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EURONEXT could cover the costs of its merger with its net profits for the first half of 2000 alone. The merger of the Paris, Amsterdam and Brussels stock exchanges, which is scheduled to become the first integrated European exchange on September 22, appears unhindered by the infighting that has marred the iX merger.

* AIG SunAmerica Institutional Funding II Rating: Aaa/AAA

Banca Popolare di Lodi has signed a euro3.5 billion ($3.24 billion) Euro-MTN programme. Morgan Stanley Dean Witter is the arranger and it will also be the bookrunner off its inaugural, due to be announced next week. An official from the bank said: "We don't have a fixed funding plan and will issue as and when we need it." The borrower, which is a mutual bank based in northern Italy, began its two-day roadshow in London and completed it in Dublin yesterday, July 20. The dealer group off the programme comprises ABN Amro, Bear Stearns, Credit Suisse First Boston, Deutsche Bank, Dresdner Bank, Lehman Brothers, Morgan Stanley Dean Witter, Nomura, UBS Warburg and Unicredit Banca Mobiliare. The bank has a long-term rating of A- from Fitch and subordinated long-term issues are rated BBB+ by Fitch IBCA. It is the fifth Italian bank to sign in 2000.

If one word has to be chosen to describe the atmosphere of the market since the start of 1998, frustrated is more accurate than panicked. Although the international capital markets have seen almost a decade without the unparalleled financial turmoil of the past six months, MTN experts are managing to keep their cool. For new issue MTNs, flows have been lacking with February this year being the month in which they almost dried up altogether. There have always been trades to do, it's just that there are lots of dealers chasing them. Dealers complain that the quality of trades has been poor and subsequently, so have their fees. Resentment from primary market towards secondary market MTN desks has grown since they have seen more action due to cheaper prices. Yet the general feeling is that this isn't a market crisis but an uncomfortable dip in an upwards curve and this is shown when one dealer jokes: "If things don't pick-up soon, I won't be able to afford my Ferrari at the end of the year." Japan, or at least the lack of it, has been the talking point of the market over the past quarter. But, the exact reason for its absence is a bone of contention. There are those players who say that the Asian crisis is to blame, others who think that Japan is slowing down because of the year end, and many who think it's just a bit of both. Yet it cannot be denied that the Asian contagion has had far reaching effects: it will be some time before the memory of the head of Yamaichi weeping on world-wide television is forgotten. Banks with exposure to not only Japan but to Asia as a whole have seen their ratings downgraded as a result of poor credit quality. And there are some dealers who still predict a trying time for non-Japanese Asian banks. Standard & Poor's does not expect to see Japanese banks in a more favourable light, at least in the medium-term, despite regulators' stabilisation efforts. According to the agency, what market players call "the big squish" (allowing weaker Japanese banks to fail) may help restore confidence in the Japanese system in the long-term. But the process will take time and may result in further pressure on ratings in the interim. As for the Japanese investor base, there are still those investors who are interested in the Euro-MTN product. Admittedly prices in the domestic market have been tempting Japanese investors away from off-shore markets so far this year. But dialogues between dealers and investors have been more numerous and of a more optimistic note towards the end of the quarter. With investors in general, there has been a noticeable flight to quality. Triple-A rated paper accounted for approximately $7 billion-worth of trades in the second quarter of 1997. This figure has risen more or less steadily to $15.2 billion for the first quarter of 1998. On the flip side, double-A rated MTNs have declined over the past year whilst single-A issues have remained constant. Currency-wise, no one feels that the Asian crisis has been so bad as to trigger the demise of yen but it is likely that it will not dominate the Euro-MTN market to its previous extent. One way this is forecast is by noting the present decline of yen-denominated trades. Although the table of Volumes for top 10 currencies for the past four quarters still places yen in overall pole position, dollar issuance surpasses that of yen during the first quarter of 1998. The volume table of JPY issuance underlines this relative decline. In the light of the fall in yen, European currencies are rising. The move towards Economic Monetary Union (Emu) is also partly responsible for this trend. The figures show that Ecu issuance over the past four quarters has steadily grown. Similarly, escudo is going from strength to strength. Once Emu has reached fruition, European currencies will receive even more of a boost. The opening up of domestic markets, such as the French and Spanish markets which currently produce synthetic deals, will make this even more the case. Exotic currencies are also becoming more popular. Looking at the past three months, a big shock is the amount of South African rand-denominated trades issued since the beginning of 1998. Rand has been placed in the table of top 10 currencies, volume-wise, for the first time. More issues of rand have been made than of Hong Kong dollars, French francs or Belgian/Luxembourg francs, which is surprising. On the origination side, desks have continued to be active. There has been a drop off in signings this quarter compared to the first quarter of 1997, but it is slight. There is less in the pipeline too. Yet there has been a noticeable change in the type of new borrowers coming to the market. They are tending to need more guidance than before since the sophisticated issuers already have programmes. Frequently they do not already have a rating since they are coming less and less out of mainstream areas. The number of Latin American programmes recently signed shows this. The number of issuers looking to set-up facilities is higher than previously and originators expect more prog-rammes to arrive towards the end of this calendar year. Most traders are equally optimistic regarding the rest of 1998. The most telling period will be the next few weeks following the year end. Although, when asked if the second quarter of 1998 will be better than the first, one trader says: "It couldn't get much worse."

Pro-Emu pundits can breathe a sigh of relief, at least where the Euro-MTN market is concerned. The all-important first quarter of 1999 has passed with relative ease and the new single currency is off to a flying start. It could easily have been a time of havoc in international capital markets but the market has welcomed the euro with open arms. Flows have been good despite the rocky background of the financial chaos which stemmed from Russia in the latter half of 1998. The euro's exchange rate value may be slipping compared to other currencies but, as a denomination for Euro-MTN debt, the currency is strong and demand for it is growing. There are $62.17 billion outstanding in total Euro-MTN debt denominated in euros for the first quarter this year. That is second only to dollar issuance which totals $75.59 billion for the period, according to MTNWare. However the euro debt is off 605 issues, while that for dollars is off 466 issues. In volume terms of non-syndicated ecu/euro issuance, the currency shot up from $4.88 billion for the last quarter of 1998, to $21.11 billion for the first quarter this year. Yen continued its slow growth rising to $15.85 billion so far this year from $13.65 billion for the same period last year. Demand for legacy currencies has almost completely fallen off with the volume of non-syndicated Deutschmark trades given as a mere $401.10 million this year. In contrast, the convergence play on Greek drachma has caused its issuance level to jump from $50 million at the end of last year to $292.60 million so far in 1999. Notably, the South African rand leads the way for currencies from emerging markets. There was no non-syndicated rand debt issued in the last quarter of 1998 but already this year there has been $256.31 million issued. On the structures side, the market has been fairly cautious this quarter. There has been the usual mix of coupons with most debt in plain vanilla form. The volume of floating rate notes issued has increased from $8.20 billion in the first quarter of 1998 to $19.99 billion so far this year. The volume of dual currency business is still dropping. $31.22 million was issued through the structure this quarter following a steady fall in issuance since this time last year when the figure was $671.17 million. The amount of structured business stands at $4.74 billion for this quarter which, although down from the previous three quarters, is slightly more than that issued for the first three months of 1998. Equity-linked trades have been popular this year, reflecting the growing emphasis on credit in the market. Basket-linked notes continue to prove popular with investors and CMS floaters are flavour of the quarter. According to one dealer, borrowers are becoming more sophisticated in general, realising that they must help accommodate investors in their search for yield. She says: "A wider range of borrowers can now take on more complex structures or feel happier about doing so." Most investor demand has been for second tier borrowers. This was the same as last year except for the flight to Triple-A names which marked the last quarter of 1998. Despite the enthusiasm for lesser rated credits, demand for names rated Baa1 and below has fallen again since December last year. Ripples in the market caused by the Russian crisis are still in the forefront of fund managers' minds so the potential spotted among borrowers in emerging markets is still largely untapped. One originator is optimistic. He says: "Eastern European borrowers died a death. But we're still talking to some of the higher quality borrowers from central and eastern Europe. We may see some of them coming to market once Russia stabilises a bit. We have to wait and see." As expected, German borrowers have reaped the benefits of Emu without delay. They have issued $14.15 billion in non-syndicated MTNs so far to come in top of the issuer volume tables. They are closely followed by American borrowers with $14.13 billion. The Japanese trail behind in third position with $8.13 billion. Italian issuers are also wasting no time in making a name for themselves. They have jumped from $358.44 million of issuance in the second quarter of 1998 to $1.80 billion so far this year. But 1999 is a unique year, sandwiched between the introduction of a single currency for Europe and the millennium bug which may cause technological havoc in the year 2000. It's been so far so good for this year but many market participants predict that the next quarter will be the most exciting of the year. One dealer says: "The last quarter is going to be dead. Issuers have got to get business done in the first three quarters of this year. But the second quarter is where the action is going to be and we might see a loosening of spreads."

FORD Motor Company and its financing unit Ford Motor Credit launched $7.5bn of global bonds this week, leading yet another stellar week of more than $13bn of corporate issues in the US high grade market. The deal, led by Bear Stearns, Merrill Lynch and Salomon Smith Barney, was the fourth largest US corporate bond issue ever.

America is growing old. The first of the so called baby boomer generation, the 76 million Americans born between 1945 and 1964, are about to hit retirement. And the life insurance market has never seen such competition for their nest eggs. As more and more companies fail to provide employee pension plans, it is the life insurance industry which has come to dominate the retirement market. The MTN market has become the new battle ground for these life insurance giants such as SunAmerica. And they are fighting it out using GIC-backed (guaranteed investment contract)programmes. In the last year, five insurance companies joined SunAmerica in signing GIC-backed programmes: Jackson National Life, John Hancock, Pacific Life and Principal Life. It is rumoured that Transamerica, currently in takeover talks with Aegon, will shortly join this list. Mike Rollings, principal, Morgan Stanley (MS), New York, in charge of MS's GIC issuers in America explains why these borrowers are entering the MTN markets at such a rate: "First, the GIC market in America has contracted significantly over the past few years. Second, GICs and funding agreements have primarily been issued in the one to five year sector. And third, the ability to expand and diversify the investor base is extremely attractive." Not only was funding in America becoming increasingly tight for life companies but there were some inherent benefits about issuing their paper in the international capital markets. One was a legal nicety. Joe Celentano, assistant vice president, Pacific Life Insurance Company, explains: "Using our special purpose vehicle to issue GIC-backed paper is a way of getting funding out of Europe without having to register as a life insurer in London. We are always looking for other avenues for funding especially now the domestic market in America has become a harder market to compete in." Another attraction was the life companies' relative unfamiliarity to Euro-market investors. More than this, they carried with them some pretty attractive credits for what were essentially domestic insurance companies. All the GIC-backed programmes carry double-A ratings. SunAmerica, since its buyout by AIG, is rated triple-A by Standard & Poor's. The reason why these companies carry such ratings is to do with the nature of the GIC-backed programme. The procedure is that the life insurance company sets up a special purpose vehicle, which then buys GICs or funding agreements from its parent company. The only difference between the two is GICs can only be sold to qualified investors, i.e. pension funds and investment contracts can be bought by unqualified investors. Both are popular investment products in the American insurance industry. All the notes issued by the special purpose vehicles are secured by these GIC or investment contracts. Therefore the notes issued off GIC-backed programmes carry the claims paying rating of the life company rather than the rating for the senior debt. As Joe Celentano at Pacific Life explains: "A lot of people talk about these structures being asset-backed. But that's not right. With GICs you are looking at the credit of the underlying life company". An investor buying GIC-backed paper is therefore buying into the business line of the insurance company itself. In an insolvency situation the GIC-backed paper ranks pari passu with the life policies themselves. The other feature that distinguishes a GIC-backed programme from a standard facility is how the funds are used. Joe Celentano explains: "These programmes are not used like typical EMTNs, where the proceeds are used to run the issuer's business. GIC-backed programmes are used for spread-arbitrage." Using GICs to play the straight reinvestment game has become a profitable business for life companies in America. And it is something that they wish to recreate in the euromarkets. But from a dealer's perspective it is largely irrelevant what the underlying security is and how the funds are spent. It is the fact that they are such opportunistic borrowers that is important. Matt Carter, head of Euro-MTNs at CSFB, points out: "Though the GIC structure maybe unusual, at the end of the day it's just an MTN. Rather than issue a GIC itself, they are issuing something in a far more user-friendly format." At the moment the MTN market seems to have a large appetite for GIC-backed paper. According to MTNWare, there has been $1, 352.54 billion worth of GIC-backed paper so far this year. This compares with $4,377.38 for the whole of last year. Rollings at Morgan Stanley says: "This time last year there were basically two players on the scene: SunAmerica and Pacific Life. Now there are six or seven and I reckon the number of programmes will grow in 1999." He goes on to explain: "Investors have become increasingly comfortable with GIC-backed programmes. After all, they are not a very complex. They are very easy to understand: the credit is basically straight corporate." And Matt Carter agrees: "There is a lot of potential in both the private and public markets for more issuance, from these guys. And there is a growing investor base that is staggering. Certainly a momentum exists to absorb a lot more GIC-backed paper." Some people believe, however, that the investor base is too shallow at the moment. Daniel Cogoi, head of Euro-MTNs at Paribas, says: "GIC-backed paper is bought by institutional fund managers: people, who can sit down and analyse the structure and the credit behind it. A lot more education is needed before these names become familiar in the retail market." Issuers also sound a word of caution. Celentano says: "You have to be a disciplined issuer: you can not issue for the sake of issuance otherwise you will be squeezed on the asset side of your balance sheet. We watch our programmes very carefully at Pacific Life." But as long as the retirement industry continues to grow as it has in America, with someone turning 50 at the rate of one every seven seconds GICs are here to stay.

Commercial Guarantee Assurance has been added as an issuer to Guaranteed Finance Company's $2 billion Euro-MTN shelf. Barclays Capital and UBS Warburg have been dropped as dealers and Salomon Smith Barney has been added to the group.

The newly created GZ-Bank AG Frankfurt/Stuttgart has mandated Deutsche Bank AG and Schroder Salomon Smith Barney to lead manage a US dollar benchmark issue after the summer slowdown. The transaction will be the bank's first benchmark since it was formed from the merger of GZB Bank and SGZ-Bank. GZ will also increase its debt issuance programme to Eu10bn.

BA Asia, Citibank, Deutsche Bank, HSBC, Mercury Asia, National Australia Bank, UBS Warburg and Westpac Banking Corp are dealers off HSBC Bank (Australia)'s euro2 billion ($1.85 billion) Euro-CP programme, see MTNWeek, issue 185.

South Korean Hana Bank has set up a $1.5 billion Euro-MTN programme. It replaces Boram Bank's cancelled $1.5 billion shelf. Hana Bank bought Boram Bank in January 1999. Merrill Lynch is the arranger and the dealer panel includes ABN Amro, BA Asia, Deutsche Bank, Salomon Smith Barney, Standard Chartered Bank, Westdeutsche Landesbank, and the following, which were also dealers off the Boram Bank shelf: Barclays Capital, Merrill Lynch, Nomura and UBS Warburg.

HSBC has arranged two programmes for its own banking group. HSBC Holdings has signed an unlimited debt issuance programme with HSBC as the sole dealer. And HSBC Bank USA has signed a $4 billion global MTN facility. HSBC Securities USA and HSBC are the dealers.