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Deal insider: Nomura spots Euroyen opening

STEVEN IRVINE



Issuer: Fannie Mae
Amount: ¥100 billion
Maturity: 3 years 6 months
Coupon: 2%
Launched: May 14
Lead managers: Nomura, Merrill Lynch

Quite a few mouths stood agape when Federal National Mortgage Association, better known as Fannie Mae, re-opened the international Euroyen market in mid-May. Not least because international investors bought a bond that offered only a 2% coupon - the lowest ever for a global issue.

The deal was driven by technical conditions which not everyone was in a position to spot - they combined a mixture of swap arbitrage, a subtle shift in sentiment among international investors towards yen, the need for existing investors to switch out of Japanese government bonds (JGBs), and the desirability of creating a new benchmark, the last having been issued by the World Bank in November 1994.

Nomura had the idea, which partly stemmed from a long position in short-dated JGBs that it built up in February, for reasons explained below. Nomura estimates that it controls 25-30% of secondary market trading in Euroyen, and talks daily to a broad range of investors. Feedback from its salesforce at the beginning of April suggested that European investors, particularly UK-based index-funds, had started re-weighting their portfolios.












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