I’ve got an email from Swissqoute about this product:
4.4% interest per annum and they say “risk free”.
I don’t understand it so I won’t buy it, but I’d like to understand how this could work. Issue price is 100% so they don’t have a markup selling it. What do they buy to offer 4.4% fix (which btw it’s not written anywhere in the termsheet)? I might have missed some part of it. I’ve read it diagonally.
Any expert can summarize how it works?
Looks like a repackaged bond in USD, 2 years to maturity, the yield is slightly higher than treasuries (I think), but your counterparty is Leonteq and they can decide in 1 year if they want to continue or repay earlier. I don’t know who is actually borrowing money, maybe it is a secret refinancing operation by Credit Suisse Obviously if in one year the USD rates will be lower and in general credit conditions will be better than now, the actual issuer will cancel and repay this certificate and borrow new money at better conditions.
2Y treasuries have a 4.36% yield, according to Trading Economics. I.e., virtually identical yield.
It’s a money market certificate from Swissquote, so you finance them (with the very low but non-zero risk that they go bankrupt) and will get a variable USD rate (specifically the one year USD Secured Overnight Financing Rate) that is currently 4.4%. I think that they call the underlaying simply USD fixed rate is quite misleading.
At least that is how I understand the offering…
What’s stopping people to buy them directly then?