Merrill Lynch has raised nearly $30m for a knockout note linked to the front-month corn futures contract, which struck last Friday.
The 9.5-month note, issued by Eksportfinans of Norway, will be called if, on a specified observation date, the underlying contract is equal to or has increased from its initial value. In that case, the product will return 17% on maturity (equivalent to 21.47% pa).
If the notes are not called, investors will be exposed on a one for one basis to any decrease in the value of the front-month corn futures contract beyond an 85% price threshold.
While corn is a popular component in most commodity baskets and diversified commodity indices, it is rare to see a structured note linked solely to this sweet agricultural commodity.
Within the past 13 months, 30 structured products have been marketed that contain corn as an element within a basket of commodities or basket of individual commodities plus commodity indices. This figure does not include those linked only to major commodity indices. The three major commodity indices, the Dow Jones-UBS Commodity Index, the Rogers International Commodity Index and the S&P Goldman Sachs Commodity Index, all contain allocations to corn.
In general, commodity-linked structured notes and certificates of deposit (CDs) have flooded the US structured products market over the last few months. More than $662m in commodity-linked structured products have sold year to date through 8 February 2011, and that number rises daily.
So far this year, 12% of all US structured product sales have been linked to the performance of one or more individual commodities, baskets or commodity indices. At this rate, sales of commodity-linked structured notes and CDs as an asset class are on pace to zoom past 2010's record sales of nearly $4.8bn. Sales of all commodity-linked structured products in 2010 were 53% higher than sales in 2009.
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