Spain is killing structured products

Posted by Izabella Kaminska on Jun 22 09:24. 7 comments | Share

It’s natural that a sovereign or a bank which is having trouble getting its debt away in the market, might target retail domestic investors.

Indeed, through the issue of small government bond denominations or indirectly via high-yielding deposit wars, More…

It’s natural that a sovereign or a bank which is having trouble getting its debt away in the market, might target retail domestic investors.

Indeed, through the issue of small government bond denominations or indirectly via high-yielding deposit wars, the Spanish retail investor has been a critical focus point for recent funding initiatives.

Regional governments, for example, recently started to issue debt in denominations as low as €1,000.

But now, in the case of Spain at least, some indirect consequences are beginning to appear in the wider market. The country’s structured product industry, for one, looks like it’s being made redundant.

As Structured Products magazine noted on Tuesday:

Previous [Spanish regional] debt issuances were targeted more towards the institutional market. This is the first time they have focused on issuing debt in denominations as low as €1,000, which clearly targets retail investors, says de Hoces. The high yields on offer create competition for the structured products market, he says.

“It has been affecting the structured products market because it is very difficult to compete against that. “If we add up the two big issuances from Catalonia that have been €3 billion each, plus Valencia with nearly €1.5 billion in December 2010 and €800 million in May 2011 (other regional government issuances have been smaller), we could say that we are close to roughly €8 billion or €9 billion.

So what?, you might say.

Well, as Structured Products Magazine points out, the market is not small. It’s worth some €30-40bn a year. For the big structured product issuer banks it could become an annoying little problem just when they need the margins.

Related links:
Moody’s on Spain’s regional, retail shift – FT Alphaville
The return of the sovereign-bank loop? – FT Alphaville

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