Currency-Linked Note Sales Rise as U.S. Investors Bet on Asia

U.S. sales of structured notes linked to exchange rates rose last month to the most since May as investors speculated that the dollar will weaken relative to Asian currencies.

U.S. investors bought $98.8 million of currency-linked notes in November, up 52 percent from $65.1 million the previous month, according to data compiled by Bloomberg. The total is the highest since May, when banks sold $118 million of the products.

Of 14 such securities issued last month, 12 were bets the U.S. dollar would fall against Asian currencies, the data show. The notes can be an efficient way for investors to guard against a decline in the value of the dollar, said Eric Greschner, who helps manage about $150 million as co-founder of Regatta Research & Money Management LLC.

“You can get a very long-term hedge that is relatively inexpensive compared to some of the other options that are out there,” said Greschner, who has bought products linked to Asian currencies for clients.

Structured products can be cheaper than periodically buying currency options, another type of derivative, he said. The products often include protection against drops that isn’t offered by exchange-traded funds tied to currencies, Greschner said. Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities.

One-Year Notes

On Nov. 19, Deutsche Bank AG sold $6.29 million of one-year notes that rise in value if the U.S. dollar falls relative to a basket consisting of the Indian rupee, the Indonesian rupiah, the South Korean won and Singapore’s dollar, according to a regulatory filing. JPMorgan Chase & Co. distributed the notes for a 1 percent commission.

The securities, which pay no interest, return 8.5 percent if the Asian currencies climb against the dollar by 3 percent to 13.5 percent. Investors make more money if the currencies rise more than 13.5 percent and lose a fixed 5 percent if the currencies fall or increase by less than 3 percent.

The rupee gained 2 percent against the dollar this year to 45.38 as of yesterday’s 5 p.m. close in Mumbai, from 46.5 per dollar at the end of 2009. Singapore’s dollar rose 6 percent against the U.S. currency to 1.314 per dollar, from 1.4018 at the end of last year.