The structured market in Finland continued to express its desire for credit-linked products, with the way led by Alexandria’s Nouseva Korko Yhdistelmälaina, which is a credit-linked note linked to credit defaults in Markit iTraxx Europe Crossover Index and offering 20% of the rise in the constant maturity swap rate. These kind of hybrid products have become popular in Finland, but this product marks a new way of offering the upside, which is normally linked to equities.
Of the 16 products striking in April, the highest registered sales volume was from Alexandria Pankkiiriliike, whose Tähtirahastot Teho Yhdistelmälaina 5 sold €10.5m. The product is also linked to credit defaults in the Markit iTraxx Europe Crossover Index and offers the rise of a fund basket.
Whether credit-linked notes remain popular remains to be seen. “The second quarter saw the first significant rises in rates and in European credit spreads,” said Ilkka Väkeväinen, director, structured debt and investment solutions at Taaleritehdas Wealth Management. “This will show unfavourably in secondary market valuations. However, I would expect the demand to continue at current levels for the rest of the year. In terms of payoffs, I would expect a rather significant shift to floating-rate coupon terms to counteract the effect of rising rates.”
Issuance and sales volumes in Finland in the first five months of 2015 were lower than in 2014, with the former dropping by 30% and sales down by 54%, which could be due to the market’s move from retail towards private banking.
“Our volumes have continued to be strong and we are seeing year-on-year growth,” said Väkeväinen. “I would expect the larger banks to still struggle in retail, as the products are mostly equity linked and principal protected. To us, the first half was more a tale of two quarters: the first one good; the second one mildly good.”
The most popular payoff type in May was the uncapped call, which took 43% of the market, followed by 18% in various credit defaults, while sprinters and autocalls each had 14% of the market; capped calls, enhanced trackers, protected tracker combinations, fixed upside and portfolio insurance each took 4% of the market. “There is a clear demand for simplicity,” said Väkeväinen. “Additionally, I would assume these calls to mostly be on single stock basket and low risk equity indices, where more exotic payoffs are more difficult to do.”
Equity-linked products accounted for 71% of the market by issuance in May, while hybrid products accounted for 25% and funds 4%.
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