Bloomberg News

Sales of Structured Notes Tied to Mexican Peso Triple in 2012

November 29, 2012

Sales of structured notes tied to the Mexican peso have almost tripled as investors bet this year’s best-performing widely traded currency against the dollar is poised for further gains.

Banks have issued $245.3 million of the securities in 2012 in 28 offerings, compared with $86.6 million in 10 deals last year during the same period, according to data compiled by Bloomberg. Goldman Sachs Group Inc. (GS:US) sold $61.3 million of one- year notes tied to the currency on Nov. 19 in two offerings, the most issuance on any day for the securities since the beginning of 2010.

Investors are purchasing notes tied to the peso because Mexico’s cost of labor is lower than China’s, making it an attractive destination for U.S. manufacturers, and the currency is cheap compared with that of peers such as Brazil and Colombia, said Mike Moran, a senior currency strategist at Standard Chartered Plc in New York. The Mexican economy grew 3.3 percent in the third quarter from a year earlier.

“Growth has been pretty resilient despite the weakness that we’ve seen in the U.S. earlier this year,” Moran said in a telephone interview. The U.S. buys 80 percent of Mexico’s exports.

The Mexican currency strengthened 7.4 percent this year to 12.9723 pesos per dollar as of the close of trading in New York on Nov. 28, the biggest gain among the world’s 16 most-traded currencies against the greenback.

May Sales

Banks sold $85 million of notes tied to the peso in May, the most monthly sales for the securities since 2010, Bloomberg data show. Investors were betting the currency could rise because of weakness in the dollar due to an expected third round of quantitative easing by the U.S. Federal Reserve, Joe Manimbo, a Washington-based market analyst for Western Union Business Solutions, said at the time.

Goldman Sachs Group Inc. issued $36.3 million of one-year securities on Nov. 19, this month’s top-selling offering tied to the peso. The notes pay 13.06 percent as long as the Mexican currency doesn’t depreciate against the dollar, with protection against 15 percent of losses, according to a prospectus filed with the U.S. Securities and Exchange Commission. Buyers could lose all of their investment. JPMorgan Chase & Co. distributed the notes for a 1.1 percent fee.

The Bank of Mexico will probably not increase its benchmark rate from 4.5 percent tomorrow, according to a median estimate of economists surveyed by Bloomberg.

That’s partly because of an expected decrease in inflation and uncertainty surrounding the U.S. tax increases and budget cuts, known as the fiscal cliff, according to a report by Benito Berber, fixed income research strategist at Nomura Holdings Inc.

Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

Bloomberg began collecting comprehensive data on U.S. SEC- registered securities in 2010.

To contact the reporter on this story: Kevin Dugan in New York at kdugan4@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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