Tuesday, January 8, 2013

Structured Products: 2012 Year-End Market Review

By Tim Husson, PhD and Tim Dulaney, PhD

Last year, we covered Bloomberg's summary of the 2011 structured product market by noting that almost "$45.5 billion worth of SEC registered structured products were sold in the US in 2011, down only slightly from $49.4 billion in 2010."  In 2012, 7,909 notes totaling just over $39 billion worth of SEC registered structured products were sold in the US -- a decrease of nearly 15%.

Interest rate products continued their decline in popularity with a decrease of almost 30% from 2011 to 2012.  Equity-linked products continued to garner significant issuance with nearly 2 out of every 3 products issued (by issue size) being equity-linked in 2012.  Reverse convertibles saw a drastic decline in popularity -- less than $2.5 billion in 2012 compared to almost $5.5 billion in 2011.
According to sources quoted in the Bloomberg Brief:  Structured Notes 2012 Review & 2013 Outlook (unfortunately not publicly available), the primary reason for the dropoff in structured product issuance is the persistent low interest rate environment, which is likely to continue into and beyond 2013.  However, that same low interest rate environment could also lead investors to seek riskier products to help achieve required rates of return, boosting structured product sales relative to other products such as certificates of deposit.

Structured products continue to be an active area of research at SLCG, and we now have a variety of research papers on important structured product issues. We also have a database of  over 10,000 structured product reports available free of charge. We will continue to closely monitor the structured product market, as it is one of the most innovative financial markets today.

SOURCE: Bloomberg L.P.

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