VelocityShares Adds Libor ETNs To Lineup

August 16, 2017

Today Janus Henderson is rolling out a pair of ETNs carrying the VelocityShares brand that offer long and short exposure to the composite forward Libor rate. The VelocityShares Long Libor ETNs (ULBR) and the VelocityShares Short Libor ETNs (DLBR) are both listed on the NYSE Arca and come with an expense ratio of 1.50%.

Although marketed under the VelocityShares brand, the ETNs are issued as senior unsecured debt obligations by Citigroup Global Markets Holdings.

“In today’s unique interest rate environment, many investors are looking for tools that can be used to manage interest rate risks, and we are very pleased to provide the first ETNs allowing them to do so with daily exposure to the composite forward Libor rate,” said Nick Cherney, Janus Henderson’s head of exchange-traded products.

Exposure Not So Straightforward

The exposure isn’t quite as simple as just reflecting the change in the Libor rate.

According to the filed documents, ULBR tracks an index that seeks to reflect the performance of the daily composite forward Libor rate, but “[it] does so by tracking the return on a hypothetical short position in Eurodollar futures contracts, where that position is recalibrated daily to result in a return over the next Index Business Day that approximates the percentage change in the composite forward Libor rate over that next day, subject to the long Libor floor. If the composite forward Libor rate is less than the long Libor floor of 1.00% on any Index Business Day, the Long Libor Index will aim to approximate only a portion of (referred to as the ‘targeted participation’ in) the percentage change in the composite forward Libor rate over the next day,” the pricing supplement for the ETNs said.

Meanwhile, DLBR’s index tracks, according to the supplement, “the return on a hypothetical long position in Eurodollar futures contracts, where that position is recalibrated daily to result in a return over the next Index Business Day that approximates the inverse of the percentage change in the composite forward Libor rate over that next day, subject to the short Libor floor. If the composite forward Libor rate is less than the short Libor floor of 2.50% on any Index Business Day, the Short Libor Index will aim to approximate only a portion of (referred to as the ‘targeted participation’ in) the inverse of the percentage change in the composite forward Libor rate over the next day.”

Libor, or the London interbank offered rate, is basically the average rate at which London’s banks are charged when they borrow from other banks. It’s a bit like the federal funds rate in the U.S.

 

 

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