The yen EuroMTN market enjoyed another exceptional performance in 2003, hitting record levels of issuance.
With Japanese interest rates still low, yen investors are eager for yield enhancing instruments that do not involve extra credit risk. Japanese investors were the hungriest for yen paper as many buyers elsewhere remained largely underweight.
|Yen issuance in the private EuroMTN* market 2003|
|Period||Volumes ($ bn)||No of tickets|
*non-syndicated deals for less than $250m excluding SPVs, self-led deals and issuers with terms under 365 days
The world’s top credits continued to enjoy heavy demand from Japan. KFW’s head of capital markets Frank Czichowski says: “As with 2002, we faced a constant demand from Japanese investors.”
The World Bank is another big issuer of yen MTNs. Doris Herrera-Pol, its manager of capital markets operations, said in September that in the past 12 months the bank had raised about 20% of its funding in yen, mostly from the private market.
Structured issues dominated the market, with deals often incorporating a variety of currencies, coupons or call features.
The central pillar of the sector is the power reverse dual currency (PRDC) structure, which offered cost effective funding.
“Plain vanilla deals do not offer any arbitrage due to tight swap spreads and the high cost of the basis swap,” Horst Reinhardt, treasurer at Rentenbank, said in October.
In July, Kensey Green, head of fixed income syndicate at Nomura in London, estimated that PRDC issues accounted for roughly 90% of the market.
However, the rise of the yen later in the year, coupled with a steepening yield curve, sucked some of the vigour out of the market. Some of the callable deals were not being called, leading to lower demand for new issues.