Derivatives houses in Asia, including Citigroup and Deutsche Bank, are starting to market to traditional fixed income investors hybrid structured notes that combine equity and interest rate risk. "It's a natural development," said Bryan Yap, co-head of emerging markets Asia for fixed income and derivatives trading at Deutsche Bank in Singapore. "With tighter spreads, customers are actively searching for higher returns and prepared to take more outright market risk." Market officials explained that with the strong performance in regional equities in recent months, investors are shifting away from lower-yielding pure fixed income instruments and are now looking at hybrid structures that incorporate equity exposure.
"This is primarily occurring in Singapore and Hong Kong, with possibly Taiwan and Korea being first among the other regional markets," said Yap. Indeed, an official at Citigroup noted that the firm recently began marketing equity/interest-rate hybrids in Korea linked to global indices, including the Standard & Poor's 500, the Nikkei 225, and the KOSPI 200.
