RMA recommends caution and prior planning to municipalities when investing in structured notes.
RMA has been made aware of the use of structured notes as an investment tool by a financial institution. While structured notes have been available for some time, RMA has learned that in some cases they are being presented to municipalities without a clear explanation of their risks and benefits. A structured note is a hybrid debt security that typically combines a bond with derivative features to create customized risk-return profiles linked to an underlying asset, index, or interest rate.
Structured notes have become increasingly popular as banks have begun to aggressively market the product to municipal investors.
RMA has released a summary report detailing what a structured note is, the risks and benefits of investment in the product, and summary recommendations.
Ian Profiri
Policy & Research Analyst
825.319.2352
ian@rmalberta.com
Warren Noga
Manager of Policy and Research
825.319.2285
warren@rmalberta.com