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Banking

Investors' attention arrested by warrants. (debt warrants)

INVESTORS' ATTENTION ARRESTED BY WARRANTS

Every time interest rates drop a point on their steady downward slide, a band of European retail investors feel a little more smug. They have good reason to be, as they are out-performing even the most successful of professional fund managers. That's because they are holding debt warrants.

"They have a price performance that knocks your socks off," exclaimed one. "They really make a nonsense of putting your money into equities or bonds." Typically, a freshly issued debt warrant purchased in January 1986 had more than doubled its value by March. Those lucky enough to have bought new issues last summer have watched their investments rise 400%.

The tipsters have been eager to spread the word among their investor flock and lead managers have been equally busy persuading borrowers to issue. With the feeling that interest rates still have some way to fall, the breeze has turned into a gale. In the first two months of 1986 alone, there were 27 issues of debt warrants, which compares with a total of 38 issues for the whole of 1985.

Warrants are essentially the same as options; that is, they give the holder the right to buy a certain security at a given price.

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