Banks Tie Notes to Equities, Debt to Boost Returns
Banks are adding additional links to credit risk in the structured notes they sell, seeking to offer higher returns while taking advantage of a record bond rally.
UBS AG, Credit Agricole SA and Royal Bank of Scotland Group Plc sold $51.6 million of hybrid notes in the past two months that were tied to both debt and equities, more than the $28.8 million of the securities issued in all of 2011, according to data compiled by Bloomberg. Issuance of other types of hybrid notes has gained too. Investors can increase note returns by taking on exposure to extra assets, such as credit.
Bonds sold by companies around the world are on pace to generate 11 straight months of positive returns through October, fueled by demand for the securities as central banks in the U.S and Europe have kept interest rates close to zero. The yield premium over government securities has narrowed more than 1 percentage point in less than a year, signaling a lower risk of default and making investors more comfortable about taking on extra risk associated with the assets.