What are Steepener Notes?

A steepener note (or steepener) is a complicated financial instrument that allows investors to speculate on the shape of the interest rate curve and profit if it steepens rather than remaining flat.

Steepeners involve considerable risk and are only appropriate for investors seeking such risk. Some investors have suffered significant losses with steepeners sold by financial advisors. Steepener notes are risky and complex, but can pay financial advisors large commissions.

Silver Law Group is a nationally-recognized securities and investment fraud law firm representing investors. If you have losses with steepener notes or other securities, contact Silver Law Group for a no-cost consultation at (800) 975-4345 or ssilver@silverlaw.com .

A steepener note is a type of structured investment product (a/k/a structured note), which according to an investor bulletin from the SEC, “are securities issued by financial institutions whose returns are based on, among other things, equity indexes, a single equity security, a basket of equity securities, interest rates, commodities, and/or foreign currencies.”

Returns for steepeners are based on the difference in interest rates over time. A steepener functions as an interest rate swap, which is a derivative contract between two parties wherein one agrees to pay the other a fixed interest rate in exchange for receiving a floating interest rate that is based on the difference between the long and short term rates.

When the difference between the long- and short-term rate is large, there is a steep curve and higher return earned by the investor.

With historically-low interest rates and the U.S. economy booming in recent years, a steepener investment was a bet that inflation and growth would continue, causing interest rates to rise, or the curve to “steepen”.

A major drawback to steepeners is that they are complex and difficult to understand even for sophisticated investors. Steepeners sometimes had “teaser” interest rates that only lasted a short time, and are also often illiquid, callable, and have long maturity dates. Selling before the steepener matures could mean taking a large loss. However, these products can be very profitable for Wall Street and the brokers who sell them. Frequently, the selling broker-dealers don’t even fully understand the complexities of steepeners.

Structured investment products like steepener notes have been presented to investors as a way to safely earn higher returns. It is alleged that many brokerage firms recommended steepeners to clients when they were unsuitable for their investing profile.

After purchase, some investors have suffered significant losses and learned that steepeners involved more risk than they understood. Other investors were overconcentrated in the steepener notes or brokers sold them to get a commission.

Investors who purchased steepeners from FINRA-registered brokerage firms may be eligible to recover their losses through FINRA arbitration.

Silver Law Group is a nationally-recognized investment fraud and securities arbitration law firm with extensive experience recovering losses for investors through FINRA arbitration.

Scott Silver, Silver Law Group’s managing partner, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice and represents investors nationwide and internationally in securities investment fraud cases. Most cases are taken on a contingency fee basis, meaning nothing is owed unless money is recovered for you.

If you have investment losses with steepener notes, contact Scott Silver for a no-cost consultation to discuss your options at ssilver@silverlaw.com or toll free at (800) 975-4345.