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April 2004

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  • US treasury bond yields caught out many investors in the first quarter, tightening sharply below 4% in February and once more wrong-footing many who had been expecting that they would widen.
  • When Coutts Bank decided to make the move from in-house investment management to external investment management, it did so in one year. "If you have a large gap to cross, you don't do it with two small steps," explains Andrew Hutton, the bank's head of investment management and group investment management.
  • Money will, of course, remain cheap. Indeed, the forward market now forecasts that the Federal Reserve will not raise interest rates this year. But it has been cheap for a long time. It has already driven massive amounts into equities and reduced volatility to historical lows. In early January, the options put-to-call ratio reached levels indicating that no-one wanted to take out any insurance against equity markets falling. However, the recent turn in these indicators suggests that a wall of worry is now being built.
  • Argentina has changed the rules of the debt workout game by refusing to make good-faith efforts to pay its bondholders. And it is easy to understand the logic behind this move. A country that defaults on its external debt pays a huge price both politically and economically. Once that price is paid, however, it starts to recover. The cost of curing the default is large; the benefits are vague, and far in the future ? certainly at least one election cycle away.
  • Leverage in the emerging markets is now approaching an all-time high, according to fund managers and sell-side analysts. But the structure of investment patterns in this asset class means a crash is unlikely. Felix Salmon reports.
  • Agence France Trésor was nervous about becoming the first issuer of euro-denominated inflation-linked bonds but it is pleased with the results. Now its regular linker issuance schedule is helping to bring certainty to the development of the curve. Katie Martin reports
  • A ground-breaking collateralized debt obligation offering a fixed level of recoveries targets investors who want a simpler structure.
  • Never let it be said that running a global financial services organization leaves you bereft of a sense of humour. Talking to investors in Singapore in February, Citigroup CEO Chuck Prince was reiterating his stance on future acquisitions. As Prince has publicly explained, the bulk of the $50 billion pre-tax net income that he wants Citigroup to be making in five years' time will come from organic growth. There will be no repeat of the Citicorp/Travelers merger of 1998, which was truly a transforming event for both sides.
  • If you think loan trading is colourless and unexciting, take a look at Thomas Duetoft, head of European loan trading at Dresdner Kleinwort Wasserstein, and his colleague Tom Johannessen, vice-president of loan trading.
  • Just a few months ago Peru looked a shaky bet for international investors. Now bondholders can breathe a little easier. Peruvian president Alejandro Toledo still has the lowest popularity rating in Latin America and economic growth is slowing but Peru's macroeconomic fundamentals are solid and in keeping with IMF demands. It all looked very different in mid-January. Spreads on Peru's debt widened by more than 100 basis points as investors wondered whether Toledo's two-and-a-half-year-old government was on its way out amid corruption scandals. Four ministers lost their jobs in just three months and Toledo, who has a popularity rating of just 9%, struggled to distance himself from corruption scandals.
  • The inflation-linked market has unexpected pockets of demand, few natural issuers and an unusually close relationship between derivatives and bonds. But it works. Banks now need to work out where the next set of structural demand will come from and how to position themselves to profit from it. Katie Martin reports
  • A bull-market in Indian equities last year sparked spectacular growth in the country's equity derivatives market, which began trading four years ago. Monthly turnover in equity derivatives grew almost fourfold last year and in February this year it accounted for two-and-a-half times the spot cash market turnover on the National Stock Exchange (NSE).The average daily equity derivatives turnover in January touched Rs150 billion (more than $3 billion).
  • Bank reform and the development of a properly structured mortgage market have been on the Russian agenda for years. Only now does implementation look set to begin. Ben Aris reports.
  • Last month, at Hong Kong's biggest party, the annual Rugby Sevens festival, an unusual trend emerged among Hong Kong's investment banks. The softer side of those hard-nosed masters of the universe was on display, manifested in the décor of their hospitality suites.
  • Liquidity poll April 2004
  • Asia's domestic wealth managers have to reassess their business models if they want to compete for the significant growth forecast for the market over the next three years.
  • Madrid has returned quickly to some kind of normality following the terrorist attack last month. There is still a steady flow of mourners to the sea of candles that commemorate the victims, but elsewhere in Atocha Station commuters were streaming from the platforms within a week of the attack, just as they did before. The market has responded in a similar fashion. Although the Ibex 35 dipped sharply following the attack and the election that came quickly after, within a week it was moving broadly in line with the other major world markets. The main reason for this is that despite the shock of the Socialist Party (PSOE) election victory and the animosity between the two main political parties, the country's political divisions are more about the war in Iraq and the style of the outgoing government than economic philosophy.
  • Ferit Sahenk, general manager at Dogus Holdings, suffered from unlucky timing the last time he tried to sell a stake in Garanti Bank to Italy's Banca Intesa. It was September 2001. The due diligence had been done twice over, all loose ends were tied. The only thing that remained for closing was the deal approval of Intesa's board.
  • With volume in the EMEA equity capital markets up 132% this quarter compared with the first quarter of 2003, according to Dealogic, European equity capital markets appear to be in rude health. The IPO market in particular, which raised $7 billion through 39 deals, is at its strongest since the fourth quarter of 2001.
  • Americans have been having a lot of fun with, a new website that searches the public record for political donations. Euromoney, of course, was most interested in gifts from US bank CEOs. George W Bush came out well on top, garnering the maximum $2,000 donation from almost every CEO on the list. But there were surprises among the Democrats. Dick Gephardt pulled in more donations than any other candidate and Howard Dean got none at all.
  • As Putin's rule becomes more established, the political trend in Russia is firmly authoritarian and centralist. But that is not necessarily a barrier to liberal economic reforms.As Putin's rule becomes more established, the political trend in Russia is firmly authoritarian and centralist. But that is not necessarily a barrier to liberal economic reforms. Ben Aris reports.
  • Results of Euromoney's biggest ever credit research poll indicate that the development of relationships with continental European investors is crucial to success.
  • Several fund managers are taking advantage of the increased interest in currency markets by setting up high-margin currency hedge funds. But before they invest in such products, investors should examine the offerings closely. Julie Dalla-Costa reports.
  • With increasing competition in the covered bond market, Pfandbrief issuers are working hard to retain their pre-eminence. But as the Landesbanken prepare to lose their state guarantees, Pfandbriefe are becoming a crucial financing tool. Mark Brown reports.
  • Investors in European high-yield bonds have fought hard for structural security. Issuers that bypass it will have to pay a premium.
  • If Banca Intesa follows through on its interest in Garanti Bankasi, Turkey's banking market and the general economy could receive a big boost. David Judson reports.
  • Having suffered significant losses when the technology bubble burst, Scandinavia's high-net-worth individuals have become more demanding about products and services they expect from their banks. And with the number of wealthy predicted to rise, banks are being spurred to tailor their offerings to suit these clients. Helen Avery reports.
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