(888) 637-5510

Written by 5:13 pm Blog

Rate-Linked Notes Investment Losses

Michael S. Lavolpe

Suffered losses investing in Rate-Linked Notes?

Are you concerned about investment losses in Rate-Linked Notes? If so, The White Law Group may be able to help you recover your losses by filing a FINRA Arbitration Claim against the broker that sold you the investment.

What are Rate-Linked Notes?

Rate- Linked Notes are medium-term notes, typically structured as callables, that offer the potential for an above-market rate of interest. This variable interest rate is based upon a formula that is tied to the performance of one or more interest rate components. The most common interest rate structures are LIBOR Range Accruals, CMS Steepeners, Non-Inversion Notes, and Inflation-Linked Notes.

Type of Rate-Linked Notes offerings:

Libor Range Notes

Medium term notes or CDs offering an above market coupon as long as the London Interbank Offered Rate (LIBOR) trades within a certain range (ex. 7% coupon as long as 6mo LIBOR is between 0-6.50%). The interest accrues at the stated interest rate for every day that LIBOR satisfies the range. For each day that LIBOR trades outside the range, interest will accrue at 0%.

Non-Inversion Notes

Medium-term notes or CDs offering an above market coupon as long as the spread between two stated maturities on the Constant Maturity Swap (“CMS”) curve do not invert. The interest accrues at the stated interest rate for every day that the curve is not inverted (ex. 10% as long as 30yrCMS – 10yrCMS is greater than 0%). For each day the curve is inverted interest will accrue at 0%.

Steepner Notes

Medium-term notes or CDs offering an above market coupon for one to two years, followed by a leveraged variable interest rate thereafter based on the difference between two Constant Maturity Swap rates (“CMS”) (ex. 10% for 1 year, thereafter coupon equals 4 x (30yrCMS – 2yrCMS) ). The variable rate coupon pays a higher rate of interest when the treasury yield curve is “steep” (when long treasury yields are higher than short treasury yields). The leveraged coupon is typically subject to a cap (maximum interest rate).

Inflation-Linked Notes

Medium-term notes or CDs offering a variable rate of interest indexed to inflation. While there are many different types of structures, CPI-linked floating rate notes commonly pay interest determined by the annual percentage difference of the Consumer Price Index (“CPI”) as measured by the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers (“CPURNSA”) published on a monthly basis by the Bureau of Labor Statistics of the U.S. Department of Labor. CPI-linked notes and CDs are tools investors can use in an effort to keep in step with inflation.

Risks of Investing in Rate-Linked Notes


  • Principal Risk:These notes offer 100% principal protection, if held to maturity and the issuer is able to fulfill its obligation. But if they are sold prior to maturity, the investor may receive less than their initial investment.
  • Variable Return:Rate-Linked Notes could pay 0% interest; the variable interest rate the investor receives may be lower than the yield on other debt securities.
  • Liquidity:While there may be a secondary market, issuers are under no obligation to maintain one. Selling prior to maturity carries with it the inherent risk factors that can affect marketability, such as volatility of the underlying assets, interest rate swings, and developments affecting the underlying issuer.
  • Reinvestment Risk:An early call prior to maturity may put the investor at risk of reinvesting in a lower interest rate environment.
  • Creditworthiness of the Issuer:The extent to which any principal is protected is subject to the quality of the issuer’s credit. Structured Notes are subject to the risk that the issuer might not be able to meet scheduled interest or principal payments. The investor should investigate the creditworthiness of the issuer to evaluate its ability to meet the terms of interest and principal payment.

Rate-Linked notes are extremely complex and risky.  They are only suitable for wealthy, sophisticated retail investors or institutional investors.

Brokerage firms that sell such products are required to perform adequate due diligence on the investments to ensure a reasonable likelihood of success, and to evaluate whether the investments are suitable in light of the client’s age, net worth, investment experience, and investment objectives.  Firms that fail to perform adequate due diligence, or that make unsuitable recommendations, can be held responsible for losses in a FINRA arbitration claim.

If you suffered losses investing in Rate-Linked Notes and would like a free consultation with a securities attorney, please call The White Law Group at 888-637-5510.

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.

For more information on The White Law Group, visit https://whitesecuritieslaw.com.


Tags: , , , , , , , , , , , , , , , Last modified: March 15, 2017