Derivatives houses, including Deutsche Bank, UBS Warburg and JPMorgan, have seen demand for hybrid structured notes in Singapore increase by approximately 30% as end users look to pick up enhanced yield before year-end. Bryan Yap, Asian head of interest-rate swaps at Deutsche Bank in the Lion City, said "This is a new development in Singapore." On average about 10 to 15 notes are structured per month, said one marketer.
The notes are becoming more popular because investors are predicting the global economy will not grow as quickly as previously thought and therefore interest rate hikes are further off, said Yap. This has caused investors to look for other ways to boost yields. Education on credit derivatives over the last year has also played an important role in boosting demand, according to Sandeep Gill, head of credit derivatives at DBS Bank in Singapore. Officials at UBS Warburg and JPMorgan also noted more interest for hybrid products.
The hybrid notes are typically denominated in Singapore dollars and embedded with options and range accrual structures. The size of the notes is SGD5-25 million (USD2.85-14.27 million). Insurers, corporates and banks are the largest buyers, said Deutsche Bank's Yap.