FRN MARKET SLUMPS, FIXED RATE EUROBOND TRADE QUIET
Eurobond prices in the floating rate
note sector slumped across the board by as much as a full point
on some issues.
    "Today has been irrational, irresponsible -- possibly the
worst day in what has been a dire six months for the floater
market," commented a senior FRN trader at a U.K. Bank.
    Republic of Ireland FRNs were marked sharply down in
initial trading and market nerves soon infected other
supra-national and sovereign paper with dealers attributing the
falls to aggressive professional shorting by a few leading U.S.
Investment houses.
    The FRN market has been suffering from acute contraction of
liquidity and consequent drain of investor confidence since the
effective collapse in the market for perpetual floating rate
issues late last year.
    Since then, FRN specialists noted that retail interest has
been sparse or completely absent and the stagnant market for
floating rate paper has become increasingly vulnerable to
manipulation, with nerves affecting all variety of borrowers.
    Floating rate debt of U.S. And Canadian banks came under
pressure last month when fears resurfaced about their exposure
to Latin American debt. Canadian banks were hard hit today.
    Fears about the Irish economy, exacerbated by recent
post-electoral political wrangling in Dublin, prompted a
sell-off of Ireland paper this morning with both dollar and
mark-denominated Irish issues tumbling by a full point or more.
    However, FRN dealers polled by Reuters felt the Irish
issues had been singled out -- as the U.S. And Canadian banks
were most recently -- as the market's most vulnerable sector.
    "A handful of professional houses are targetting the weak
paper, shorting it aggressively and this is just starting the
domino effect with basically sound paper also starting to roll
with it," a senior FRN market source explained.
    Although floating paper from better-regarded borrowers such
as the U.K. Managed to finish the day only around 10 basis
points down, other sovereigns like Sweden and supranationals
like Eurofima suffered heavier losses, FRN dealers said.
    Debt exposure fears continued to undermine U.S. And
Canadian bank paper with one U.K. House citing a fall of 1-5/8
point on the day on a Royal Bank of Canada issue.
    FRN traders noted Japanese investors, initially
enthusiastic floating rate debt buyers, had lost confidence in
the market and speculated that a crisis meeting, such as the
one called upon the collapse of the perpetuals, could be
imminent.
    "Retail clients just don't want to know about the floaters
any more so it has degenerated to a wily pass-the-parcel among
the professionals, all scheming to sweep the paper under the
carpet," another senior FRN trader said.
    "I don't know what is going to happen to the market. It
can't go on like this," he added.
    In the fixed-rate sector, trading was dull with the market
still attempting to digest a heavy volume of new issues from
earlier this week although primary market activity slowed
somewhat today, trading and syndicate sources reported.
    Dollar straight bonds ended the day barely changed from
opening levels as investors failed to react on the unexpectedly
large 4.1 pct rise in U.S. February retail sales, prefering to
wait for tomorrow's producer price and business inventory data.
    A 100 mln dlr deal for Norsk Hydro was launched later in
the day and the issue was trading around its total two pct fees
at close of grey market trade although dealers said the
borrower's frequent appearance in the euromarkets could deter
investors.
    The Canadian dollar sector however saw good two-way trade
and a continuation of recent healthy volume as the Canadian
dollar rides high on the foreign exchanges and futures markets.
    Dealers said the strength of the Canadian dollar, which has
firmed especially over the last two days, has renewed end
investors confidence in the currency.
    A new Canadian dollar issue for Hydro Quebec was seeing
excellent demand, sector specialists said, and the issue was
quickly increased to a total of 150 mln dlrs from 125 mln.
    "This kind of paper can be hard to sell and it is gratifying
to see such a high level of interest, both European and
domestic Canadian demand," commented one trader at a Canadian
house.
    Eurosterling, which has been in the limelight lately, also
on foreign exchange and currency bullishness, slipped slightly.
    Senior eurosterling sources noted that bond prices fell
back today, more or less in line with losses seen on the U.K.
Government bond market -- around 5/8 point lower at the longer
end of the eurosterling market.
    Dealers said overseas investors had not been buying today
and predicted consolidation before next week's U.K. Budget. A
55 mln stg convertible issue for confectioners Rowntree
Mackintosh was well bid at 104-5/8 105-1/8 pct and expected to
go well.
    Euroyen bonds showed a firmer tone led by some professional
short covering from Tokyo. Today's 23 billion deal for Toyota
Motor Credit with a 4-1/2 pct coupon was deemed tight however.
 REUTER
