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A load of junk on its way to London. (Eurobond markets)


A decline in US interest rates should be great news for dollar bond markets. So far this year the yield on 10-year US Treasury bonds has plunged from 9% to around 7.3% by early last month. Traditionally, the yields on Eurobonds would have felt the Treasuries' gravitational pull and meekly followed the US market downwards. They haven't. The US treasury bond rally has outstripped the Eurobond market's comparatively feeble efforts at perking up. This has pushed yields on Eurobonds -- and especially US corporate issues -- far from Treasuries.

The consequences of this change could be dramatic for the Eurobond market. Already some syndicate managers are talking about a new sort of Eurobond market where top quality US corporate names are rarer and junk issues are more common. In the US the corporate bond market is enjoying a wild boom, even though it too is lagging behind the Treasury market. But unlike the Eurobond market, the US corporate market has kept closer to the government market. That means a double-A rated US corporation can issue debt in the US at around 50 to 60 basis points over Treasuries.

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