Société Générale Asia and Barclays Capital Asia recently started marketing credit-linked notes with embedded interest-rate products for the first time in the region, because yields on traditional CLNs have fallen, according to officials at the firms. "The interest-rate component adds extra juice," noted an official at SG Australia.
A structurer at SG Asia in Hong Kong added that with credit-default swap spreads in Asia tightening roughly 10% over the last two months, yields on CLNs have fallen, prompting investors to consider buying notes with an interest-rate component that offer increased returns. Such products include structuring the note with a LIBOR corridor, whereby if U.S. LIBOR stays within a range of 2%-5% throughout the life of the note, an investor receives an enhanced yield. Typical size ranges from USD5-10 million. Officials at Barclays also noted that it is marketing such products as investors search for yield.
Maeve Gallagher, a spokeswoman at Barclays in Hong Kong, declined comment.
An official at ING Financial Markets said the bank has offered the products since the beginning of the year, noting that investors in Asia are becoming more comfortable with credit derivatives as they look for products that offer greater yields over traditional fixed income products.
