Eurodollar bonds closed as much as a fullpoint lower as the dollar fell to a post-war low against the
yen and interest rates on U.S. Treasuries rose almost to eight
pct.
    The dollar fell to 144.30 yen and recovered only slightly
after foreign exchange traders in New York said the Federal
Reserve intervened to buy dollars for yen.
    But despite the dollar's woes, Japan Development Bank,
wholly owned by the Japanese government, raised 150 mln dlrs in
a seven-year eurobond carrying an eight pct coupon.
    Lead manager for the issue, Bank of Tokyo, said the deal,
at the time of pricing, was to yield 60 basis points over
comparable maturity Treasuries. However, by the close of
trading, that spread had narrowed to 55 and continued to slide
in aftermarket activity.
    Dealers noted that the spread to Treasuries is wide for a
newly-priced AAA-rated borrower like Japan Development Bank.
For example, earlier this week, the World Bank raised U.S. Dlrs
at only 25 basis points over Treasuries. Dealers said that
because the borrower comes to market fairly infrequently -- the
last time was about nine months ago, the spread appears wide.
    But officials at Bank of Tokyo said the spread is intended
to compensate for the lack of liquidity and for the uncertainty
currently associated with owning dollar securities.
    The officials said the borrower opted to raise funds in
dollars, despite the currency's weakness, because it is the
only market deep enough to accommodate an issue of that size.
Japan Development Bank is not allowed to raise euroyen.
    Market sources said the deal is likely to be swapped into
yen as the borrowers previous issues were.
    Late in the day, the deal was trading just inside its fees
at less 1.75 less 1.55.
    Also issued today was a 40 mln dlr five-year offering from
Toshiba International Finance (Netherlands) carrying a 7-3/8
pct coupon and priced at 101-1/2.
    Three equity linked dollar denominated deals were offered,
the largest of which was a 200 mln dlr offering by Sekisui
Chemical Co and guaranteed by Sanwa Bank Ltd. The issue has
equity warrants attached and late in the day it was quoted on
brokers' screens at 106-1/2, bid only.
    The Australian dollar market continued active, with
Canadian Imperial Bank of Commerce offering a bond of 125 mln
five-year with a zero coupon priced at 54.
    Late in the day, the deal was quoted at less 1-1/4 bid. A
similar deal yesterday by Toronto Dominion, priced slightly
higher at 54.37 pct for an effective yield of 13.52 pct, was
quoted slightly lower at less 1.37 less 1.25 pct.
    Dealers said that investors are apparently willing to
accept zero-coupon bonds yielding 50 to 100 basis points less
than annual-pay bonds because their are tax benefits for retail
buyers. Also, the bonds are more volatile and if interest rates
fall in Australia as many analysts expect, the potential for
capital gains is greater with a zero-coupon. The bonds are also
better for those who expect the australian dlr to appreciate.
    Dealers said that the Australia dlr zero coupon bonds are
apparently being placed with retail accounts on the European
continent with very little placement being done in Japan.
    Euroyen issues sank slightly in line with prices on
domestic Japanese bond markets but recovered in late trade as
the yen soared. After the markets closed, the dollar fell to
144 yen.
    The European Investment Bank (EIB) issued a 40 mln euroyen
issue paying 4-5/8 pct over seven years. This is the second
seven-year yen issue in two days -- a sector of the yield curve
in Japan that dealers feel has not yet become overpriced.
 REUTER
