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New Currency ETN from Barclays

by: Ray Hendon September 04, 2008 | about stocks: AYT    

Ray Hendon

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Barclays Capital announced today, Sept. 4, a new ETN that bundles eight Asian currencies tied to their GEMS Asian 8 Index.   It trades under the symbol AYT. Similar to their GEMS Index, which I covered in my August 13 article, "Carrying the Dollar Upstream", the new ETN narrows the focus from a global perspective to the Asian emerging markets.

The currencies included are:

  • Indonesian rupiah: current interest rate, 9.25%
  • Indian rupee: current interest rate, 9.0%, expected to rise again soon.
  • Philippine peso: short-term commercial lending rate, 9.0%
  • S. Korean won: August interest rate, 5.25%
  • Thai baht: current interest rate, 3.75%
  • Malaysian ringgit: Overnight rate, 3.5%
  • Taiwan dollar: current interest rate, 3.625%
  • Chinese Yuan:  interest rates not reported.

This new ETN follows the traditional Barclays 30-year maturity and is a senior, unsecured, unsubordinated debt security issued by Barclays Bank PLC linked to the performance of a market index.  Here is a link to their SEC filing.

More interesting to me is the orientation of the new fund to producing interest income. Philippe El-Asmar Head of Solution Sales, Americas at Barclays Capital said in the press release: "As investors look for diversified ways to access emerging market growth, we have seen increasing interest in packaged currency investments, especially those that offer high levels of current income."

To see how many of these currencies fared in August, see my recent article, "Hard Times for Soft Currencies". Inflation is a current problem for all the nations in the index, but the Philippines and Indonesia are having the hardest time with it. Thailand and Malaysia are experiencing serious political turmoil, and this will take a toll on their currencies in the immediate future. The Chinese yuan, in my view, offers the best chance of long term appreciation, but there are little interest earnings there. Barclays probably uses futures contracts to pick up something approximating a short-term yield in China.

Disclosure: none

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This article has 6 comments:

  •  
    Sep 04 07:57 PM
    Interest on Indian rupee for a 1 yr deposit has crossed 10%, but at the same time, the currency fell around 10% in just the last few months.

    I think the market is in an inflection point these days. Could be dangerous to invest in currencies with high interest rates at present. Methinks better to wait and watch.
    Reply
  •  
    Sep 05 01:13 AM
    Thanks for the info Ray. Do these 30 year ETNs have credit ratings as to the possibility of counter-party default?

    I own some CYB but have not yet figured out what money market rate I'm getting on the Yuan? Do you have any idea?
    Reply
  •  
    Sep 05 08:53 AM
    I think that for the yuan you get the difference of the forward contract price and the spot price. As far as I understand, China prohibits Americans from holdingg yuan and from making local deposits with yuan balances. This prohibition forces fund managers to use forward contracts to try and duplicate local rates. The theory is that the difference between forward and spot rates will equal the current interest rate differential between the currencies, but there have been many studies that show that this does not work in practice.

    The bottom line is, I don't know what you are earning, only to say it is the difference between a forward contract price and the spot rate.

    The credit rating of Barclays is AA, I believe. Usually, if they are dealing with another institution on credit swaps, they deal with highly rated firms. I don't know the details of their counter-party contracts.

    Best wishes,

    Ray
    Reply
  •  
    Sep 05 11:08 AM
    Thanks again Ray. Appreciate your help.
    Reply
  •  
    Sep 05 11:46 AM
    FRC in Boston told me that this products are now facing headwinds...
    Reply
  •  
    Sep 05 12:20 PM
    Alpha Seeker: Headwinds is probably an understatement. More like a hurricane. That doesn't stop the sponsors, however. There is such a lag between first filings and finally bringing the product to market, that they often end up at the exact wrong place and the worst possible time. But, this won't deter all investors, as low prices are a good time to buy if you can past the current wind level.

    Ray
    Reply
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