Bloomberg News

Aussie Weakness Against Yen Prompts Record Structured Note Sales

June 22, 2012

Nomura Holdings Inc. and Kommuninvest i Sverige sold two of the largest structured notes tied to the Australian dollar-Japanese yen exchange rate in at least 13 years.

Nomura sold 31.6 billion yen ($394 million) of one-year notes tied to the rate on May 23, the largest such deal, according to data compiled by Bloomberg going back to 1999. Sweden’s Kommuninvest issued 27 billion yen of 18-month notes on June 15, the third-largest.

The Australian dollar, or the Aussie, fell to 75.68 yen on June 1, the lowest since Nov. 25, as a report of poor retail sales added to speculation that the country’s central bank would cut interest rates. Japanese investors viewed the decline below 80 yen after May 11 as an opportunity to bet on the Aussie to gain again, said David Naville, head of foreign exchange structuring for the Asia-Pacific area at Barclays Plc.

Breaching the 80 yen level “has surely motivated investors to re-enter the trade,” Hong Kong-based Naville said. Barclays sold 46 notes for 9.89 billion yen linked to the exchange rate this year, Bloomberg data show.

The Aussie lost 0.9 percent in the past three months against a basket that includes nine developed-market peers, according to Bloomberg Correlation-Weighted Indexes. That was the third worst performance after the euro and Swiss franc.

‘Significant Weakening’

This week it has gained 0.6 percent to 80.575 yen, after the Reserve Bank of Australia said in minutes released June 18 that recent domestic data hadn’t shown a “significant weakening” compared with the prior month’s forecasts. The country’s central bank concluded the domestic economy was holding up as global prospects worsened, minutes of its June 5 meeting showed.

Geoffrey Yu, a currency strategist at UBS in London, said the Aussie could strengthen to about 85 yen at the end of 2012. Bids on non-deliverable forward contracts, however, predict a weakening to 79.12 by year’s end and to 71.27 by June 2015, according to Bloomberg data.

There have been 160.3 billion yen of notes linked to the exchange rate issued this year, Bloomberg data show. The most were sold in March, 51.9 billion yen in 23 offerings. The Aussie could buy as much as 88.4 yen on March 19, its highest point in the year to date, making notes linked to the strength of the Australian currency more attractive.

Buyers of the note issued by Nomura in May receive a 3.5 percent coupon and are repaid their principal in Australian dollars if the exchange rate drops below about 67 yen, according to a term sheet for the offering.

To contact the reporter on this story: Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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