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The wheels are turning in the Russian bond markets. The economy is buoyant, the rating agencies are busy awarding upgrades and Gazprombank, the Russian commercial bank to the gas industry, has signed the first Russian Euro-MTN programme since December 2000. But there is still work to be done. "The Russian sector is still only a very tiny proportion of the MTN market and is unlikely to become significant for a long while," says one MTN head of desk. But the potential is there. After a long period of caution, investors are now turning back to the Russian sector, and Gazprombank had to up the size of its debut euro150 million ($132.51 million) two-year issue to euro200 million to meet increased investor demand. "Investors are more confident about buying Russian paper and are less worried about the risk of default," says Eric Tanguy, associate director, corporate ratings at Standard & Poor's. "All of the big Russian oil and gas companies are looking at the bond markets. This sector has the best ratings of the Russian borrowers, and is likely to be the most involved in the debt markets in 2002." But Euro-MTN activity will be limited. Gazprombank's euro300 million facility, signed through its financial subsidiary, GazInvest, is only the second Russian signing since the 1998 defaults, and Moscow Narodny Finance, the last issuer to sign before GazInvest, has issued just once off its $250 million Euro-MTN programme. Peter Schikaneder, who works on Russian origination at Deutsche Bank, which arranged GazInvest's programme, believes that more Russian issuers will sign Euro-MTN programmes this year but that the majority of Russian borrowers will come to the market with stand-alone deals. He says: "Russian companies will come to the debt markets but they will do so on an annual or biannual basis via stand-alone bonds. Funding will come from single issues and not from structured private placements. This will take time to develop. New MTN signings will crop up here and there but they will be selective." Several Russian companies are lining up international bonds, including Vimpelcom, the country's second-largest mobile telephone firm, which will raise $250 million through a short-dated bond via JPMorgan and UBS Warburg, and Magnitogorsk Metallurgical Kombinat, Russia's largest steel manufacturer, which will launch a euro150 million three-year deal via Deutsche Bank. But the biggest boost to the Russian sector is the announcement last week that Russia will return to the debt markets for the first time since its 1998 crisis and issue up to $2 billion in Eurobonds. The decision follows Russia's recent upgrades from Fitch, Moody's and Standard & Poor's, which all felt Russia had made enormous gains in restructuring its debt. Russia's real GDP grew from nearly -5% in 1998 to just over 5% in 2001, and was a contributing factor to the increase of its B long-term rating to B+ by Fitch at the end of last year. Ed Parker, director, sovereign group at Fitch, explains Russia's turnaround. He says: "Over the past couple of years Russia has turned in an exceptional macroeconomic performance - one of the best in the world. The political scene is now much more stable with President Putin driving reforms. There have been major tax reforms, business deregulation and anti money-laundering reforms. The Russian government has worked hard to build a market economy in Russia." Schikaneder, at Deutsche Bank, agrees, and is confident that the government and company reforms have gone a long way to bolster the confidence of international investors. He says: "Russian corporates are going through a significant transformation process, which includes better liability management, greater transparency and improved corporate governance, and although defaults are not an impossibility it is not something that we consider a problem right now - nor is it something that is exclusive to the Russian corporate market."

Denmark Sole mandated arranger LB Kiel is preparing to bring a Eu50m five year term credit to the market on behalf of Forstaedernes Bank.

Sampo Bank has axed Daiwa, JPMorgan, Leonia Corporate Bank and Morgan Stanley as dealers from its euro5 billion ($4.42 billion) Euro-MTN facility. ABN Amro, Barclays Capital, BNP Paribas, HSBC, National Australia Bank and the issuer have been added.

Bundesimmobiliengesellschaft, the Austrian construction company, has put its name to a euro1 billion ($883.40 million) Euro-CP programme. Deutsche Bank was the arranger and also the IPA. There are no details as yet on any debut trade. The issuer becomes the seventh Austrian borrower to sign up to the Euro-CP market. The largest programme is Oesterreichische Kontrollbank's euro10 billion shelf that was signed in June 2000. It has $1.93 billion outstanding off 29 trades. The dealer panel is the arranger, Bank Austria, Citibank, Credit Suisse First Boston, Raiffeisenlandesbank Oberosterreich and Raiffeisen Zentralbank Osterreich.

The debate over French banks' responsibilities regarding cheques from international correspondent banks stepped up a gear after SG announced that it would cease processing cheques endorsed by its Israeli correspondent banks. The move follows announcements earlier this week that three senior SG officials, including Daniel Bouton, the bank's chairman and chief executive officer, had been placed under investigation in an inquiry into allegedly fraudulent cheque transactions between Franceand Israel.

The debate over French banks' responsibilities regarding cheques from international correspondent banks stepped up a gear after SG announced that it would cease processing cheques endorsed by its Israeli correspondent banks. The move follows announcements earlier this week that three senior SG officials, including Daniel Bouton, the bank's chairman and chief executive officer, had been placed under investigation in an inquiry into allegedly fraudulent cheque transactions between Franceand Israel.

Sidanco, the Russian oil producer, is preparing to return to the syndicated loan market for the first time since June 1998. The company, which refines and sells oil and oil related products, has awarded a mandate to SG and Natexis to arrange a $100m 18 month pre-export finance facility. BP is oil offtaker. Details remain scarce. However, bankers have suggested that the loan will be launched towards the end of the month and that the margin will be in the region of 380bp over Libor.

Transactions increased: * European Investment Bank

* Bank of Scotland Treasury Services plc Guarantor: Bank of Scotland Rating: Aa2/AA Amount: £150m Maturity: February 6, 2004 Issue/re-offer price: 99.941 Coupon: 5.125% Spread at re-offer: 30bp over the 6.75% November 2004 Gilt Launched: Wednesday January 16 Sole mgr: Morgan Stanley * BNP Paribas SA Guarantor: Banque Nationale de Paris Rating: A1/A+/AA- Amount: £350m lower tier two capital Maturity: January 24, 2022 Issue/re-offer price: 99.875 Coupon: 5.75% Spread at re-offer: 95bp over the 8% June 2021 Gilt Launched: Wednesday January 16 Lead mgr: BNP Paribas * Landesbank Hessen-Thüringen Girozentrale Rating: Aaa/AAA/AAA Amount: £150m Maturity: March 12, 2012 Issue price: 101.181 Fixed re-offer price: 99.506 Coupon: 5.375% Spread at re-offer: 53bp over the 5% March 2012 Gilt Launched: Tuesday January 15 Sole mgr: RBC CM Bookrunner's comment: We brought Helaba in sterling at the end of last year on a shorter maturity, which went extremely well. As we were looking for a well priced triple-A issuer to hit the 10 year end of the market, Helaba was the natural choice. It has a sterling requirement, thereby avoiding the penalty of a basis swap, which enables more attractive pricing. Despite being a Landesbank, Helaba is a well liked credit, both with UK institutions and continental investors, so it is a name that works very well for us. Because of RBC's structure and placement specialisation, we see offers as soon as continental investors start buying sterling. This trend began at the end of last year, very much driven by the massive redemptions in December, particularly on December 7. Redemption flows from continental funds and smaller institutions were very good and that is why we brought the deal for Helaba last year. It was very successful, we increased it and that is what encouraged us to bring the new bond. It is possible that the continuing European demand is driven by the tail end of those redemptions, but there is also a new perception in the UK and Europe that, even if sterling joins the euro, it does not necessarily mean that it will need to fall very far in value before it does so. This view is driven by the appreciation that the services sector drives the UK economy and that sector is doing perfectly well with sterling at the current level. The industry that suffers dramatically from the level of sterling and complains about overvaluation is manufacturing, which actually is only a small part of the UK economy. As the UK economy is seen as being in marginally better health than the collection of economies that form the euro, the thinking is that there is no real reason for sterling to be under pressure. Also, the consensus now seems to be that, if sterling does join the euro, it won't be for several years. All this has resulted in some continental accounts weighting their sterling investments in their portfolios at a slightly higher level, creating a flow of demand into the sterling bond market. The reaction therefore to a value trade for Helaba was very positive. The fact that it came at 10 years, which is close to the hump of the curve, is another plus, and we have been selling bonds very steadily. * Marks & Spencer plc Rating: A3/A/A Amount: £50m Maturity: January 30, 2006 Issue price: undisclosed Coupon: three month Libor plus 55bp Launched: Monday January 14 Sole mgr: HSBC Transactions increased: * BAA plc Guarantor: Gatwick Airport Ltd, Heathrow Airport Ltd, Stansted Airport Ltd Rating: A1/AA- Amount: £200m (fungible with £700m issue launched 08/11/01) Maturity: December 10, 2031 Issue/re-offer price: 101.079 Coupon: 5.75% Spread at re-offer: 115bp over the 4.25% June 2032 Gilt Launched: Wednesday January 16 Sole mgr: RBS * Barclays Bank plc Rating: Aa1/AA/AA+ Amount: £150m (fungible with two issues totalling £400m first launched 14/08/01) Maturity: September 6, 2004 Issue price: 99.997 Coupon: three month Libor flat Launched: Wednesday January 16 Lead mgr: Barclays Capital Eurosterling secondary market Compiled by Stephanie Weedon, HSBC Bank plc, London Tel: +44 20 7336 3525 The Eurosterling market continued the strong pace of last week, with £1.55bn of new issuance and very brisk secondary trading. Spreads stalled slightly at the end of the week as secondary trading suffered a little on the back of investors focusing primarily on the new issue market. France Télécom 7.25% 2020s were 2bp wider on the week at 219bp mid. The financial sector and retailers did extremely well this week, tightening about 10bp across the board. Halifax 7.5% 2016s firmed 10bp to 106bp mid and Prudential 5.875% 2029s are now trading at Gilts plus 70bp. Sainsbury 6.5% 201s (A2/A) and Marks & Spencer 6.375% 2011s (A3/A) continued to tighten, to 86bp and 112bp mid, respectively. Tyco released solid second quarter results with sales and net income rising 25.4% and 32%, respectively. The stock price, however, continued to decline on risks of asbestos litigation and, furthermore, the $5.9bn of zero coupon convertibles that could be put back to the company in 2003. Tyco 6.5% 2011s and 6.5% 2031s (Baa1/A) underperformed the rest of the market, widening between 20bp and 25bp to 163bp and 183bp mid, respectively. The auto sector also suffered on the downgrade of Ford's senior debt rating from A3 to Baa1 by Moody's. Although this was priced into the market already to a certain extent, the bonds still pushed wider initially. The spreads then settled back to closing unchanged on the week, excluding Ford 7% 2005s, which widened 10bp to 190bp mid.

Xerox Corporation overcame liquidity concerns to sell just under $800m worth of high yield debt via Deutsche Bank and JP Morgan this week. Xerox was able to increase both elements of its euro and dollar fundraising exercise, upping the euro portion by Eu75m to Eu225m and the dollar portion by $250m to $600m. Concerns over the company's five straight quarterly losses were nevertheless reflected in the terms of the transaction, with the seven year euro tranche pricing closer to single-B levels rather than the company's current Ba1/BB ratings. The bonds featured a coupon of 9.75% and were priced on Monday at 95.167 giving a yield to maturity of 10.77% on a semi-annual basis. Since being downgraded to junk status in December 2000 however, Xerox has been one of the stars of the high yield universe. "Xerox was one of the best performing bonds of last year," said Barrie Whitman, high yield fund manager at Threadneedle Investments. "It came into the European high yield index at about 50 and ended the year up in the 80s, giving a return of 70%-80%."

* DePfa Deutsche Pfandbriefbank AG Rating: Aa3/AA- (Moody's/Fitch)

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