Structuring your finances with structured notes - Natalie Bennett

Over the last year we have watched the demise of the high interest paying alternative investment schemes, the lowering of Government of Jamaica’s credit rating and the financial chaos in the world coined “The Recession”.
Over the last year we have watched the demise of the high interest paying alternative investment schemes, the lowering of Government of Jamaica’s credit rating and the financial chaos in the world coined “The Recession”. It’s been stated by financial experts that in the midst of a disaster stand boundless opportunities. Do you want to be saying two years from now “I wish I had invested in that product”? Are you ready to take advantage of the opportunities that are available?   An imperative underlying concept of investing is diversification. Diversification can be within or across asset classes. Diversification allows a client to better absorb and respond to shocks as a result of fluctuations in the financial market. A structured product is a simple yet dynamic way for an investor to diversify their portfolio. A structured product is a pre-packaged investment designed to facilitate highly customized risk-return objectives.  Structured products can be used as an alternative to a direct investment, as part of the asset allocation process to reduce the risk exposure of a portfolio, or to utilize the current market trend. Structured products are by no means specific in their make-up and can be tailored as needed to fit an investor’s risk tolerance and timeline as well as to take advantage of market opportunities.  Worldwide interest rates are declining as countries and institutions look for ways to rebound from the recession. This climate provides the perfect condition for structured products to be developed. One particular type of structured product that can be considered now are bonds issued by the Federal Home Loan Banks (FHLB), a US Government Agency. They are AAA/Aaa rated, the highest rating possible, and therefore carry minimal credit risk. The FHLB is a government sponsored entity and its bonds carry an implicit guarantee from the US government. FHLB Structured Bonds, commonly called “range notes,” are principal protected and are callable with very attractive coupon rates and less volatility than regular bonds. So far it seems like a regular bond; however, the difference is that coupon payments are conditional. The condition for these bonds is based on the six-month LIBOR (London Interbank Offered Rate). LIBOR is a daily reference rate based on the interest rates at which the major banks borrow unsecured funds from each other in the London interbank market.  For example, the FHLB 8 per cent 8/27/2024 is based on the six-month LIBOR rate which as of Thursday, September 17 was 0.68 per cent. It will pay a quarterly coupon as long as six-month LIBOR stays within the range 0 per cent to 7 per cent range.  Once six-month LIBOR goes above or below the lower or upper limit of the range, no interest will be calculated for those days. Interest will begin to accrue again when LIBOR falls back within the specified range. Hence coupon payments would represent actual accrued interest for the quarter based on changes in the LIBOR. The bonds are callable and may be redeemed by the FHLB at par (100) on any coupon date. With six-month LIBOR at less than one per cent, there is very little likelihood that LIBOR will rise above seven per cent any time soon so there is very little interest rate risk associated with this structure.  Structure your finances by building a diverse portfolio that can help you to weather the toughest economic climates. Structured products are just one of the many opportunities knocking.Are you ready to take advantage?

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