Emerging-Market Credit-Linked Notes Boost Yields for Investors BusinessWeek

06.09.10

Sept. 6 (Bloomberg) -- Investors are seeking higher returns from credit-linked notes tied to the debt of some of the world’s lowest-rated countries.

Banks issued $1.07 billion of notes linked to the bonds of countries including Ghana, Venezuela, Indonesia and Turkey in the last month. The notes pay coupons of as much as 19 percent, according to data compiled by Bloomberg.

Demand for emerging-market credit-linked notes has increased as the International Monetary Fund estimates developing-nation economies will grow 6.8 percent this year, compared with 2.6 percent for advanced countries. The notes are used by investors who aren’t able to trade the underlying securities for reasons including regulation and cost.

“Credit-linked notes are probably the most efficient way of playing the debt of certain emerging markets,” said Jim Craige, who helps manage $12 billion of emerging-market assets at Stone Harbor Investment Partners in New York. “Most CLNs related to local market trades are to get around tax issues, or where you can’t set up a local custody account. You’re basically using the balance sheet of a bank for a small fee.”

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