Banks Pioneer Korean Swaption Notes

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Banks Pioneer Korean Swaption Notes

Citibank and Credit Lyonnais have separately sold what is considered to be the first won swaption-linked notes in Korea earlier this month. "Customers are attracted to the enhanced yield," noted an official at Citibank in Seoul. He continued that the bank is looking to issue additional notes, ranging between KRW100-200 billion (USD75-150 million) in size, either linked to the five or 10-year swaption rates. Officials at Credit Lyonnais confirmed that it also issued similar notes earlier in the month, declining to elaborate.

For example, a 10-year note structured on the 10-year swaption rate could yield up to 300 basis points over Korean Treasury bills. To boost the yield the structure is callable if the swaption rate rises above a capped level, said the official. These products are possible now due to the growing liquidity in Korean won swaptions in recent months, which was sparked by exceptions of an interest-rate hike (DW, 2/25).

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