DZ Bank AG sold the first structured note tied to the debt of the U.K. since June 2010 as German investors seek European sovereign credits outside the euro area.
The biggest underwriter of structured notes this year issued seven-year securities on July 3, according to data compiled by Bloomberg. The bank plans to sell as much as 50 million euros ($63.1 million) of the notes, said Rainer Overbeck, DZ Bank’s head of structured credit trading.
German cooperative lenders bought the securities, according to Overbeck. The Frankfurt-based institution is one of two clearing organizations for Germany’s cooperatives, allowing it to provide structured products directly to more than 900 local lenders.
“We see demand for developed nation credits that are nearby and not in the euro,” Overbeck said. The bank also saw strong demand for a similar note it sold in May tied to Denmark, he said.
The last security tied to the U.K.’s credit was on June 2, 2010, a $200 million offering by Deutsche Bank AG, Bloomberg data show.
The most popular sovereign debt for credit-linked notes this year is that of Russia and Brazil. Banks sold $708.6 million of securities tied to Russia and $706.9 million of notes linked to Brazil, Bloomberg data show. The two emerging markets, along with India and China, will make up 20 percent of the world economy this year, according to data from the International Monetary Fund.
Credit-linked notes are securities with derivatives tied to the risk of a company or country’s debt and offer higher yields and tailored maturities that may not be available in the bond market. Investors suffer losses if there’s a default for either the bank issuing the note or the reference entity.
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