The holiday season finally began to encroach on bond markets this week as issuance ground to a near halt ahead of the year end. That the market has remained open so long has surprised many bankers, with Y2K failing to bite - not yet, at least. Most syndicate managers were more concerned with co-ordinating Christmas parties than clashing roadshows as they had been earlier this year. And end of year bonuses are the numbers distracting many from economic data. But the last trading week of 1999 is closing with government bond markets in disarray. US Treasuries fell on Thursday for the fourth consecutive day, pushing the yield on the 30 year bond to its highest level in two years as strong data on the US and European economies raised fears of higher global interest rates. The benchmark 30 year Treasury tumbled a full point on Thursday reaching a peak of 6.403% before closing at 6.39%, its highest closing level since October 1997. The market had already fallen sharply on Tuesday following the release of US retail sales. Thursday's much higher-than- expected German Ifo business climate survey had pushed Bund prices down by a 1-1/2 points. The yield on the 5.375% January 2010 Bund now stands at 5.21%. Swap spreads widened in dollars and euros over the week but credit spreads have tightened, improving arbitrage opportunities considerably. But issuance dwindled as investors and underwriters started closing their books for the year. New deals consisted mainly of taps, but Barclays issued a slew of sterling and euro denominated floaters for KfW and various Landesbanks at high sub-Libor margins. Officials at Barclays declined to comment on the deals, totalling Eu1.35bn and £400m. Floater traders confessed a lack of understanding of the rationale for the aggressive issues and suggested that the paper may serve as collateral or a hedge against other Barclays activity. The pricing was seen as too tight even for the transactions to be league table plays. In the quiet market Heinz and Volvo took advantage of what liquidity remained to issue aggressive short dated transactions that nevertheless attracted strong demand. Heinz was the best performer, its Eu300m five year issue quickly tightening several basis points. Bankers are divided on what the first few weeks of 2000 will bring. Some feel there will be a heavy flow of business from as early as January 4, others expect the trend toward higher interest rates will deter borrowers, especially corporates - many of whom would anyway have to wait until roadshows were carried out. However, Freddie Mac is expected that week with a five year bullet Reference Note off its new programme and Fannie Mae will follow shortly after with a 10 year Benchmark Note. Reports of the World Bank preparing a possible $5bn global bond for early January were unconfirmed but all the frequent borrowers will be watching the markets closely in the opening days, eager to get their borrowing programmes off the blocks. Bank Austria, which postponed its dollar ambitions in December because of lack of arbitrage, is expected to launch its $500m five year transaction early next year. Greek telco OTE is expected to roadshow its Eu700m seven year bond in mid-January through joint leads Merrill Lynch, Morgan Stanley Dean Witter and Merrill Lynch. Australia & New Zealand Banking Group has mandated Deutsche and Merrill Lynch to co-ordinate a roadshow in early February 2000 to be followed by the launch of a benchmark Eurobond offering. Other deals in the pipeline include a Eu100m five year issue for Italian motorway operator Autostrade Torino-Milano via Mediobanca. Italian bank Banca Agrileasing is setting up a Euro-MTN programme and is expected to inaugurate the programme with a debut international bond issue next year. Mediobanca is advising the bank on the ratings process. And Caixa Galicia plans to launch a Eu600m 10 year issue of cedulas hipotecarias next year. No mandate has been announced and the timing is not yet decided. Meanwhile Crédit Foncier de France and Crédit Local de France have awarded mandates for their Euro-MTN programmes. Crédit Foncier has mandated Deutsche to arrange its programme, while Crédit Local chose Deutsche and Morgan Stanley Dean Witter.
December 17, 1999
