Vorrei sottoporre alla vostra attenzione questa emissione che quota 70%
Merrill Lynch 6.5% Notes
MERRILL LYNCH & CO. INC. EO-FLR MED.-T. NTS 2007(1...
WKN: ML0BU5 ISIN: XS0294239628
Provider: Merrill Lynch
Publisher: Merrill Lynch
Duration: up to 30 years
Underlying: from 10-year and 2-year rate
Principal Guarantee: 100%
Registration: à 100% (indicative), until May 16
Codes: XS0294239628 (ISIN)
Objective
Seek an above-average bond returns based on a higher 10-year rate with the 2-year rate.
Operation
The note has a maximum term of 30 years, but may, after 5 years, and annually thereafter on the coupon date, be repaid early at 100%. The first five years the note has a fixed coupon of 6.5%. Then the variable coupon minimum 0% and 6.5% amounts.
The variable coupon, which is set annually, depending on the 10-year rate and the 2-year rate. If during the previous years the 10-year rate is always at or above 2-year rate has been the location for that year 6.5% coupon. But if during the previous years the 10-year interest on all days in the 2-year rate is reached, the coupon is 0%.
If during the period preceding the 10-year rate one of the time at or above the 2-year rate is located (eg 40% of the time) is the coupon part of the maximum 6.5% (in this case 40 % * 6.5% = 2.6%). At the maximum term of 30 years is the minimum 1.26% (variable coupons all 0%) and the maximum yield 6.5% (6.5% coupons every variable).
Strengths
Five years, a high fixed rate of 6.5%. A direct link between a vision (10-year interest rate is usually at or above 2-year rate) and an above average return to that vision is correct. There is no significant difference between the short and long rates still need a good return.
Weaknesses
The note has a very long term and a wrong view, the note up against a considerable exchange loss. The right of early repayment after five years means that a good vision may only pays for a limited period. No minimum coupon that most Steepener do have a long duration.
Efficiency Comparison with underlying value (s)
The yield on a thirty-state loan is now about 4.3%. The variable coupon should average 3.5%. This means that the average 10-year rate 54% of the time at or above 2-year rate should be. Note that by the early redemption clause a comparison with an equivalent loan is not possible.
Who
Bond investors with an above average risk and a clear vision of the relationship between the 10-year and 2-year rate.
Brochure and other information
Besides the obligatory prospectus is no consumer brochure, but only one newspaper ad. It contains the terms clearly explained, but with positive qualifications ( "attractive annual coupon fixed" and "you still receive a coupon of 3.25%). Barely information about risk and return opportunities. For this risk to the consumer-oriented constructs that I needed it.
Marketability and drop information
Daily traded through Euronext. Merrill Lynch does not undertake a (liquid) to maintain secondary market. No clear information about follow-up.
Comments and conclusion
This type notes (Steepener) have done poorly in recent years. The difference between long and short rates has virtually disappeared. Even if the difference is, the question is how big it will be. Therefore, the construction that has chosen this Steepener meaningful.
The high coupon is not dependent on the size of the difference between the short and long rates, but depending on the length of the difference. The lack of a minimum coupon and coupon what is the lower limit note the price charged for this alternate construction.
For bond investors risk not shy, have a clear vision and to seek greater returns than the 4% or slightly more for regular bonds, certainly a nice product. Do you have a requirement that thirty year period giving you a credit at Merrill Lynch has long.
Mark
Benchmark
Weighting
A. Efficiency Perspective
7
6.6
60%
B. Transparency
4
7.2
25%
C. Originality
9
8.0
5%
D. Follow-up information and aftercare
4
6.4
10%
Total
6.1
6.8
100%
My grade says nothing about the eventual return you to this product achieves, since it determines the market. The review says everything about how the product quality and put together marketing and aftercare or careful.
A. Efficiency Perspective
To achieve the returns must be in relation to the risks. The product should be as clear as possible a return objective. The efficiency perspective has to fit the market which is invested.
B. Transparency
The opportunities and risks must be understood. The information (website, brochure or service number) should make clear how and how much returns and the risks are under what circumstances. The cost of the product must be included.
C. Originality
What is the added value? Is the financial structure to replicate itself? They also play a role whether similar alternative products on the market.
D. Continued Information and aftercare
What is the drop after issuing information? Are regularly reviews the performance of the product and there is information about the progress of the underlying asset. Says something about the brochure?
