Bankers Say Asia Structured Note Sales to Slow on Low Volatility

Structured-note sales will stagnate in the Asia-Pacific region in the second half as low volatility in global financial markets tarnishes the appeal of the products, according to a Bloomberg survey.

Ten out of 14 bankers who oversee product structuring or sales say growth will slow or not change from the first half, according to the survey conducted June 19 to June 30. Low volatility in underlying financial assets was the most commonly cited reason.

The expectations for a slowdown mark a shift after fifty-three percent of bankers surveyed said sales at their financial institutions had increased in the first half from the same period in 2013. Record-low interest rates and unconventional monetary easing by central banks in the U.S., Europe and Japan have reduced price swings across markets, the Bank for International Settlements said in a report last week.

“Most structured notes involve clients selling some form of optionality in order to generate premium to increase the coupon of the structured note,” said John Goff, Hong Kong-based head of global markets structuring for Asia excluding Japan at Nomura Holdings Inc. “So when volatilities are low, and they are low across asset classes versus historicals, it makes it more difficult to find value in traditional types of yield enhancement products.”

Offerings of structured notes and uridashi bonds in the Asia-Pacific region totaled $25.4 billion in the first half, according to data compiled by Bloomberg.

Volatility Falls

Macquarie Group Ltd., Australia’s biggest investment bank, stopped issuing structured products out of Asia as of June 13 and will cut jobs from its structured products team, people familiar with the matter said on June 16. ABN Amro Group NV, the Dutch state-owned bank, also announced June 10 it will cut about 100 jobs as it exits equity derivatives and shutters its Asian markets business.

Executives from Barclays Plc and Morgan Stanley’s structuring and derivatives division in Asia also left the companies, Bloomberg reported earlier in June.

Bank of America Corp.’s Market Risk Index, a measure that uses options to forecast fluctuations in equities, currencies, commodities and bonds, fell to minus 1.33 on July 1, the lowest level on record.

“We would expect volatility to remain low in all asset classes, as long as the current benign global growth environment prevails and the prospect of U.S. monetary tightening is still reasonably distant,” Richard Jerram, chief economist at Bank of Singapore, said in e-mailed comments on July 30. “This will probably run for most, if not all, of the remainder of the year.”

To contact the reporter on this story: Regina Tan in Hong Kong at rtan87@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Beth Thomas, Andrew Monahan

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