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The decline of the pure bond issue

The real action in debt capital markets has moved off the public stage.

How debt capital markets have changed. Now, when you phone an origination official to ask which borrowers really stand out in the past 12 months, they struggle to conjure up even a handful of names on the corporate side.

Is it a sign of the maturity of the bond market in Europe or has the nature of the debt business truly changed? Although the mainstream debt capital market is growing, it is rarely where the more interesting (or profitable) business takes place these days.

Talk to most originators and they say derivatives and behind-the-scenes structuring is where the real action is. The number of pure origination officials has been scaled back at many firms. The requirement is now for bankers that can offer the broad array of products that the established investment banks can serve up. They are focused on profitability, and in traditional bonds competition is cut-throat. The best opportunities to add value (and make money) are in one-off situations, such as solving pension liability mismatch, or a balance sheet restructuring involving a bond buy-back or a derivative.

A recent flurry of investment-grade corporate bond deals should not mask the fact that the requirement for capital markets financing is relatively small because of strong corporate profitability.

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