Clearing house for swaps. (international swaps market)
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Clearing house for swaps. (international swaps market)


It was the Kingdom of Norway's first Eurobond issue since early in 1980: $500 million of fixed-rate bonds that were eventually brought to the market on July 14 this year via the lead management of Merrill Lynch Capital Markets. Competition for an underwriting slot was always going to be fierce--the prospect of establishing a firm relationship with a new sovereign borrower seemed most attractive.

Norwegian shrewdness, however, created a different story. The kingdom wanted a swap into floating-rate funds with a three-month, walk-away option. Between 15 and 20 houses bid furiously for the swap, even though the fact that Norway might not draw down for three months would clearly make it impossible to offer a hedgeable rate. Chase Manhattan eventually provided around half of the swap into floating rate, probably providing Norway with funding at about 70 basis points below Libor. Fortunately for Chase, Norway chose to exercise its option almost immediately.

But what angered the banks which bid for the swap was that Norway restricted bidding for the mandate for the Eurobond to a much smaller group of four houses--something they only found out after they had all but cut each other's throats to provide an extremely difficult swap.

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