JPMorgan Chase & Co. (JPM) sold $50.4 million of four-year notes tied to the least performing of two stock indexes and an exchange-traded fund, the largest “worst of” offering this year.
The securities, issued on Aug. 21, yield 8 percent a year as long as the Standard & Poor’s 500 Index, the Russell 2000 Index and the iShares MSCI EAFE ETF are all at least 60 percent of their initial value with all capital at risk, according to a prospectus filed with the U.S. Securities and Exchange Commission. The bank distributed the notes, which can be called in as soon as three months, for a 1.75 percent fee and estimated their value at 97 cents on the dollar at the time of sale.
Sales of worst-of notes have soared to $1.27 billion this year, 23 percent more than the $1.03 billion issued in all of 2012, according to data compiled by Bloomberg. The securities have become more popular as issuers look for ways to construct bonds with higher yields.
Correlation between changes in the Russell 2000 and iShares MSCI EAFE dropped to .75 this year from .83 for all of 2012, Bloomberg data show. The closer the correlation is to one, the more the prices of assets tend to move together. Notes tied to less correlated assets can give investors better terms.
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 whose value is 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 email@example.com
To contact the editor responsible for this story: Alan Goldstein at firstname.lastname@example.org