BNP Paribas has structured a novel deal, which it believes to be a first-of-a-kind, combining an inflation and interest rate payout. The first note was sold two weeks ago, offering investors exposure to Belgian inflation, with a cap linked to European interest rates. In the 10-year deal, the investor receives a guaranteed coupon of 5.20% in the first year, and in subsequent years receives two and a half times Belgian inflation capped at ten times the 10-year/two-year constant-maturity swap spread.
Bénédicte Guérin-Cribier, inflation derivatives structurer at the firm in London, explained the note was designed for an investor who wanted an inflation product but could not get enough return at current levels. BNP Paribas is working on replicating the structure for inflation in other European countries. "We have had interest world-wide," she noted. A structurer at a rival firm noted the deal is innovative and also quite complex. Guérin-Cribier said it is a variation on a steepener, which most investors are already familiar with, and this type of deal is mainly targeted at sophisticated private banking and institutional clients.
