BofA Sells 2013’s Largest Note Tied to Silver as Price Drops 28%

November 2, 2013

San Francisco (Nov 3)  Bank of America Corp. (BAC:US) sold $15.3 million of one-year notes tied to the spot price of silver, this year’s largest such offering tied to the most volatile metal.

The securities, issued Oct. 29, yield 22 percent at maturity if they aren’t automatically called after six or nine months, which occurs when the commodity’s value rises, according to a prospectus filed with the U.S. Securities and Exchange Commission. The bank estimated their initial value as 97.2 cents on the dollar, according to the prospectus.

One month at-the-money implied volatility for silver futures was 28.81 today, the highest of any metal, according to data compiled by Bloomberg.

Slow industrial growth in China, which is a major buyer of the commodity, led to a decrease in the precious metal’s value, said Michael Gayed, co-portfolio manager of the ATAC Inflation Rotation Fund in New York. The price of silver in London fell 28 percent this year to $21.88 a troy ounce.

Growth in China’s yearly gross domestic product has declined to 7.8 percent in the third quarter from 7.9 percent at the end of 2012, according to data from the National Bureau of Statistics of China.

Investors have bought $20.8 million of notes tied to silver this year, down 64 percent from the same period of 2012, Bloomberg data show.

Susan McCabe, a spokeswoman for Bank of America, didn’t return an e-mail seeking comment on the notes.

Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts with values derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

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