International financing activity was high in the first three quarters of 1993, with international bond issues exceeding the total raised during the whole of 1992. Much of this was refinancing of maturing debt; sovereign borrowers also tapped the market to replenish foreign exchange reserves or to finance widening fiscal deficits. Many issues were at longer maturities than has been usual in the euromarkets, as borrowers took advantage of historically low yields and investors looked to longer maturities for higher yields. Globally issued bonds were increasingly popular.
Turbulence within the European exchange rate mechanism (ER ) and expectations of cuts in European interest rates had a significant impact on activity in European securities and derivatives markets. New eurobond issues in ERM currencies were low in July, but Deutsche Mark issues increased sharply in the following two months, largely at the expense of the French franc. New sterling debt issues in the first three quarters of 1993 exceeded the previous annual record set in 1991.
Equity prices rose in all the major markets during the third quarter, in response to expectations of interest rate cuts in some countries and economic recovery in others. With the UK market rising to new heights during August, new equity issues in the year to date exceeded annual totals for all years except 1987.
Activity in the syndicated credit market remained fairly flat, with the number of announcements slightly below those in the same period of 1992. A number of factors contributed: demand for bank finance was dampened by the uncertain prospects for the world economy; the buoyant capital markets offered widespread alternative funding opportunities; and banks continued to take a cautious and selective approach to new lending (though there are signs that spreads narrowed slightly for highly rated borrowers).
Published on
01 December 1993
Financial market developments