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Derivatives

ABN AMRO Plans Euro iBoxx 40

ABN AMRO is planning to launch a euro-denominated iBoxx 40 credit-linked note within the next few months and is looking at issuing additional iBoxx 50 CLNs in currencies other than the euro in January. The euro-denominated iBoxx 40 is planned on the back of the introduction last week of its first iBoxx 40 note, which was denominated in Swiss francs, said Andrew Feachem, credit derivatives marketer in London. The iBoxx is a European fixed-income index jointly compiled by seven market makers to provide transparent pricing of investment-grade corporate bonds.

The iBoxx 40 series of notes give exposure to the strongest credit quality names in the index and was introduced because of investor demand for a product with greater credit spread stability, Feachem said. ABN AMRO eliminated all the BBB names in the corporates non-financial overall index portion of the iBoxx and then chose the top 40 names by rating. The firm synthetically constructs the CLNs using credit-default swaps on those 40 names. The Swiss franc-denominated CLNs pay a fixed annual coupon and have a five-year maturity. It has not yet been determined if the euro-denominated notes will be fixed-rate or floating-rate, but they are likely to have a five-year maturity.

The underlying portfolio is static on all of the firm's iBoxx products, meaning it will not follow the index over the long term as the iBoxx's weightings and components change. If clients want to minimize their tracking error to the index they will have to buy a new note and sell the old note every time it is relaunched. The iBoxx 40 note will be issued annually.

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