European Currency Unit bonds make up a growing segment of the international capital market.
The ECU is the unit of account for the European Community's multinational organizations and the way the community's central banks settle their accounts. It is a weighted average of the currencies of the nine member countries of the European Monetary System plus the British pound, the Portuguese escudo and the Greek drachma.
The ECU, now worth about $1.31, is subject to price fluctuations as the currencies that make it up change. It is actively traded on foreign exchange markets.
As 1992 and the economic union of Europe approaches, it has been recommended that Europe proceed toward complete monetary union, with a central banking system modeled on the U.S. Federal Reserve Bank and a single currency, possibly the ECU.
With this possibility in mind, as well as the growing importance of the European Community, many more ECU-denominated issues have been marketed in recent years. In 1983 there were $2.2 billion of Euro-ECU bonds outstanding. By mid-1990, over $50 billion ECU bonds were outstanding.
With European unity in 1992 and the possibility of a single currency by the mid-1990s, currencies will stabilize and interest rates will converge.
The ECU represents a middle-of-the-road investment, since it is a weighted average of currencies. Yields are higher than on German issues and about the same as French, but lower than British or Italian.
The ECU, French, Italian and British issues all provide double-digit returns. Analysts suggest zero- to four-year maturities, depending on how nervous you are about current events.
The Treasury on Tuesday will offer a two-year note in $5,000 minimums and on Wednesday a four-year note in $1,000 minimums. They should return 8.15 percent and 8.53 percent, respectively.