Structured products specialist Leonteq yesterday introduced the first ETN to offer access to the European Short-Term Overnight Rate (ESTRON) – the interest rate for overnight loans in euros.
The Leonteq EUR Overnight Return Index ETP is listed on Deutsche Börse and Börse Frankfurt with a total expense ratio (TER) of 0.10%.
The product tracks its own index, the Leonteq EUR Overnight Return Index, and “gives investors exposure to eurozone short-term rates – and contrary to bank deposits – in a fully-collateralised manner,” according to a spokesperson for the firm.
“This is part of Leonteq’s strategy to diversify its offering across asset classes, product types, and regions to serve a growing global client franchise.”
A spokesperson for Deutsche Börse said: “We look forward to welcoming Leonteq as a new issuer on Xetra and Borse Frankfurt.”
Short-term rate products have enjoyed stellar flows this year on the back of the historic rate-hiking cycle, but yields are now heading in the wrong direction.
Leonteq’s launch coincided with the European Central Bank’s (ECB) decision yesterday to cut its benchmark Deposit rate by a widely expected 25 basis points to 3.25%.
It has chosen to speed up from a quarterly pace “due to slowing growth, weaker employment and inflation undershooting its projections,” said Ann-Katrin Petersen, Chief Investment Strategist for Germany, Austria, Switzerland and Eastern Europe at the BlackRock Investment Institute.
As to whether it will continue at this clip going forward, “the jury is still out.”
The new ETP follows $8.6bn inflows into euro overnight rate ETFs so far in 2024, led by the $11.3bn Xtrackers EUR Overnight Rate Swap UCITS ETF (XEON).
While retail investors in Germany increasingly turn to such products as alternatives to the low interest rates offered by deposit accounts, XEON has also benefited from structural changes within ETF distribution, with the strategy being used as a ‘cash-like’ offering for retail investment platforms.
In fact, more than half of the ETF’s Q1 flow was driven by digital retail platforms.
