LONDON -- Many European derivatives dealers putting together structured notes for investors say their clients are focusing on simpler structures in the capital markets after this year' s market turmoil.
The collapse in the bond markets, and the roller-coaster ride many investors were put through during bond market volatility in the early patt of this year, has made them less willing to enter complex structured positions they don't understand, the dealers note. Structured notes are over-the-counter transactions that package securities with derivatives and offer highly leveraged positions that can maximize profits ff markets move in anticipated directions.
While many traders say investors are more willing to hedge positions using individual derivatives such as futures and options, users are questioning their own understanding of structured products.
These instruments are, by their nature, frequently multidimensional, producing high returns ff a range of market criteria are met.
Structured notes are also used to create wide-ranging hedges, which in one transaction can offset exposure to a range of market risks such as bond prices.
But here too, investors are reported to be treading carefully, the traders noted.