Tenors get extended as structurers face poor market conditions

Maturities for US structured products get stretched and Barclays issues a reverse convertible with a high risk rating

Tenors in the latest issuance have been stretched, possibly due to tough structuring conditions resulting from low rates and volatility.

HSBC has issued a leveraged product with a 10-year tenor, which is almost unheard of for retail equity-linked products. The product tracks the S&P 500 and has a participation rate of 180-200%. If the downside barrier of 50% is breached capital will be lost at the rate of 1:1. The product has a relatively low riskmap score of 6.3 and an overall score of 3.8.

Other products in the latest offerings that feature long tenors are a Goldman Sachs six-year principal-protected product and several with four-year tenors.

Products in the US market usually have maturities of up to two years unless they are principal protected, but even then they tend to be five-year products at most, not the six years offered by Goldman Sachs.

There are a few reverse convertibles from Barclays in the latest offering. One, which tracks the stock of Celanese has a riskmap rating of 10, the highest which can be awarded by Future Value Consultants. The six-month product provides a return of 8.1-10.6% and has an 80% barrier against falls in the underlying. The structure is fairly standard for a reverse convertible so the high score is likely to be based on the volatility of the underlying stock.

Source: FVC and SEC filings
For access to analysis of the US structured products market: www.structurededge.com