Deutsche Bank Finally Discovers the DAX for Japanese Bond Debut

  • Lender sells first uridashi notes tied to DAX, Nikkei indexes
  • Uridashi sales now at lowest in six years after routs

Deutsche Bank AG has sold notes tied to Germany’s stock market to Japanese household investors for the first time, wooing them with returns about 150 times their nation’s government bonds.

The Frankfurt-based bank sold 1 billion yen ($8.3 million) of notes in August that offer a 10 percent return if the German and Japanese stock markets break out of their price swings and rise to certain levels, according to data compiled by Bloomberg. The so-called uridashi notes target Japanese retail investors whose sovereign bonds are earning just 0.068 percent at home.

Issuers are trying to pique buyer interest with alternative products after uridashi sales fell for a third straight month in August to $1.53 billion, the least in six years, amid global stock routs. The sale of the first DAX-tied security comes as notes linked to multiple indexes gain popularity in Japan amid a dearth of high returns from traditional single-asset notes.

“There was a strong need from a distributor to launch a structured note not previously traded in the uridashi market,” said Kentaro Hayashi, the head of equity structuring at Deutsche Bank’s Tokyo unit. “The distributor was attracted by the possible target price performance of the DAX.”

The five-year note pays an annualized 10 percent if both indexes gain more than 5 percent from their Aug. 27 levels around each quarterly coupon date, Bloomberg-compiled data show. The first payment is due Nov. 27.

Rally Interrupted

While German shares have climbed this week, the overall index is down from the end of August and the Nikkei has fallen 3 percent as of Thursday. A global stocks rally was derailed as jobs data supporting the case for higher U.S. rates collided with inflation reports from China that underscored weakness in the world’s second-largest economy.

Still, investors will earn 4 percent if the indexes don’t decline more than 15 percent and a 0.1 percent coupon otherwise.

Recent market routs provide a “great” opportunity for long-term investors even as volatility remains high ahead of the Federal Reserve’s September meeting next week, said Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which oversees about $118 billion.

The MSCI Europe Index has gained 3.9 percent this year while the MSCI AC Asia Pacific Index has lost 7.6 percent. The DAX, which has advanced 4.1 percent to 10,210 as of Thursday, could reach 13,000 by the end of the year, according to strategists’ estimates.

Some 48 percent of all uridashi notes sold in August were tied to equities. Of those tied to single stocks or indexes, 45 percent were linked to the Nikkei 225. Deutsche Bank issued 9 percent of all uridashi notes during the month.

“European equities offer attractive value, enjoy easy monetary policy settings and the European Central Bank added further commitment for further stimulus if needed,” said Naeimi. “Europe and the DAX are particularly set to benefit once risk aversion subsides.”

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