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<b>Playing down rising rates</b>

    Headline: Playing down rising rates
Source: Euromoney
Date: February 2000

At the end of last year a leading investment bank hosted a conference in one of Europe's livelier Mediterranean cities for investors and issuers to discuss the workings and prospects of the shiny new euro credit bond market.

Normally thick-skinned bankers were amazed at the sheer hostility which welled up from the conference floor as investors harangued corporate treasurers who were telling their companies' credit stories.

But it shouldn't have been a surprise. The diverse group of European investors who piled giddily into corporate bonds in the first half of 1999 were hurt in the second half as long-dated government bond yields started to rise and credit spreads widened, partly in sympathy with underlying rates, partly in response to credit events at specific issuers.

In the most notorious case, buyers of Mannesmann's benchmark e3 billion 10-year bond issued last May watched in dismay as the Libor spread on their bonds widened from a low of 68 basis points to a high of 129bp, following the rating downgrade that accompanied Mannesmann's acquisition of Orange.

At the conference, a clear pattern emerged.

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