Investors seeking higher yields are buying structured notes tied for the first time to the debt of emerging-market nations from the Bahamas to Lithuania and Honduras.
According to data compiled by Bloomberg, .JPMorgan Chase & Co. sold $6 million of credit-linked notes on the Bahamas this week, the first securities to reference the Caribbean islands.
Natixis (KN) issued debut notes linked to Lithuanian bonds on May 14, while a Jersey-based special purpose vehicle offered the first securities referencing Honduras last month.
Dollar-denominated government bonds from emerging markets offer three times more yield than those from developed nations, according to Bank of America Merrill Lynch data. The notes pay an average 4.1 percent, down from a six-year high of 11 percent reached October 2008, the data show. That compares with a near-record low yield of 1.37 percent on developed market bonds.
“The underlying reason why these notes are popular is investors are hunting for yield,” said Elbek Muslimov, head of credit trading for central and eastern Europe, Middle East and Africa at Citigroup Global Markets in London.
Investors in credit-linked notes can get even higher returns because they’re also exposed to the default risk of the bank issuing the securities.
JPMorgan’s $6 million of floating-rate notes tied to the Bahamas initially pay 4.1 percent and mature in December 2022. Marcelo Mota, a spokesman for JPMorgan in Sao Paulo, declined to comment on the securities.
By Alastair Marsh
Bloomberg Businsessweek
