling $160 million.

Of interest was the bid on the financial sector through two deals tied to a stock basket consisting of Goldman Sachs Group, Inc., JPMorgan Chase & Co. and Morgan Stanley, each with a weight of 33.33%.

The largest one came from Credit Suisse AG, London Branch in $32.6 million of 14-month leveraged notes paying three times the basket gain up to a 25.06% cap and no downside protection.

BofA Securities, Inc. was the underwriter for this deal as well as the other, which originated from Barclays. It was a $23.55 million issue of autocallable market-linked step-up notes on the same basket.

Top deals

BofA Securities was the agent for the top 28 deals last week.

The No. 1 leveraged notes offering was Barclays Bank plc’s $82.97 million of 14-month Accelerated Return Notes linked to the S&P 500 index paying triple any index gain, up to 12.51% with no downside protection.

Seeking more protection to navigate an increasingly uncertain market, investors bought $46.63 million of Barclays’ capped notes with absolute return buffer due Nov. 24, 2023 linked to the S&P 500 index. The payout at maturity is one-to-one up to a 10% cap and the downside is protected by a 13.2% buffer.

Long step-up

Barclays priced the second top deal in $58.53 million of autocallable market-linked step-up notes on the S&P 500 index. The structure offered unusual terms such as an eight-year tenor and a buffer. The annual call premium is 5.1% if the index is at or above its initial level. The step payment at maturity is only 30%, which is less than eight times the annual call premium. In compensation for the long duration and small premium, investors get a 15% buffer.

“It’s an at-the-money call. You’re not going to need the buffer especially over eight years. No way it’s not getting called,” the sellsider said.

“I would have opted for more premium and no buffer.”

While market-linked step-up notes are likely to be called, some view them as digital products based on the payout at maturity.

Investors in general are increasingly attracted to digital notes, observed a market participant.

“These products are for investors who say: “I don’t know what’s happening in the market. But I’m concerned with the potential excess volatility. Therefore, I’d like to target a return that’s not necessarily a large return...I’m not going for the home run but 5% or 6% per annum could be satisfactory if I have a high probability of getting this return,” he said.

Big oil bet

In contrast with this typical use of digital product, last week saw a high-paying digital note tied to the energy sector.

JPMorgan Chase Financial Co. LLC priced $10.29 million of 13-month digital notes on the SPDR S&P Oil & Gas Exploration & Production ETF.

If the ETF finishes at or above its initial level, the payout at maturity will par plus 37.91%.

There is no downside protection.

Issuance volume for the year is at all-time highs. Agents have priced $81.88 billion in 21,661 deals through Nov. 26, a 27.4% increase from last year.

The top agents last week after BofA Securities were UBS and JPMorgan.

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