International Financial Markets

With a total of $1 572 billion, financing activity on the international capital markets in 1996 reached a new record-high (see Table 1). Last year’s total was 22 per cent above the previous record of $1 284 billion set in 1995. Issuing activity on international bond markets benefited from the favourable climate in underlying domestic markets. Particularly, in the latter part of the year, long-term domestic reference interest rates declined markedly, which induced an unusually busy fourth quarter on international bond markets. Last year, new international bond issues reached an all-time high of $711 billion, an increase of 52 per cent as compared with the $467 billion recorded in 1995. Last year’s figure was also significantly above the previous record of $481 billion set in 1993. International placements of equities were buoyed by strong stock markets. Setting a new record, such placements increased 41 per cent year-on-year – from $41 billion to $58 billion.

By contrast, the volume of international syndicated credits, which had grown significantly in the preceding years, experienced a decline of some 7 per cent to $343 billion.

New programmes for medium-term euro-notes amounted to $375 billion, up from $346 billion in 1995, while arrangement of new euro-commercial paper programs increased from $56 billion to $81 billion.

Residents of the OECD area arranged financing on international markets worth $1 390 billion, up from $1 175 in 1995, while recourse to the market by borrowers from non-OECD countries totalled some $130 billion, up from $91 billion. In terms of market shares, borrowers from OECD countries accounted for some 88 per cent of all financing activity on international markets, as compared with some 92 per cent in 1995. The decline in the market share for OECD countries was mirrored in a rise in that of non-OECD countries from 7 per cent to 8 per cent and in an increase from 1 per cent to 3 per cent for international development institutions. Within the OECD, the most important countries in terms of global financing were the United States with $405 billion, Germany with $178 billion, the United Kingdom with $117 billion and France with $89 billion. It may be worth noting that financing activity by Japanese borrowers, who are normally among the largest in the market, amounted to only $85 billion as compared with $121 billion in 1995.

Last year, issues of all types of international bond issues expanded as compared with 1995. Thus, straight bond offerings increased from $353 billion to $464 billion while floating rate note issues more than doubled from $79 billion to $166 billion. At the same time, issues of equity-related bonds jumped from $18 billion to $36 billion, in part reflecting the fact that most major stock markets rallied. Finally, other bond issues, most notably structured yen bonds, surged from $17 billion to $44 billion.

All major categories of borrowers participated in the sharp rise in new international bond issues. Thus, governments, including central banks and state and local governments, increased their recourse to international bond markets from $76 billion in 1995 to $98 billion in 1996, an increase of 29 per cent. Concurrently, international bond offerings by private (non-bank) corporations and banks surged from $145 billion to $237 billion and from $154 billion to $244 billion, respectively. For both private (non-bank) corporations and for banks, these were, by far, the highest figures ever recorded. Finally, international bond issues by international organisations increased from $36 billion to $51 billion while bond offerings by public enterprises rose from $57 billion to $80 billion.

With yields on benchmark government bonds declining in the OECD area, many investors have turned to emerging markets for a pick-up in yield. At the same time, several emerging markets witnessed an upgrade of their credit rating. Against this background, issuers from emerging markets have generally found strong investor interest in their new primary offerings of securities, in particular in the latter part of the year. International bond issues by emerging markets in South America, Eastern Asia and Central and Eastern Europe reached $55 billion, as compared with $24 billion in 1995.

International dollar-bond issues reached $309 billion, significantly up from the $177 billion recorded for 1995. Factors behind this development included a continued expansion of securitised issues by United States private (non-bank) financial institutions and the United States dollar’s strength on the currency markets.

International bond offerings in Deutschmark reached an unprecedented DM 151 billion as compared with DM 104 billion in 1995. Internationalisation of the German public-sector and mortgage bond markets (“Pfandbriefe”) was an important driving force behind this rise in issues.

International bond issues in yen amounted to ¥ 8 620 billion as compared with ¥ 7 668 billion in 1995. While offerings of foreign bond in Tokyo (Samurai bonds) increased from ¥ 1 719 billion to ¥ 3 903 billion, euro-yen issues declined from ¥ 5 949 billion to ¥ 4 717 billion. The rise in yen-bond issues owed much to a sharp hike in offerings of structured bonds, primarily targeted at retail investors.

An important trend last year was the marked increases in offerings of international bonds denominated in other currencies than “the big three”. For example, issues in pound sterling jumped from £14 billion in 1995 to £33 billion and issues in French francs surged from FF 63 billion to FF 235 billion. Also, after years of virtually no new issues, the international bond market in New Zealand dollars witnessed an explosion of activity, with issues amounting to NZ$ 6 billion.

International placements of equity increased markedly from $41 billion in 1995 to $58 billion last year. Taking advantage of strong equity markets, both the volume of new primary issues of equity as well as secondary offerings advanced. At the same time, international equity placements in connection with privatisations reached some $17 billion this year, up from $15 billion. However, contrary to developments in 1995, privatisation was not the main driving force behind the rise in international equity placement. In light of the heavy schedule in the coming months, not least on the privatisation front, international placement of equities is likely to continue at a high pace in the months ahead.

The volume of internationally syndicated credits fell from $370 billion in 1995 to $343 billion last year. It is quite possible that many private corporations have found the terms offered on the international bond markets, in particular in the latter part of last year, more attractive than on the syndicated loan market. At the same time, average recorded spreads on syndicated loans increased from 50 basis points to 56 basis points and it would appear that the period of rapidly declining average spread is over. This being said, borrowers from non-OECD countries continued to experience an improvement in borrowing terms.

Arrangements of new committed and uncommitted borrowing facilities increased from $406 billion in 1995 to $460 billion last year. This development reflected an 8 per cent increase in the establishment of medium-term euro-note (EMTN) facilities which rose to $375 billion and a marked expansion in the arrangement of euro-commercial paper (ECP) programmes from $56 billion to $81 billion. Last year, net issuance of paper under all existing programmes amounted to $234 billion, bringing the total outstanding volume to $829 billion at the end of December.