BOND markets fell victim to dramatic movements in the Dow Jones and Nasdaq indices this week as equities dropped early in the week, only to rise sharply on Thursday, the Dow posting its highest daily points gain. Credit markets could not ignore the volatility and swap spreads widened too. The euro market fared better than the dollar market, having faced fewer hurdles for most of the year. Even a 25bp rate hike from the ECB on Thursday failed to impact on government bond yields, but as credit spreads began to follow swap spreads wider, issuers had to proceed with caution. Marconi failed to pay heed to the difficult market conditions and its high profile Eu1.5bn two tranche issue was heavily criticised after both five and 10 year tranches widened in the aftermarket. But Air Products and Fosters both demonstrated that lower rated corporate issues offering diversification, yield and value continue to excite euro investors. Baa1/A- rated US corporate Tyco should launch a Eu500m seven year bond via Merrill Lynch and JP Morgan next week. Invensys, rated A2/A+, should issue a Eu500m five year bond via Deutsche and Warburg Dillon Read in the mid-30s over Euribor. Telecom Corporation of New Zealand has mandated CSFB and Salomon to launch a euro transaction, the inaugural issue off its new MTN programme. A two tranche offering is expected, targeting five and 10 years, for a total of Eu600m-Eu700m. Deutsche and ABN Amro are readying a Eu300m transaction for Baa1/A- rated C&W Optus. A seven year issue is now more likely than a 10 year. France Télécom is expected to launch its US$1bn/Eu2bn-Eu3bn 18 month floater in the next two weeks. The company reportedly issued a ¥100bn one year MTN this week via Tokyo-Mitsubishi. Casino will begin roadshows for its Eu500m five year deal and early price talk is Euribor plus 60bp-65bp. ABN Amro, BNP Paribas and JP Morgan have the mandate. Spain's RTVE is to launch a Eu500m five year bond via joint leads BBVA, CAI, Caja Madrid and Commerzbank. Price talk is in the mid- to high 30s over the Obl. Iberdrola's planned Eu500m five year transaction has been put on hold because of the difficult market. Price talk had been in the mid-20s over Euribor. Given the swap spread widening this week, price talk on Vattenfall's planned benchmark has moved out slightly to the high 70s over Bunds. Morgan Stanley and Salomon have the mandate for the Eu750m 10 year deal. Away from the corporate market, Portugal launched the latest syndicated EU sovereign issue, a five year OT priced at 15bp over Bunds. Despite enjoying strong support, the transaction failed to cause a stir given the strong successes of sovereigns already this year. RZB has mandated Chase and Salomon for a Eu200m 10 year lower tier 2 deal. And Municipal Housing Finance of Finland has mandated CDC Marchés for a euro issue. Despite continuing volatility in the sterling market, a successful 13 year deal was launched by Daily Mail General Trust. An enthusiastic reception resulted in an increase to £225m from £150m and a spread at the tight end of the 210bp-215bp range. Next week, the Isle of Man will launch its inaugural bond, a £75m 30 year deal via Greenwich NatWest. Fixed rate dollar issuance almost ground to a halt in the volatile markets. Only Alberta and Nederlandse Waterschapsbank ventured into the new issue arena, with $200m four year trades. Spain's $1bn five year global failed to emerge, although the deal has reportedly been mandated to Deutsche and Goldman Sachs with price talk at agencies plus 8bp-10bp. Only one dollar floater emerged - a $200m one year for Svenska Handelsbanken. But Macquarie Bank has mandated Barclays and Salomon for an FRN. Freddie Mac will next week launch and price a $4bn-$6bn 10 year Reference Note via Goldman Sachs, Lehman and Salomon. Readers should note that in EW640 of Euroweek we incorrectly credited a $5bn Reference Note to Fannie Mae when, of course, the issuer was Freddie Mac.
March 17, 2000
