Structured products & theme-based investments

Leonteq Know-How 11Demystifying Reverse Convertibles on BondWhat is a Reverse Convertible on Bond?A Reverse Convertible on Bond is an investment product designed to enhance the yield of a traditional bond in exchange for additional risk associated with selling a put option on the underlying bond.
Our bond universe includes investment-grade sovereign, supranational, and corporate bonds.Below is a visual representation of the building blocks that contribute to the creation of this product: charts_KnowHow_20250121_chart 1

Source: Leonteq Securities AG
Random Data for illustrative purposes only.How does the payoff work?Coupon Mechanism:

The structure provides a fixed coupon paid independently of the performance of the underlying bond.

The coupon pick-up over the bond yield is achieved by monetizing rates volatility through the sale of a put option.

Redemption Mechanism:

At maturity, if the bond price is above the put strike, the investor will receive 100% of the initial investment in cash.

Conversely, if the bond price is below the put strike, the investor will receive delivery of the underlying bond at strike price. Initial investment will therefore be reduced by an amount proportional to the negative performance of the underlying bond below the strike.

Source: Leonteq Securities AG
For illustrative purposes only.What are the product dynamics on the secondary market? charts_KnowHow_20250121_chart 3

Source: Leonteq Securities AG
Random Data for illustrative purposes only.What are the advantages & drawbacks?

Advantages	Drawbacks
A pick-up over bond yield with a short-term investment horizon.	At maturity of the product, the investor may receive a bond at a yield below the prevailing market rate.
Monetize the rich fixed income volatility in the current market environment.	The investor will not benefit from the bond’s duration if rates decrease during the product’s life.
Monetize a range-bound view on rates & credit spreads.	Not suitable for investors with a view that rates will sharply increase or decrease.
A product with flexible parameters such as Maturity or Strike.	Not suitable for investors willing to monetize an increase in rates & credit spread volatility.
A payoff which repays 100% back at maturity of the product or delivers the bond itself (provided no default)	The investor could be exposed to a negative Mark to Market upon the bond delivery.
An underlying bond with Investment Grade risk profile.	The product is not capital protected (i.e., investors may lose part of all the invested capital at maturity.

What are the risk factors?The product exposes the investors to certain risks that shall be carefully assessed before investing:

The product is not capital protected. Investors may lose part or all the invested capital.

If the underlying bond closes below the Strike Level at Maturity, the investor will receive less than 100% of the Denomination.

Before Maturity, the secondary market value of the Certificate is influenced by many factors (amongst others volatility and interest rates) and may be below 100% of the Denomination.

Maximum yield is limited to the coupon payment.

The investor bears the credit risk of the Issuer.

Example of recent Trade Idea published by the Structuring team: Example_LYNQS_650px

Source: Leonteq Securities AGPlease contact us for more information about this investment idea: info@leonteq.com