Structured Products Monthly Process Changes with Higher Yields

The structured product market has been akin to riding a roller coaster over the past few years. Much of this wide ride has been attributed to the volatility of the market, and until early 2022 the fixed rate environment remained anemic. Prior to these higher interest rates, investors needed to venture further out onto the risk spectrum to obtain an attractive yield.
These higher interest rates have allowed more relatively conservative offerings to be a focus as investors could obtain an attractive yield investing in a traditional buffered instead of the more aggressive barrier note. This shift also carried forth onto the Market Linked CDs and Principal Protected Notes, as these can offer an attractive yield relative to the buffer note. 

Another significant improvement was the return of the Market Linked CDs and PPNs, which were essentially dormant during the pandemic. MLCDs, and PPNs experienced an enormous boom in sales within many firms during late spring of 2022, as the improved fixed rates led to lower tenors and higher cap rates, but also the launch of updated proprietary indices, compiled with the pent-up demand. Sales have remained relatively consistent within the product category throughout the year, but the improved economics has led to the availability of single broad-based indices such as the S&P 500 being offered as the underlier.

While the category has improved, so have traditional fixed-income products, which has brought additional competition to the structured product arena. The aphorism, ‘rising tides lifts all boats’, is appropriate given that while the more conservative structured products have improved, so have traditional bond investments… and so have fixed annuities with explosive sales growth and continue to rival plain vanilla structured products. Another siren song could be the continued acquisitions between US Banks that issue MLCDs, which may limit the total amount of issuers, that DDW is actively monitoring.

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For more information about the author or DDW's products and services, contact Mike Freeman

973.567.6600 | michael.freeman@duediligenceworks.com