JPMorgan Chase & Co., the largest structured notes issuer in the U.S., is capitalizing on growing investor appetite for risky assets by selling securities betting on corporate debt.
JPMorgan sold $50 million of structured notes tied to Invesco Ltd.’s PowerShares Senior Loan Portfolio exchange-traded fund to a bank loan ETF. The New York-based lender also issued notes linked to the iBoxx Liquid High Yield Index, according to prospectuses filed with the Securities and Exchange Commission this week. The securities, which mature in about 4 months or less, offer a coupon of 5 percent annually as well as the gains and losses of the index or fund.
Demand for speculative-grade borrowings has grown as the Federal Reserve’s policy to keep its benchmark rate near zero for five years pushes investors to assets that generate higher yields. That has allowed the bank to structure notes that package debt with derivatives to offer customized bets.
“Structured notes are basically just a reflection of where investors’ interests lie,” said Serge Troyanovsky, managing director and head of North American structured product sales at BNP Paribas SA in New York. As long as debt funds are popular with investors, “at some point, you’re going to have issuers who want to issue products linked to those ETFs.”
The notes sold by JPMorgan are the first tied to the high- yield index and the loan fund that were publicly offered and registered with the SEC, Bloomberg data show.
Elizabeth Seymour, a spokeswoman JPMorgan in New York, declined to comment.
The JPMorgan note offering comes as leveraged loans have received record inflows this year. Funds that purchase the floating-rate debt, have recorded gains of more than 32 percent in assets, or about $25 billion, according to a report from Bank of America Corp.
Leveraged loans are attracting interest as investors look for alternatives to preserve income on their investments on expectations of a rate rise. Loan buyers have more downside protection than bonds as they are paid first in a bankruptcy or liquidation, while offering a hedge against inflation because the coupon is tied to a floating-rate benchmark.
Invesco’s PowerShares Senior Loan fund, started two years ago as the first ETF solely dedicated to purchasing floating- rate debt, has seen its market value nearly triple to $4.2 billion from $1.5 billion at the start of the year.