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The Surprising Growth of US structured products in 2023

Despite facing headwinds, primarily related to the ripple effects from Fed rate hikes and high global inflation, the US economy has showcased remarkable resilience in 2023. In March, the sales forecast was revised to $107 billion (2023: Recovering it’s Mojo with some headwinds), with the economy showing signs of recovery amid the challenges. However, recent developments have exceeded expectations, and the forecast has been further updated to $115 billion in sales by the end of the year, reflecting an impressive 5.34% growth and setting a new all-time record.

The surge in sales can be attributed to several factors, one of which is the significant increase in products expiring. Notably, May and June were particularly strong months, contributing to the uptick in sales. While there has been a slight slowdown in July, mainly due to reduced autocall observations, the overall monthly roll-over speed has risen from the previous year’s average of 2.87% (including Barclays rescission) to 3.21%. Although the difference may appear minor, it translates into an additional 4% of total AUM, providing extra opportunities for roll-over.

Examining the year-to-date figures, the sales volume has grown by an impressive 8% YoY. As we progress through July and August, which are relatively quieter months, the anticipated increase in autocalls expiring in September could further bolster sales. An estimated $15 billion is expected to expire earlier, with an additional $24 billion of products reaching their maturity date. Given that most of these products are in the money, there is an opportunity for an extra $8 billion in coupons and positive performance to roll-over.

Moreover, the industry is poised to attract an extra $3.3 billion in new money. While this amount is lower than the first half of the year, it is still significant, considering the prevailing low inflation and high fixed rates, coupled with lower market volatility. As we move forward, the combination of expiring products, roll-over opportunities, and new investments is expected to contribute to the sustained growth and resilience of the US economy throughout 2023.

While challenges may persist, the data and trends suggest that the US economy is well-positioned to weather uncertainties and capitalize on opportunities. The robust performance in 2023 serves as a positive sign for investors and businesses alike, instilling confidence in the nation’s economic trajectory.

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