Credit products – alternatives for the private investor

Statistics released by the German Derivatives Association show that the market volume of credit-linked notes (CLNs) increased by 12% last year, and reached EUR 4.5 billion in June 2011, with most of the CLNs referencing German underlyings. CLNs often show higher returns than the comparable corporate bonds. The return of a recently issued four-year CLN referencing Volkswagen AG (VW) stands at 3.75% per annum, whereas the comparable VW bond, currently offered at 116.90%, yields at 2.70% per annum only. New issues of corporate bonds are sometimes oversubscribed and are therefore difficult for private investors to get their hands on. CLNs score points through the fact that they are geared to investors’ needs, unlike corporate bonds, which are based on the financing requirements of the issuer.