According to Bloomberg,
) sold dual directional structured notes worth $32.5 million
linked to Euro Stoxx 50 Index and Standard & Poor's 500
Index, respectively. The gains from these notes are directly
related to fluctuation in the benchmark of these indices.
Citigroup issued five-and-half-year notes worth $17.6 million,
having an estimated initial value of 93.5 cents, on Dec 30. The
notes have a yield rate of 1.3 times the gains of the Euro Stoxx
50 Index. On the other hand, Morgan Stanley sold six-year notes
worth $14.9 million, having an estimated value of 94.7 cents on
Dec 30. The securities yield 1.15 times the gains of the Standard
& Poor's 500 Index.
Further, both the notes provide investors an unleveraged absolute
value of as much as 35% of losses of the respective indices.
However, if the an index falls below the specified cap of 35%,
investors will lose their entire capital.
Dual directional notes have gained popularity in recent times.
Earlier, in 2012,
JPMorgan Chase & Co.
) had issued similar securities based on the performance of the
S&P 500 index, subject to a 15% cap and an 80.7% barrier.
Banks issue such structured notes by packaging debt along with
derivatives to investors, while earning fees and raising money at
the same time.
The dual directional securities, also known as absolute return
notes, are generally based on the possibility of returns in
markets that are comparatively less volatile. These notes
are unique because investors get a positive return even if
underlying asset decreases in value within a pre-specified range.
However, investors will lose their whole capital if the benchmark
falls below the barrier level.
Currently, Citigroup has a Zacks Rank #4 (Sell) and Morgan
Stanley has a Zacks Rank #3 (Hold). A better-ranked stock in the
same sector is
Bank of America Corp.
) with a Zacks Rank #2 (Buy).
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis
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