Growing investor awareness of inflation risk has prompted a spate of inflation investment-product structuring both in Europe and the U.S. Stateside, ABN AMRO and Barclays Capital both launched public Consumer Price Index products last week, while in Europe firms have been structuring inflation notes coupled with equity exposure.
The BarCap deal offers leveraged exposure to the CPI over two years while the ABN offering combines leveraged CPI exposure with inflation-protected Treasuries known as TIPS over 16 years. New York-based structurers at several firms said they had received enquiries about hybrid inflation-plus-equity notes but had yet to see anything launched, although Barclays has structured an inflation-plus-commodity exposure investment product.
A London hybrids trader said the last few months has seen a jump in demand for best-of basket options on an equity index versus the Harmonized Index Of Consumer Prices, generally between 15 and 20 years long with capital protection. In these types of notes, even if equities slump, the investors' capital is inflation protected because at maturity it pays out the HICP return, he explained. "All the major firms have been doing this," he added.
