GERMAN PRIMARY BOND MARKET SEEN REVIVING IN JUNE
West Germany's eurobond market may
revive in June, after two month's relative dormancy, before
dozing off for the summer, bond market sources said.
    Syndicate managers said many borrowers, anticipating lower
West German interest rates, cancelled mandates during the last
two-week calendar, hoping borrowing costs would decline.
    Borrowers are likely to return as domestic interest rates
lose downward momentum, syndicate managers said. A
supranational issue via Westdeutsche Landesbank Girozcentrale
is likely today and Dresdner Bank AG could lead a new bond.
    New issue volume is likely to be helped by a recent
domestic legal change which indirectly lowered costs for
European Community state-backed borrowers, the sources said.
    A statutory change to the West German Exchange Admissions
Act, which went into effect on May 1, allows such borrowers to
file for bourse listing without a prospectus and without an
underwriting group. This saves them the 1/2 point listing fee
formerly paid to banks.
    The two most recent issues for Electricite de France, led
by Deutsche Bank AG, and Bank of Greece, led by Commerzbank AG,
were brought to market under the new law, managers said.
    Deutsche Bank confirmed that its bond was brought out in
conformance with the new law. Commerzbank had no comment.
    The success of Commerzbank's Bank of Greece deal,
especially for the shorter of the two tranches of five and
eight years, has also encouraged syndicate managers to bring
out new issues during the new calendar period.
    Many borrowers might also seek to get their bonds in before
the market enters its quiet summer phase, referred to by German
bond dealers as the "summer hole."
    But syndicate managers said there are also some factors
standing in the way of new issues.
    One negative factor is that current swap conditions for
marks into dollars are not favourable.
    Syndicate managers said the yield spread between domestic
Schuldschein notes and mark eurobonds is now too low to make
swaps profitable for eurobond borrowers.
    Low yields on domestic notes comparable to mark eurobonds
mean German banks can now borrow cheaply at domestic rates.
    They would charge a high premium to borrowers taking up
euromarks for swaps as banks have little incentive to take on
more expensive euromark liabilities at present.
    However, some foreign borrowers might anyway borrow in
marks out of a genuine need for the currency, managers said.
    Another factor which might dampen the primary market is
uncertainty about the dollar. Its rise last week over 1.80
marks helped send West German government bonds lower by nearly
one pfennig over the week.
    If the dollar looks poised to stabilize or rise further,
foreign investors in mark eurobonds could switch out of them on
the belief that gains from the mark's appreciation were ending,
dealers said.
    The dollar is expected to remain stable this week before
the seven leading nations begin their economic summit in Venice
on June 8.
    In May, a total of 1.1 billion marks of new mark eurobonds
were launched, compared with 1.0 billion in April.
    This compared with a relatively active March, when 2.3
billion marks of eurobonds were launched, and a very strong
February, when issues totalled nearly 5.0 billion.
 REUTER
