There were four key events that highlighted the Eurobond and international bond markets during 1990. Eurodollars, because of their liquidity and in spite of the dollar's decline in value, accounted for $37 billion of straight Eurobond issuance, out of a total of $142 billion. The Eurodollar issues were followed by Euro-yen issues, $20.9 billion; Euro-Swiss franc issues, $16.6 billion; and Euro-ECU issues, $16.7 billion.
German reunification caused the volume of Eurobonds denominated in marks to decline in 1990. Heavy borrowing in Germany, estimated to have been in the neighborhood of 80 billion marks, forced interest rates to the 9 percent level in Germany, which discouraged borrowers from issuing bonds denominated in marks. For the current fiscal year, it is estimated that Germany will have to borrow 140 billion to 150 billion marks for its unification program. That amounts to 4 percent to 5 percent of its gross domestic product, far larger than U.S. deficits compared with gross national product during the 1980s.
During 1989, when the Japanese stock market could go nowhere but up, $58.6 billion of equity-warrant types of issues were marketed in the Eurobond market. That's 54 percent of the total amount of Eurobonds issued. These equity-warrant issues were especially linked to the Nikkei index for the Tokyo stock market. Most of the underwriters were Japanese, the issues came in Eurodollars and the dollars were then swapped into yen. In 1990, with the Nikkei average off as much as 48 percent in October, and finally closing the year down 35 percent, the volume of new equity-warrant issues in the Eurodollar market plummeted to $18.2 billion.
Another sign of the times in 1990 was the explosion of ECU (European currency unit, a composite currency made up of specific weightings of the members of the European Community) financing. This financing occurred both in the Euromarket and in the domestic markets of certain countries. In the latter situation, France issued ECUs and Italy marketed large issues of ECUs as well. Some $19.4 billion of ECU-denominated issues came to market in 1990 versus $9.0 billion in 1989. The ECU issues became increasingly popular as a currency because of the potential use of the ECU as the single currency in Europe.
In Britain, "building societies" issue floating-rate mortgages. To obtain funds to lend as mortgages, the building societies issue floating-rate Eurobonds, denominated in sterling. In 1990, they issued $10 billion of floating-rate mortgages against $5.9 billion in 1989.
The Treasury will offer a two-year note on Wednesday in $5,000 minimums, and a five-year note on Thursday in $1,000 minimums. They should return 7.15 percent, and 7.70 percent, respectively.