Natixis Sells Largest ‘Steepener’ Note in U.S. in Four Months

Natixis (KN) sold $35 million of 15-year “steepener” structured notes, the largest such offering since March 1.

The securities, issued July 26, yield 10 percent for the first two years, then switch to four times the difference between the 30- and five-year constant-maturity swap rates, with a cap on returns at 10 percent and a floor at zero, according to offering documents provided to Bloomberg. The Paris-based bank can redeem the notes after a year.

The prospectus wasn’t listed with the U.S. Securities and Exchange Commission because of an exemption available to foreign banks. The notes are called “steepeners” because they pay more when the difference between long- and short-term rates increases.

Mitch Karig, a spokesman for the bank in New York, said this was Natixis’s first steepener offering in the U.S. under the foreign bank exemption.

Banks sold $603 million of U.S. notes tied to constant-maturity swap rates this year, more than double the $299.3 million of issuance during all of 2012, according to data compiled by Bloomberg.

Goldman Sachs Group Inc. issued $64 million of 15-year steepener notes on March 1, the largest such offering this year, Bloomberg data show. The securities also offer payments based on the difference between the 30- and five-year constant-maturity swap rates, according to a prospectus filed with the SEC.

Widening Spread

The spread between the measures widened to 207 basis points yesterday from 194 on Dec. 31. The gap fell 14 basis points to 185 on June 19, the biggest contraction in almost two years, when Federal Reserve Chairman Ben S. Bernanke announced that the agency may begin reducing its $85 billion a month in bond purchases as long as the U.S. economy performs in line with the central bank’s projections.

Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts with values derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

To contact the reporter on this story: Kevin Dugan in New York at kdugan4@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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