Magazine article American Banker

HSBC Securities Offers New Short-Term Bonds

Magazine article American Banker

HSBC Securities Offers New Short-Term Bonds

Article excerpt

A new type of mortgage bond is helping HSBC Securities build its name on Wall Street. The company is offering agency debentures whose principal payments are linked to prepayment rates-the latest twist on the standard security that passes along income from a diversified basket of mortgage loans.

HSBC Securities, a New York unit of HSBC Holdings PLC, which also owns Marine Midland Bank, is among a handful of firms offering the new mortgage products, known as Agency Mortgage-Indexed Principal Redemption Bonds. They are billed as potentially less volatile because of their tie to the relatively consistent prepayment rates of specific security pools, like 8% coupons issued by Freddie Mac in 1995.

Growing demand for the redemption bonds-about $5 billion worth are expected to be issued this year-illustrates that investors can't get enough mortgage securities these days, said Arthur Q. Frank, a research chief at HSBC Securities.

The redemption bonds are especially appealing as alternatives to shorter-term collateralized mortgage obligations and balloon mortgage pass through securities that currently carry high prices, Mr. Frank said.

HSBC Securities has so far traded about $400 million of the redemption bonds, mostly to financial institutions and money managers interested in shorter-term securities, said Richard Rosati, the firm's executive director overseeing mortgage trading.

Mr. Rosati joined HSBC last summer to rev up what was then a modest mortgage business. He is bent on building HSBC as a niche player-using products like the redemption bonds-instead of butting heads with giants like Goldman, Sachs & Co. …

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