Structured products tally for May at $6.35 billion; BofA leads in two-week pricing

By Emma Trincal

New York, June 8 – Structured products agents last month sold $6.35 billion in 1,192 deals, according to preliminary data compiled by Prospect News.

As of now, May’s notional volume is nearly equal to April’s $6.40 billion. Those amounts are weaker compared to the first quarter: March showed $8.74 billion; February, $7.27 billion and January, $6.97 billion. Significant differences could emerge in the next few weeks as more deals get filed with the Securities and Exchange Commission’s website.

During the shortened holiday week ended Friday, agents priced $205 million. Citigroup Global Markets Holdings Inc. was the top issuer with a $50 million rate offering consisting of 13-month fixed-to-floating rate notes linked to the one-year U.S. dollar SOFR ICE Swap rate. The notes pay 2.36% per annum for the first month then the swap rate plus 11.5 basis points. The payout at maturity will be par.

“It’s weird. I would just buy a one-year Treasury bill yielding 2.25% and forget about it. There’s not enough meat on the bone here,” said a market participant.

Last week was another volatile week for the stock market. A stronger-than-anticipated job report on Friday put stock prices under pressure as market participants feared that the Federal Reserve may have to be more aggressive in its effort to tame inflation via rate hikes.

Another source of worry was due to the start of the quantitative easing on June 1. The Fed will allow up to $30 billion in Treasuries and $17.5 billion in mortgage-backed securities to mature each month. With inflation mounting, the yield on the 10-year Treasury ended the week at 2.94%. It rose above 3% on Monday.

BofA’s book

BofA Securities was the top agent in May with $1.433 billion in 77 deals, or 22.6% of the total.

On the week ended May 27, BofA priced “part two” of its large inventory, selling $558 million or 30.5% of the week’s $1.828 billion total.

During the previous week ended May 20, agents priced $1.892 billion of which BofA captured a third with $610 million, based on Prospect News’ most recent update.

“They’ve moved toward a two-week marketing period instead of a monthly close. Maybe the volatility in the market has something to do with it. But they’ve positioned themselves toward a mid-month calendar,” said a sellsider.

$105 million deal

Most of BofA’s trades during the second half of May were large Accelerated Return Notes, which are short-term capped leveraged products with or without a buffer depending on the tenor. The week leading to Memorial Day weekend was especially busy for this agent.

For instance, BofA priced on the behalf of HSBC USA Inc. $105.34 million of 14-month ARNs linked to the S&P 500 index with triple the upside up to an 18.37% cap and no downside protection.

HSBC easily ended up as the top issuer for that week with $351 million in 25 deals, or 20% of the total.

Among other offerings not previously reported, HSBC also priced $69.6 million of two-year notes tied to the S&P 500 index. The notes, which priced last week, offer double the index gain with a 20.61% maximum return on the upside and a 10% buffer on the downside. BofA was the agent.

UBS, JPMorgan deals

During the same week ended May 27, UBS priced on the behalf of Bank of Nova Scotia $41.81 million of five-year autocallable notes linked to the S&P 500 index. The contingent coupon is 8.81% per year. Coupon barrier and threshold level at maturity are 70% of the initial price.

JPMorgan Chase Financial Co. LLC issued $33.38 million of five-year buffered callable range accrual notes due May 28, 2027 linked to the S&P 500 index.

The interest rate payable monthly is 7.55% per year multiplied by the proportion of days on which the index's closing level is greater than or equal to 85% of the initial index level. Interest is payable monthly.

Autocalls on pause

Autocallable notes have decreased in May making for just 36% of the total, according to the preliminary data.

The trend is consistent with year-to-date figures through May 31, in which autocallables, including Phoenix and snowballs, represented 45% of total sales versus 64% a year ago.

“I’m not really seeing a decline,” said the sellsider, whose clients are heavy buyers of income products.

“What I see is a growing interest in snowballs versus Phoenix autocalls. For people who don’t really care about a periodical income, snowballs provide higher yields and the advantage of not losing any payment when you don’t get called. Cumulative payments is a big deal for advisers,” he said.

Volatile stocks

Single stocks have also been on a decline during the first five months of the year with $5.79 billion versus $8.8 billion a year ago, a 34% drop. Their market share has fallen from 21% last year to 16%, according to the data.

“While you’ll always have stock pickers, the environment remains uncertain. People feel less confident with stocks, which are inherently more volatile than indices,” said the sellsider.

“Besides, the bulk of single stock issuance has certainly been in the tech sector where people are dumping shares right now.”

The sellsider said he would expect to see the pricing of more energy deals.

Energy is the top-performing sector in the U.S. stock market, up 61% for the past year.

Most notes linked to energy underliers are structured on single stocks. The most commonly used names last month were Chevron Corp., Exxon Mobil Corp., Marathon Oil Corp., Petroleo Brasileiro SA and Schlumberger NV.

The SPDR S&P Oil & Gas Exploration & Production fund was the only ETF to be used for this sector. UBS priced two small $100,000 deals on it.

Index growth

Equity indexes have been more prominent this year, which is consistent with the decline in single names.

While the notional amount of index-linked notes remained similar to last year at about $24 billion, their market share rose to 68% this year versus 57% a year ago.

“People got beat up a lot on stocks. Names like Netflix have lost two-thirds of their value this year. That would breach most barriers,” the market participant said.

“You’re better off with smaller returns and less volatility on indices.

“Everything is down since the beginning of the year, including bonds. But you don’t lose as much with indices. Indices are like red and black on a roulette table. The odds are not as high,” he said.

Hurricane coming

If market sell-offs may encourage investors to buy the dip, a recession or its anticipation will weigh more on market sentiment, the market participant said.

Case in point: recession talks dominated the headlines last week.

JPMorgan’s Jamie Dimon predicted an "economic hurricane" coming soon and Tesla chief executive Elon Musk said he had a “super bad feeling” about the economy as he is planning to cut 10% of his staff.

“Investors are going to pay the price of a Fed that kept on buying paper for too long. The market is responding to that with higher rates and lower stock prices,” said the market participant.

“We already are in a recession because growth is not catching up with inflation. Gasoline prices, food prices are through the roof. Once people buy gas and food, what are they left with? How do you go on vacation, drive to work or buy a house?”

Simon’s new era

On the distribution front iCapital recently announced the acquisition of Simon Markets. Simon, a Goldman Sachs spinoff, is a well-established digital platform with a focus on structured products. iCapital is a global fintech firm dedicated to a wide range of alternative investments. Last fall, iCapital already bought Axio Financial LLC, another high-profile distributor of structured products.

“These acquisitions of wholesalers targeting both independent broker-dealers and advisers create a new ecosystem in the distribution space with possible conflicts of interest,” the sellsider said.

“You now have a market divided between end-users who rely on tech and big platforms owned by a consortium of banks.

“I’m curious to see what happens next.”

Jason Broder, chief executive of Simon, and up to 20 Simon employees will join iCapital when the deal closes in the second half of the year, according to the iCapital announcement.

The top agents in May after BofA were JPMorgan and Citigroup.

The No. 1 issuer was Citigroup Global Markets Holdings, which brought to market 216 offerings totaling $985 million, a 15.5% share.

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