FRN TRADING SEEN RETURNING TO MORE NORMAL PATTERNS
Conditions on the floating rate note
market appeared to be returning gradually to normal today with
prices static to a little better generally, dealers said.
    The market was showing limited signs of recovery from the
collapse in trading last night and the calmer tone was
reinforced this morning as the first significant retail orders
for some time emerged, one senior FRN trader noted.
    In fixed rate bonds, the tone was likewise quietly firmer
with euroyen and eurosterling maintaining their recent bullish
trend and activity in dollar straight and ECU-denominated bonds
also picking up slowly.
    Although a handful of FRN market makers were expected to
remain on the sidelines for the time being, dealers noted a
tangible return of retail interest from the Far East, lured
back by extremely attractive yields and bargain prices.
    "We are seeing from Singapore, and from Japan clients keen
to use up their quotas for purchase of particular instruments
before the end of the fiscal year," the senior trader added.
    Any investors not buying to their full limit would run the
risk of having that limit reduced next year, he explained.
    However, he pointed out that mainly sovereign paper was in
demand with U.S. Bank sector paper largely ignored.
    Prices of reasonable quality floaters had firmed by an
average of 10 basis points in early trading but FRN dealers
cautioned that the mood was still nervous.
    "If prices rise by too much too quickly, everyone is more
than well-aware of the danger the selling could set in again,"
commented another FRN market source at a large Japanese house.
    The other sector commanding market attention today was
eurosterling, which soared in line with U.K. Government bonds.
    Both markets were pushed higher by an ebullient pound and
renewed buying by U.K. Institutions following Chancellor of the
Exchequer's Nigel Lawson's well-received budget yesterday.
    "This was definitely a budget for lower sterling interest
rates," said a sterling analyst at a U.K. Merchant bank.
    "It has been exceptionally well-received by the city, looks
good to foreign investors and we are sure to see a rush to tap
the eurosterling markets now," he added.
    News that next year's Public Sector Borrowing Requirement
will be held at 4.0 billion stg from an earlier projected 7.0
billion was influential for fixed rate stg investment markets.
The government's reduced need to tap the gilt-edged markets
will create a perennial shortage of stock, maintaining upward
pressure on prices, a sterling bond dealer commented.
    This could further boost demand for eurosterling bonds, as
long as yield margins remain attractive in relation to gilts --
often the case with newer, if not with more seasoned issues.
    Bullish predictions on the U.K.'s general economic health
were also expected to boost foreign interest in eurosterling.
    Market sources said attention would now switch to
monitoring the fortunes of the ruling Conservative party in
opinion polls ahead of a widely-anticipated general election.
    Although several new sterling deals are expected, in early
trading the only sterling denominated one to emerge was a 30
mln convertible deal for British Land Co Plc.
    Other new deals this morning reflected the recent primary
market trend with little activity in dollar-denominated issues
although the currency sectors were busy.
    Hot on the heels of yesterday's two Canadian dollar issues
was a 75 mln dlr six-year bond for Chrysler Credit Canada,
guaranteed by Chrysler Finance paying 9-1/4 pct and priced at
101-1/2 pct.
    A 15 billion euroyen issue was launched for Associates Corp
of North America paying five pct at 102-3/8 pct due 1992. A
similar euroyen offering was reported to be in the market for a
Scandinavian borrower. Details were not immediately available.
 REUTER
