Abbey has structured its first 10-year bond with 200% participation in the Halifax House Price Index and 100% capital protection. This is the first time this level of participation has been combined with a 10-year tenor, said Nigel Cannon, head of marketing in equity derivatives at Abbey in London. "This is a structuring breakthrough," he proclaimed.
Abbey priced a call option on the index to create the product, which was then wrapped as a bond for a bank or building society deposit account. Cannon declined to comment on the risk management of the option.
The product will be sold through Newcastle Building Society in September. Abbey is also looking to sell the instrument to private banks, said Cannon. "There's a large potential for this kind of product in the ex-pat market," he added.
