Taiwan I-Rate Note Market To Take Off

The Taiwanese structure note market is expected to double before year end as more firms start marketing the products. Toronto Dominion Bank, Credit Lyonnais and Chinatrust Commercial Bank all have plans to market notes, such as inverse floating-rate notes where investors receive a higher coupon if rates are cut. Charles Chen, head of treasury at Toronto-Dominion Bank in Taipei, said TD is looking at this now because interest rate swaps are more liquid, and with the current high volatility the pricing on these notes is attractive. Eric Wu, manager of the derivatives department at Chinatrust Commercial Bank in Taipei, said his firm is responding to growing client interest.

Approximately USD1.5 billion of the notes have been structured so far and that the number could double by year end, according to an official at Deutsche Bank. Demand is driven by domestic bond funds looking to boost their returns in Taiwan's low interest rate environment.

The structures, typically around USD100-150 million per issuance and benchmarked to the domestic three-month commercial paper floating rate, offer yields around 4.5% for a five-year note, whereas straight bonds currently offer about 3%, said one market official.