A type of structured financial instruments that is designed to provide a higher expected return (yield enhancement), commensurate to the level of risk involved. An example of a yield enhancement instrument is a credit-linked note (CLN) which pays a fixed coupon while its redemption value is contingent on a certain credit event, such as a rating downgrade or the default of a certain reference asset, etc. This instrument allows the issuer to transfer a specific degree of the credit risk involved to investors, against the possibility of yield enhancement. If the event does not occur, the investor will receive the full par value of the note. But if the event occurs, the par value of the note will be reduced by the nominal value of the underlying reference asset.
March 11, 2025
