A structured product (specifically, a CMS-related financial product) in which the investors receive coupon payments linked to an CMS rate (constant maturity swap rate) or a difference (spread) between two CMS rates.

In a vanilla CMS-linked note, an investor may receive a periodic coupon payment linked to the CMS rate on a long-term swap. The note’s payoff is more complex than the payoff of a vanilla fixed income product. Spread-based CMS-linked notes pay the difference between two CMS rates. Examples include steepeners and non-inversion notes. A steepener allows investors to gain from a steepening CMS curve, i.e., when longer-term CMS rates increase over shorter-term CMS rates.

Non-inversion notes have a coupon rate that remains fixed as long as the CMS rate curve between two maturities does not “invert.” The CMS curve will invert in a range if the CMS rate is lower for the longer-term swap, e.g., if the 5-year CMS rate is less than the 2-year CMS rate. Interest will not accrue on the days when the curve is inverted in the specified range.