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Big Bang in Japan and the subsequent creation of a low interest rate environment, has encouraged cash-rich investors to consider all kinds of alternative products in their search for yield. Since traditional sources like bank deposits can't offer a good return, retail investors are looking elsewhere. Their niche in the Euro-MTN market has already begun to develop, with a focus on structured notes. The Japanese household sector has an estimated ¥1.2 trillion ($10.83 billion) in financial assets. Optimistic MTN dealers like to think that an increasing proportion of this wealth will find its way into Euro-MTNs. But it is debatable just how much of this will materialize. MTNWare shows that total yen issuance of Euro-MTNs in 1998 was ¥9.04 trillion ($69.28 billion). The market will rise by almost 20% of it sees an extra 1% if the household assets, as some dealers suggest. An increase is generally anticipated, but given the amount of alternative investment instruments opening up to individuals, it is ambitious to think that Euro-MTNs would increase to this extent in the coming year. The buying power of rich, Japanese individuals, the so-called mom and pop investors, is attracting attention from more than just local Japanese brokerages. Reiko Hayashi, Euro-MTN desk at Paribas in Tokyo, says: "People outside the market aren't aware of just how rich Japanese retail investors are. It's a suffering economy but some people still have a huge amount to invest." And these investors are becoming more valuable buyers of Euro-MTNs as the profile of the Japanese investor base changes. The spotlight has turned on them and on regional investors as additional sources of cash, since the market is no longer dominated by institutional buyers. David Bourne, associate director of Euro-MTNs at Deutsche Bank in Tokyo, says: "Big institutional buyers are less active in MTNs than they have been for a long time. It's tough to generalize but they are still a bit shell-shocked from the Asian crisis. They're looking for liquidity so they're more active in bond markets." However, it is difficult to pinpoint exactly what trades are being sold to retail, especially since all dealers are fiercely protective of their distribution channels and sales leads in Japan. What is clear is that the issue size is always small and term lengths are always short, usually between six months and three years. The trades aren't publicly announced and coupons of about 4% are common. Although retail investors in Japan got their fingers burned with structures about eighteen months ago, they are once again focusing on structured products. Issuers wanting to tap into this cash pool will need to consider products more risky than plain vanilla. Equity-, FX- and index-linked products are in demand and call options are also popular. Bourne, at Deutsche Bank, explains why a growing feature of the market since March this year is demand for equity- and Nikkei-linked notes. He says: "There's a lot of retail participation in this as those investors will pay an above market coupon. The retail sector needs to get some kind of pick-up on savings since bank deposits earn little or nothing. Such investors tend to stick with what they know, so equity- and foreign exchange-linked products are popular." However, Kirsty Traill, director at Daiwa Europe, points to the fact that the Nikkei has been increasing over the last six months and that this automatically leads to more demand for equity-linked products. Demand seems to seesaw between equity- and FX-linked notes. She says: "The retail niche has always been there. I would say it's the sector that's changed the least. Because the Nikkei was volatile or dropping, FX-linked trades into retail Japan were popular for the last three years. It generally comes and goes with FX volatilities." As with other retail investors, equity linkage is appealing to Japanese buyers because it is relatively familiar to them. They can benefit from the flexibility of Euro-MTNs by receiving tailor-made notes. Dealers can create a made-to-measure product with ticket sizes, term dates, and linkage to specific stocks. Hayashi, at Paribas, says: "Equity-linked notes are easy for them to understand and give quite high yield. It's usually too expensive for retail investors to buy stocks in for example Sony, but this type of bond allows them access to equity in small tickets which they can afford." Retail investors are willing to pay up to get the structure they want since the alternative returns available to all of them are so low, leading to excess liquidity in the sector. This is good news for borrowers ready to issue the right paper. Borrowers like Orix and Taisei Corp have been able to mop up some of this excess liquidity and raise funds at extremely tight spreads. In January this year, Orix's four-year retail-targeted paper traded at 75 basis points over JPY Libor. By July the spread had come in by 50 basis points. Accessing the Japanese retail investor base requires strong distribution capabilities developed from solid relationships with individual buyers. Japanese dealers like Nomura Securities and the newly-merged Daiwa and Sumitomo Bank have their own retail outlets. This gives them greater control over where paper can be distributed and the ability to cope with large volumes. However, with the collapse of so many of Japan's own banks over the last two years, the opportunity has arisen for foreign dealers to step in. Mergers such as Merrill Lynch's with Yamaichi Securities and Nikko Securities' with Salomon Smith Barney, have enabled international houses to gain local distribution. Morgan Stanley Dean Witter (MSDW) and Sanwa Bank (Sanwa) are the latest banks to collaborate on development and distribution strategy of investment trust products. They signed an agreement to cooperate in providing retail asset management services through Sanwa's distribution channels in August, this year. And Deutsche Bank has formed a joint venture with Kokusai Securities in asset management. They have cooperated on certain retail targeted equity-linked bonds. Non-Japanese houses, without domestic alliances, have to sell to local brokers first, which in turn sell to the retail buyers. They may not get the lion's share of the business but they can devote attention to individual needs. Bourne, at Deutsche Bank, explains: "We don't have our own distribution network in Japan. Therefore we have developed relationships with small retail brokerages. We can source the bonds internationally and they can place them locally." Hayashi, at Paribas, believes the reputations of the brokers Paribas uses are crucial to its success at selling indirectly into retail Japan. She says: "You need good name recognition and stable growth to sell into retail Japan. Image is very important. You also need a good underwriter with good Japanese contacts." But selling into retail Japan is not a cut-and-dried process for issuers. Firstly, prospective issuers must be approved by the Ministry of Finance and comply with strict criteria. The ministry is a safeguard for retail investors. It decides on the creditworthiness of borrowers. The lengthy and expensive legal process makes marketing difficult for dealers. Traill, at Daiwa Europe, says: "Issuers selling to retail Japan are having a great time. It's definitely a niche. But it takes a lot of time, effort and expense to organise. So some people think it's not worth it. There's a lot of documentation issues to resolve but we've seen a steady stream of issuers look into it." The restrictions on issuing into retail Japan mean that the same borrowers appear in the market again and again. For example, Eksportfinans, Svensk Exportkredit, Venantius and the World Bank. But others are also seeing demand. Statens Bostadsfinansierings (Sbab), the Swedish public corporate which finances government housing loans, is rated A2 by Moody's and A+ by Standard & Poor's. Sbab's two yen deals done between January 1 and September 1 this year, both had currency-linked redemptions, according to MTNWare. The ¥3 billion deals had four and five month terms. The growth of the retail sector looks set to take-off over the next year, as terms on other investments fall due. For example, the yucho or postal savings redemptions are approaching. A large proportion of these funds will be invested elsewhere, including, either directly or indirectly, in Euro-MTNs. Unless there is a significant glich in the market, Euro-MTNs should fare well in competition with other financial instruments for retail investor attention. Their inherent flexibility to accommodate size, structure and term compares favourably to alternatives such as Samurai. Traill, at Daiwa Europe, says: "Investors will have more choice as to what to do with their investments as they come up for renewal. But we're not at that stage yet. MTNs will play a key part in that because they can be tailor-made to individual buyers' needs. Securities houses can give retail investors the exact size and structure they want without having to do a block Eurobond or Samurai." On average, a sixty year-old Japanese person has savings of about $150,000 (¥16.5 million). This cash should be readily available for buying small-sized tickets of Euro-MTNs. The right market just needs to be nurtured.

John Deere, the world's largest agricultural equipment manufacturer, is set to sign a $1 billion Euro-MTN facility. It will be the third US corporate of the year to join the market following Textron and Combined Global Funding. Deutsche Bank has scooped the arrangership, its eighteenth this year. It is the leading arranger in 2000 so far. John Deere is a veteran of the debt capital markets. In its funding collection are two Euro-CP programmes, signed in 1989 and 1999, two domestic MTN programmes and two US CP shelves. It also issued a $150 million Eurobond in May 1998. Deutsche Bank was the bookrunner off the deal. The issuer, headquartered in Moline, Illinois, markets its products and equipment in 150 countries, and is probably best known for its tractors. The dealer group off the programme comprises the arranger, ABN Amro, BNP Paribas, Bank of America, Credit Agricole Indosuez, Credit Suisse First Boston, Deutsche Bank, JP Morgan, Merrill Lynch, Salomon Smith Barney and SG.

Brazil HypoVereinsbank (New York) has completed a $300m two year L/C facility for Banco Itau SA. Proceeds are to support a CP programme.

Ever the flash city trader, Gavin Eddy of Warburgs now has a new claim to fame. His swanky Shoreditch flat is to be the setting for the latest advert for the 4-wheel drive offroader - the Toyota Rav 4. But it seems that though the advertising agency was very taken with Gavin's pad, it decided it didn't really need his acting services. They're using a more muscular male model to drape over the bonnet. Better luck next time eh Gav? And the usual crowd turned up to Rupert Lewis' birthday bash in Fulham last weekend, including Gayle Turner, Conor Gallagher and Rob Stoole, also from JP Morgan, (all they need is Timmy the dog and they'd be the Famous Five). CCS' Sean Murphy also joined the party, as did Johnny Fine, the swaps trader from JP Morgan, now a regular in the Leak Table. It may even be worthwhile him setting his sights on Rupert's crown to be star of Leak 2000. With Diageo's Andrew Moorfield and Greenwich's Matt Pass now out of the glitzy world of MTNs, there's all to play for...

We all know that the MTN market attracts some pretty unsavoury types (and we're not just talking about the Diageo treasury team) but it would seem that a spiv of the first order has penetrated the sacred world of power reverse duals. Private Eye, the London-based magazine that roots out scandal and corruption in high places, has unearthed a scam artist with a predilection for young boys, sadomasochism and . . . medium term notes. If we are to believe the latest edition of the rag, this gentleman with a particularly sordid past has been trying to sell MTNs to poor unsuspecting grannies and pocketing the cash. Unfortunately the article also questions the MTN market's reputation as a place of high finance and high morals. It calls an MTN a "fictitious financing mechanism", a "scam" and describes the market as "secret" and even "non-existent". Dealers are outraged by the suggestion that they earn huge amounts of money for doing very little. But perhaps Deutsche's Tiina Lee can smooth their ruffled feathers. She's been appointed chair of IPMA's MTN subcommittee. An honour indeed. She follows such luminaries in the post as DLJ's Matt Carter and ex-Daiwa MTNer Tony Wilson, who is now at the treasury of Arab Bank.

Chase has finally appointed a head of MTNs after a year of head-hunting every dealer in the market. At last Hugo Varney never need look at an MTN ever again. But, alas, our lives are not to be enlivened by Bruce Cairnduff. Chase has decided that they should go for the best money can buy and that man is . . . Garrath Fulford. Yes, the star of the MTN conference circuit, whose speeches are always the highlight of the show, has managed to escape from UBS in Tokyo. He moved there when Gavin Eddy started at the bank in London a year ago. This is Garrath's first move, after spending eight years at Warburg, six of those in MTNs. Joining him on the desk will be Rob Nankivell, an internal transfer from the Sydney branch. Back at Warburg, Stuart Goodwin is being sent off to Tokyo to replace Garrath. But poor Stu is so attached to his new baby - a Jaguar - that he's having it shipped all the way over. Maybe someone should tell him that they do have cars in Tokyo? A new MTNer will be joining Gavin in London soon, someone new to the market. Lets hope he speaks better English than the new Barclays head . . .

The debut note off PSA Corporation's (PSA) $2 billion debt issuance facility has been launched. The five-year $500 million deal pays 7.125nd was lead-managed by Morgan Stanley Dean Witter and JP Morgan, co-arrangers off the shelf. It was signed on July 12. PSA is the second Singaporean borrower to join the market this year. Peter So, associate, capital markets at JP Morgan, believes issuance is tough for the sector. He says: "These issuers would like to place all their notes and have the price they want, but there must be a trade-off between the two." PSA is one of the world's biggest container terminal operators. Its dealers are Credit Suisse First Boston, Deutsche Bank, Development Bank of Singapore, Merrill Lynch, JP Morgan, Morgan Stanley Dean Witter, Salomon Smith Barney and UBS Warburg.

Rabo Australia has raised the ceiling off its Euro-CP programme from A$2 billion ($1.18 billion) to A$3 billion. Citibank and National Australia Bank have been added to the dealer panel. Captiva III Finance has been dropped from the group.

Region of Umbria (Umbria) paved the way for more local authorities in Italy to join the market when it signed the first wholly-underwritten Euro-MTN programme on December 16, last year. This is a step forward for the Italian regions which are bound by strict government regulations regarding international borrowing, since the programme can show all-in funding costs from the outset. Another route into capital markets has been forged for state issuers in Italy and beyond. Umbria's euro2.5 billion ($2.58 billion) facility is arranged and underwritten by Chase Manhattan (Chase), DePfa Bank Europe (DePfa), and Dexia Capital Markets-Crediop (Crediop). Claudio Zecchi, head of financial markets at Crediop, believes that special facilities such as Umbria's could open up the capital markets to more issuers of this type. He says: "It is the first programme of its kind. It is a breakthrough and it will have very interesting implications for other local authorities." Banks involved with Umbria's programme hope it will inspire other government issuers, particularly small regions which otherwise might not have considered the market, to set up Euro-MTN facilities. Chase in Rome devised the structure of Umbria's programme. A spokesman at Chase believes the idea could work in other cases. He says: "This structure was tailored to the needs of the region. And we believe others may have similar needs. We could replicate this structure for them." Italian regions were only permitted by law to issue Eurobonds in 1996. Since then, seven Italian government borrowers have signed Euro-MTN programmes including Region of Lazio, City of Rome and the Republic itself. Deirdre Farrell, manager of business development at DePfa, says: "Increasingly the Italian regions are targeting the capital markets for funding as opposed to the traditional domestic loan market. While only five of the 20 regions have tapped the bond market to date it is expected that there will be increasing activity in the capital markets given the number of regions which are pursuing credit ratings." And Zecchi, at Crediop, is optimistic of growth. He says: "When the market develops and benchmarks are set, it will be easier for these issuers to have a standard Euro-MTN facility. For now it is difficult to know how much it will cost to use this type of security." Umbria's programme permits four issues and these must be before 2001. Each note will be fully underwritten by some or all of the five banks in the dealer group, which comprises the arrangers plus Banca dell'Umbria and Banca Monte dei Paschi di Siena. This makes the platform similar to a loan facility so the full cost of funding can be calculated. Zecchi, at Crediop, says: "Umbria was seeking a sure definition of costs and they wanted a commitment of funds. This put the issuer outside the normal Euro-MTN spectrum." Zecchi, at Crediop, explains the benefits of Umbria's facility. He continues: "In Italy the government requires that authorities make a budget forecast taking into account various costs. If an authority wants to issue debt, costs have to be indicated. But the market is changing and it is difficult to fathom what will happen in the future. With this type of instrument specific costs can be clearly shown." Umbria's need is specific. It must refinance the reconstruction work necessary after an earthquake in 1997. This is a huge project and Umbria's debt facility is large for the size of the region. As a result it requires certain funding safeguards and government backing. Farrell, at DePfa, is hesitant whether other issuers could use this type of facility. She says: "The programme was structured to meet Umbria's funding needs. There could potentially be other regions in Italy which could utilise a similar debt programme in the future but it is unlikely that it would be identical to Umbria's transaction." For now the borrower is only permitted to issue floating or fixed rate notes. But dealers say that once Umbria is established in the market, its programme could be adapted to allow more flexible issuance in private markets. A dealer from Chase says: "The programme at the moment doesn't foresee other usage beyond these four issues, but having said this, for lawyers to make amendments to allow for other types of issuance would be easy." Umbria's first issue was launched on December 20. The euro602 million 19-year note pays floating rate interest, but the issuer can choose to swap into fixed rate any time before 2001 when the note automatically swaps to fixed rate. Umbria will repay note holders using state funds it receives as part of its restructuring programme. The other three trades will be of a similar size, maturity and structure. The second issue is expected within six-months. Growth in the sector will bring steep competition. Umbria expects to receive an Aa3 rating from Moody's, but with three other Italian government issuers rated the same, marketing is crucial. That said, investors snapped up notes from Region of Marche's inaugural euro100 million trade in November, last year. And dealers report there are plenty of buyers eager for exposure to this sector. Farrell, at DePfa, says: "There is a high level of demand in the market for Italian regional issues as evidenced by the level of over-subscription for Region of Marche's issue. Demand for Umbria's paper is also expected to be strong, in particular given the attractiveness of the transaction structure."

JOINT ARRANGERS Chase Manhattan, Deutsche Bank (bookrunner) and DLJ have extended the deadline for sub-underwriters to join the jumbo £588m debt facility backing the leveraged buy-out of United Biscuits (UB). The facility is being syndicated under the name of the new company, Regentrealm. The sub-underwriting phase was due to close today (Friday) but the three leads have given banks another week to push the deal through credit.

The Euro-MTN market was destined for an exciting year with the launch of Emu in 1999. And it didn't disappoint. Total non-syndicated issuance grew 8098 and tickets sold in euros exceeded those in dollars and yen by almost $50 billion each. More corporates than ever accessed the investor base and trading began on-line. The market has set itself a high standard to live up to in 2000. Gavin Eddy, executive director, head of Euro-MTNs at Warburg Dillon Read (WDR), sums up the sentiment of the market. He says: "It's been an impressive year measured by any scale. It was a record year for growth and the development of the vanilla credit market has exceeded expectations. The market has proven to be resilient; many people expected the structured side to slow down a little, but that wasn't the case. It was a surprising year." The biggest surprise was the strong flow of business in the final quarter of 1999 - particularly since most dealers had expected trading to grind to a halt because of investors' fears of a millennium bug. Olivier Jalouneix, head of Euro-MTNs at Morgan Stanley Dean Witter (MSDW), says: "The pace of business from October to December was much higher than everyone expected. Investors closed their books very late, and liquidity was still good even at the beginning of December. The public markets slowed down quicker but this meant we could extend business in the private market." Of the total $343.56 billion-worth of non-syndicated debt issued last year, excluding self-led deals and issues off financially repackaged programmes (1999 review criteria), over $130 billion-worth was in euros, compared to $80.98 billion and $80.51 billion-worth of yen, according to MTNWare. Daniel Cogoi, head of Euro-MTNs at Paribas, says: "The extent that euro issuance exceeded that of the dollar was surprising. Everyone expected that euro volumes would be high, but not that the change would happen so quickly." However, some dealers report that it was difficult to sell long-dated euro notes in the private markets. Out of $66.99 billion-worth of euro notes (1999 review criteria), with a size less than $250 million, $30.89 billion had a term of 3 years or less, according to MTNWare. Jalouneix, at MSDW, explains: "There were relatively few plain vanilla euro-denominated private placement trades with long maturities. A lot of the new investors were insurance companies and pension funds which are not all yet familiar with the Euro-MTN format. In addition, the longer the maturity the closer issuers' levels need to be to those in the secondary market. Many issuers aren't willing to pay for long-dated senior euro-denominated Euro-MTNs." The increase in pension funds in the investor base was a trend picked out by other dealers. Eddy, at WDR, says: "There has been an upsurge in business coming from pension funds and life insurance companies. Many pension funds are making their first foray into the market and life insurers in Europe are interested in hedging annuity risk brought about by lower interest rates. Many are looking at MTNs, particularly structures, to achieve this." A true credit market began to emerge in 1999. As Emu removed FX plays investors increasingly turned to the credit spectrum in search of yield. Many single-A and triple-B names, such as FBA Icelandic Investment Bank, and a growing number of corporate borrowers, including DaimlerChrysler, Kingfisher and MEPC, were able to achieve attractive funding. Of total debt traded last year (1999 review criteria), 23.6:as issued by private corporates, private finance and private utilities. And the number of single-A borrowers accessing the market grew to from 16.4:n 1998 to 19.6:ast year (1999 review criteria). Simon Hill, head of Euro-MTNs at Credit Suisse First Boston, says: "A few years ago the market, especially structures, was dominated by a small number of triple-A and double-A issuers with not much below that until the emerging market issuers. This changed in 1999, as more investors relaxed their credit criteria. This is true of flow into Japan and Europe. Investors are looking for spread and they're willing to go down the curve to get it." But Cogoi, at Paribas, believes it is still early days. He says: "For a real credit market to develop there needs to be a critical mass of borrowers regularly issuing within well developed sectors, like telecoms and cars. We're still a long way off the US market." Business out of Japan not only came back from the depths in 1999 but exceeded expectations. Total non-syndicated yen issuance (using 1999 review criteria) topped $80.5 billion last year compared to $49.96 billion in 1998. Henry Nevstad, senior associate director, at Deutsche Bank is confident Japan's recovery can be sustained. He says: "The Japanese market accounted for approximately one-third of the total market for private placements in 1999. Although there are several political and structural changes taking place we'll continue to see the same levels of activity from Japan." As the Nikkei strengthened index- and equity-linked trades were among the highest in demand. Reverse duals and Bermudan callables were also popular. However the Japanese Ministry of Finance, in its attempt to increase transparency in the markets, introduced reporting standards and the marking-to-market of securities. Dealers think the result of this could be to turn investors away from structured trades. Sam Amalou, director, Daiwa SBCM Europe, says: "If structural risk is reduced investors will have to look at credit risk to pick up yield. This was evident last year and it will continue. We've had enquiry from life insurance companies for single-A names up to 10 years, which was rarely seen before." The sterling market surpassed its volumes of 1998, although not to the same extent as dollars or yen. But Fergus Kiely, head of Euro-MTNs at HSBC, says: "It was a highly successful year for sterling and I think it will continue to be strong in 2000 with plays into Europe. Investors will buy sterling to then swap into euros, gaining a pick-up on the basis swap." In the US the Financial Accounting Standards Board's (Fasb's) dreaded rule 133 affected Euro-MTN issuance by US borrowers. Although implementation is not due until June 15 2000 the thought of having to record all swap transactions on a quarterly basis was enough to keep many US issuers away from non-dollar trades last year. But Peter Jackson, managing director, head of Euro-MTNs at Salomon Smith Barney, sees two sides to the situation. He says: "There has been talk of the rule being adopted in other countries. Fasb 133 is draconian. It causes a lot of problems in the US, but in some cases it has helped Euromarket business, forcing issuers to borrow in ways that may not be the most cost-effective." For most larger issuers staying away from the market won't be an option. Joe Cousins, director, term funding, at Federal Home Loan Banks, says: "The system's accountants have spent a lot of time analysing the impact of Fasb 133. However, regardless of the accounting practice, our financial institutions have borrowing needs. This means we anticipate being active in the capital markets." Originators observed an increasing number of corporates signing in 1999. The trend continues for asset-backed facilities and guaranteed investment contract or gic-backed programmes, such as MassMutual and Allstate, both of which signed in June 1999. Europe was the main focus for newcomers. Scott Church, managing director, head of European money markets origination, at Merrill Lynch, says: "Consolidation of industries in Europe in the coming years will have a huge impact on capital markets and correspond