Initial forays in structured note buybacks in Taiwan have been made in recent weeks, which should be a hotspot for banks in Asia this year following regulations prompting domestic bond funds to unload their massive structured note holdings. Last year Taiwan's Bureau of Monetary Affairs halted bond funds, a multi-billion dollar sector, from making additional investments in structured products amid concerns of potential losses in a rising rate environment and the lack of a liquid secondary market (DW, 10/15). In response, derivatives houses, including Deutsche Bank and HSBC, laid out proposals to buy back outstanding structures and repackage the instruments (DW, 2/4), an effort which is now bearing fruit. "The regulators are pushing hard to have these positions unwound," said a senior trader in Taipei.
An official at HSBC said some TWD3-4 billion (USD97.3-129.7 million) in these instruments has been unwound in recent weeks. "This will be a very big theme this year. There were heaps of structured notes issued," said a trader at a bulge bracket house in Hong Kong. Market professionals estimated a total of TWD600 billion (USD19.4 billion) in structured notes are being held in bond fund portfolios.
