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Japanese investor demand was next to nothing following Tuesday's terrorist attack on the World Trade Centre in New York City. The Tokyo stock market fell to its lowest level in 18 years and accentuated the problems of an economy already carrying the burden of a 5% unemployment rate - its highest level since 1953. But Japanese investors expected a worsening economy and have been looking abroad for better returns for some time - good news for the MTN market which has seen yen issuance from non-Japanese borrowers flourish. Nobuhiro Koga is head of fixed income at Quantis Asset Management. He says: "The Japanese economy is getting worse but this has made it a good time for foreign names to fill their books. If our customers instruct us to buy foreign names then we have no problems in doing so. And at the moment more customers are asking us to do this." But Koga is only allowed to buy MTNs from the governmental sector and is still concerned about the high-profile corporate downgrades of last year. He says: "The returns are clearly greater with corporates but I am restricted to buying only government bonds, which I take in the five- to 10-year maturity. I am not allowed to invest in corporates. There is no point in us trying to invest in an individual company's risk." The head of global fixed income at one of Japan's largest insurance companies agrees. But he believes that it is the complexity of a corporate's credit that makes government bonds more appealing. He says: "Investing in yen-denominated foreign paper is becoming more popular but this increase has not been dramatic. We only buy government-related entities that come out of Europe such as the utilities. We are not interested in corporates. Although corporate spreads are better we do not have enough staff in the credit analysis department to confidently buy such paper. Doing credit analysis for corporates is much more difficult than for sovereign entities." MTN issuance in yen from non-Japanese central governments, local authorities and public utilities has surged. So far this quarter, issuance from this sector increased by 300% on the previous quarter with outstandings totalling $5.18 billion, according to MTNWare. And these totals are 550% greater than the same period last year. Hideto Shiba, senior fund manager of foreign bonds at Mitsui Life Global Asset Management (Mitsui), is not surprised by these figures. He says: "Because of the current low interest-rate environment Japanese investors are keen to expand their assets abroad. And consequently we are buying a lot of foreign government bonds and Pfandbrief." But Shiba favours the US market. He says: "At the moment we hold most of our foreign paper in US bonds simply because of the wider spreads that we can get there. In terms of what corporate paper we buy, we look at single-A rated entities and above and this will only be held in the short-term. The spreads are safer and so we don't buy anything longer than three to four years." Instrumental to the movement of funds abroad is the redemption of savings from Japanese postal accounts. A high proportion of savings in Japan are held in the country's postal savings system and a large amount of this money was redeemed last year with more to come by the end of 2001. Although a great deal of this cash will be reinvested in the system, Shiba, at Mitsui, believes that there could be substantial outflows into non-Japanese sovereign and corporate paper. He says: "The Japanese are still very big savers and most of this does go into postal savings, but many of these deposits date back around 10 years when the yields domestically were much higher. Therefore many people are transferring their money to foreign instruments to match their existing returns. And I think this will continue. It is difficult to see a recovery in the economy in the near future and it is clear that this will stimulate demand for foreign investments." The head of global fixed income at one of Japan's largest insurance companies is not so sure. He says: "To some extent there has been a movement away from the postal accounts to foreign bonds via the mutual funds but Japanese people are extremely cautious investors and this movement has not been as big as expected. Interest rates are low and the stock market in Japan is not performing. The majority of people want safety and have kept their savings in the postal accounts." The fall in domestic Japanese issuance has furthered the flight of funds abroad. Issuance from Japanese borrowers this year totals $4 billion and is 11% lower than the same period last year. Industrial production in Japan fell by 8.5% on the year to July 2001 and many Japanese companies are keen to reduce their existing levels of debt. One trader, at a major Japanese house, believes that weakened demand for funding from Japanese companies is heightened by the fact that companies are able to get cheaper funding from the Japanese banks. He says: "It is far easier and cheaper for companies to go to their banks first. The banks that have survived have been recapitalized and are very keen to extend loans to credit-worthy borrowers that can put funding to productive use. So why should they go anywhere else?"

John Deere has dropped ABN Amro and SG as dealers off its $1 billion Euro-MTN programme. Mizuho, RBC Dominion Securities and TD Securities have been added to the dealer panel. The programme was originally signed in July last year and was arranged by Deutsche Bank. It has $253.76 million outstanding off three trades.

Turkey The $250m one year term loan for Akbank is due to sign next Friday. Arrangers say that because of the atmosphere of caution, it may be more appropriate to have a signing by power of attorney rather than gathering the syndicate of banks for a signing ceremony.

* Karl Dannenbaum, a member of Lehman Brothers' executive committee for investment banking in Europe, has been named CEO of Lehman Brothers in Germany. The role reflects the firm's recent focus on its German operations, having set up an office in Munich in June. The firm has had a presence in Frankfurt since 1987, but until the creation of Dannenbaum's new role responsibility for the individual German business units was handled by London management.

Tuesday's terrorist attack on New York City has hit volumes in the MTN and CP market. Trading volumes are down dramatically and investor inquiry has been almost non-existent. Forty-six trades were closed on Wednesday according to MTNWare, and the number for Thursday came to 47. This compares to volumes between 67 and 100 on the days before the attack. But dealers are optimistic that trading will pick up as the new week begins and business will regain some kind of normality. One dealer, at a European house, says: "The markets will have more clarity on Monday. People will start trying to take an interest in the markets again, but investors will still be worried about exposures and spreads." Sir Eddie George, governor of the Bank of England, told the BBC in an interview on Wednesday, September 12, that the settlement systems are working much better than could have been expected. He said: "My biggest concern yesterday was that the system of payments, settlements and arrangement would be seriously interrupted. These systems are working pretty much as normal." He added: "Some markets have been thinner than you would have expected, for example the foreign exchange market." This has had a knock-on effect in the MTN market, as one dealer explains: "A lot of markets are not open, so people do not know the right levels to post." But the secondary market was quicker to recover than new issues. One dealer comments: "The secondary market is already picking up, as are the euro and the swaps markets." And another trader predicts that trading in secondary notes will see even more action on Monday. He says: "Secondary trading will be very fierce with people trying to get out of one sector into another." The Euro-CP market saw volumes drop to less than a third of the usual number of trades, according to CPWare. Fifty-one trades were done on the day following Tuesday's attack, compared to 175 deals that would have been closed before news of the attack broke on Tuesday. And although business in the CP market is continuing at a much lower volume, it is mainly confined to one-day maturities. Philip Howes, head of Euro-CP trading at Deutsche Bank, says: "There is activity in the US, but most is on an overnight basis. A fraction of the trades have been done in US CP and investors are mindful of how liquidity could deteriorate. That will be the situation for the coming days." Issuers with both US CP and a Euro-CP programmes have felt less of an impact on their short term funding, and have found refuge in the Euromarket. And Howes, at Deutsche Bank, says: "Asset-backed issuers have been active today. They have been paying between five and 10 basis points above their normal levels in order to see them through the market. And dealers are showing a glimmer of optimism for the market. Howes, at Deutsche Bank, says: "Today (Thursday) is almost a normal market in Europe. The infrastructure for the US CP market is not in place, but we hope it will be back early next week."

Itay Livni walked to work on Tuesday from his East Village apartment, just like he always does. The stroll through Chinatown, watching the produce trucks unload their goods, gives him a chance to clear his head, and also to experience a bit of the real world before entering a land of numbers and probabilities. "Once you enter the building, you don't see anything," he says. Well, not on a normal day, anyway. Livni, an options trader on the American Stock Exchange, works for Tahoe Trading, a market maker based on Rector Street, a couple of blocks south of the World Trade Center. The building, an old and ornate stone skyscraper, also houses the thestreet.com.

Just less than 13% of the market was traded in other currencies. Seven were in Hong Kong dollar. Spintab closed a HK$80 million ($10.26 million) 23-month note, managed by HSBC. The trade pays a fixed coupon of 4.165% and interest is paid quarterly. Other names in Hong Kong dollar were Westland/Utrecht Hypotheekbank with a HK$100 million 15-month note and Credit Lyonnais Finance with a six-week HK$15 million trade. Singapore dollar saw demand for one-month trades from Development Bank of Singapore and Barclays Bank. And Deutsche Bank led a Swiss franc trade for Vorarlberger Landes- und Hypothekenbank. The Sfr200 million ($119.96 million) note was non-syndicated although the details were made public and it pays interest at libor flat. Volvo Treasury closed a Czech koruna note for Kr500 million ($13.27 million). The note matures in 2006.

Only three trades were completed in other currencies. Commerzbank went out five years with its £

Seven trades came to the market in other currencies: three in Hong Kong dollar, two in Singapore dollar and one in Swedish krona. But all kept to the short-term. The Development Bank of Singapore was responsible for two one-month Singapore dollar trades. The smallest trade was a S$200 thousand ($110 thousand) note that will be issued on September 25 2001 and the largest trade was a S$240 thousand note that will be issued on September 27 2001. Commerzbank's Skr27 million ($2.56 million) trade will go out a little longer. The note will be issued on September 27 2001 and will pay a single final coupon of 23.20%. The note matures on November 21 2002. The other three notes in the market came in Hong Kong dollar. HSBC issued two HK$80 million ($10.26 million) two-month trades. The notes will both be issued on September 20 2001. MSDW also stayed short with its HK$100 million three-month note that will be issued on the December 21 2001.

* HVB Real Estate Rating: AAA

The Royal Bank of Scotland has unveiled the latest names to join its fast growing leveraged finance team based in Frankfurt, including a new LBO team head. Michael Föcking, managing director of leveraged finance in Germany, told EuroWeek that with a reinforced group in Frankfurt he is confident RBS will be "well positioned to compete with the investment banks used to handling large ticket deals".

The European loan market initially held its breath this week following the tragedy in New York on Tuesday, September 11. But by Wednesday mid-morning, the consensus was that the impact of the terrorist attacks on deals in the loan market would not be immediate and would not have wide implications. "If a deal was priced correctly for last Friday it will still be priced correctly for this Friday," noted a London banker.