Creators and distributors of structured products in Finland have boosted interest at both ends of the risk spectrum by doubling the number of new issues linked to high-yield credit, while also releasing the first fully-protected products seen in the market since 2014.
The second best seller in Finland in February was United Bank's Yrityslainakori Amerikka I/2016, which sold €5m. The note is linked to credit defaults in the Markit CDX North America High Yield Index and offers the possibility of an 8.5% coupon. "The yields in the American high-yield market rose strongly at the end of 2015, and in the beginning of 2016," said Inka Noramaa, director of private banking asset management at UB. "Thus, we were able to achieve a very high, fixed coupon on the product.
"Also, the tranche structure was attractive to investors," said Noramaa. "In this particular product, the first 15 credit events will not have an impact on the return or on the repayment of capital. The uncertainty in the stock market might also have affected interest in the product, as investors were seeking investment objects with fixed returns."
The Markit CDX North America High Yield Index has been the favoured underlying this year, with two of the five products issued by Alexandria, and one each by Nordea, FIM and Garantum.
The most popular tenor was medium, with 13 products of around five years, two around four-and-a-half years, three around four years, and three around three years. The longest term was 6.2 years, in Nordea's Osakeobligaatio Pohjoismaat Perus B244, Osakeobligaatio Pohjoismaat Ekstra B245, Osakeobligaatio USA Kuluttajatuotteet Perus B242 and Osakeobligaatio USA Kuluttajatuotteet Ekstra B243.
As far as capital protection, 58% of products issued in February had none, 35% between 105%-112%. Eight per cent of products offered full capital back, and were the first fully capital protected products in the market since 2014. The fully-protected products were offered by Nordea: Luottotodistus Eurooppa Maltti USD B247 and Luottotodistus Pohjois-Amerikka Maltti USD B248. These are a new kind of credit default product in that, normally, these kind of products have only conditional capital protection based on the credit defaults.
Thirty-five percent of the products sold in February were uncapped calls and credit defaults, 15% autocalls, 8% sprinters and 4% capped calls. "Credit-linked structured products with high return potential remain attractive, at least if the market continues to be volatile," said Noramaa. "Equity-linked structured products are likely to become relevant only when the market calms down a bit."
Overall sales volumes in Finland were 26% lower in February 2016 than they were in the same month last year, although 12% more products struck, according to SRP data. Rollover opportunities remained good, with 31 products, worth €132m maturing over the month. Of the 26 products striking in January, the highest registered sales volume was from Pohjola Pankki, whose Sijoitusobligaatio Terveys I/2016 sold €7.2m. The capped call note is linked to the Stoxx Europe 600 Health Care Index, and offers 105% of the index rise, capped at 40%. The product was sold at issue price of 111%.
Of the 31 products maturing over the month, four of the best performers came from Garantum, with the two best from the same series: the Osakeindeksiobligaatio USA nro 60 Kasvu offered 181.4% (12.5% pa) and the Osakeindeksiobligaatio USA nro 60 Turva 174.8% (11.7% pa). The uncapped call notes were linked to a basket of 10 US shares. The products offered 170% and 100%, respectively, and were sold at issue prices of 110% and 100%. The average performance in February was 1.6% pa.
Nordea was the most active bond provider, with eight products, all of which were distributed through its own channels. The most active international banks were BNP Paribas, which issued four products with SIP Nordic, and Societe Generale, with three products issued with Alexandria and two with Garantum.
Forty-six percent of products were linked to equities, 31% to credit, 12% were hybrids, 8% were linked to commodities, with 4% based on funds. The products linked to commodities were linked to the Stoxx 600 Europe Oil & Gas Index and one to the Stoxx Europe 600 Basic Resources Index. "We will continue to develop our product offering so that solutions correspond to different market situations and customer needs," said Noramaa. "There has to be real interest for every product; the return potential and terms to the investor always need to be attractive. However, offering structured products remains challenging due to the current low interest rates."
Click here to read the full Finnish market review for February.
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Finland Market Review - January 2016