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For the past two years credit analysts have pointed to the Japanese credit market's gradual transformation into a real credit market. The general widening in spreads from 1997 indicated that Japanese investors were demanding greater rewards in return for assuming credit risk. In addition, credit spread data showed that investors were beginning to differentiate more among credits. But from the second quarter of this year, despite progressive downgrades by rating agencies, there has been a dramatic tightening in Japanese credit spreads. Why has this happened? Credit spread data for Japanese borrowers was not particularly reliable until about 1997. This was partly due to the lack of liquidity in the market. More importantly, the data which existed was not particularly interesting or useful. Investors did not demand markedly different pricing for issuers of different credit quality. After 1997, as the market became more liquid and investors began to differentiate more among credits, the data became a useful tool for analysing the Japanese credit market. The database of Japanese credit spreads developed by Dresdner Kleinwort Benson in Tokyo enables us to analyse the Japanese credit market at different points in time. Prior to 1997, Japanese investors were relatively insensitive to credit risks in the domestic market. In general, Japanese investors believed that their holdings of bonds issued by Japanese issuers were risk free. Therefore in most cases there was very little, if any, risk premium demanded of lower rated issuers. In addition to the belief that their investments were essentially risk free, Japanese investors adopted a buy-and-hold investment strategy which limited the development of the secondary market. These factors contributed to a highly illiquid corporate bond market in which spreads were not a true reflection of credit risk. The lack of sensitivity to Japanese credit by Japanese investors was clearly visible in the new issue MTN market at the time. Deep sub-Libor spreads for Japanese borrowers were commonplace. This type of funding enabled many borrowers to buy highly-rated assets with matched funding through their MTN programmes at substantial spreads. Since this is a low risk business, with decent returns, this anomaly was of course exploited by many offshore Japanese issuers. Following a series of events in the Japanese credit markets since 1997, Japanese investors were forced to change their view. Investors had to accept that a major Japanese company could default. This was a major change in perception and had a dramatic impact on credit spreads. For some years, Japanese banks had been charged a premium for their borrowings in the international markets - the Japan Premium. However from 1997 for the first time, there was an emergence of real credit spreads for Japanese issuers in the domestic market. The change from the first quarter of 1997 to the first quarter of 1999 was enormous. This change occurred for a number of reasons. Credit collapses: Since 1997 there has been a series of unprecedented credit collapses of institutions and companies previously believed immune from default or collapse by Japanese investors. The well publicized troubles of the financial sector, along with the bankruptcies of certain large retailers, construction companies and trading companies resulted in a dramatic change in the perception of Japanese credits. Investor losses: In the face of deteriorating portfolios, many of the previous buy-and-hold investors disposed of assets. This gave some investors their first taste of losses from the depreciating credit value of bonds. The lack of liquidity in the market exacerbated these losses. Investors therefore began to feel they were not being compensated for the credit risks they were taking. Increased corporate bond issuance: These events occurred at the same time as an increase in issuance and outstandings in the corporate bond market. The reasons for the growth in the corporate bond market include the reining in of balance sheet growth by the banking sector, increased emphasis on corporate bond underwriting by subsidiaries of the Japanese banks and the general move in the market towards disintermediation. Development of credit derivative market: Another factor which contributed to the development of the credit market in Japan was the growing use of credit derivatives. This provided opportunities for investors and dealers to price and trade Japanese credits in ways which were not possible previously. What did all this mean for the new issue MTN market? This outward movement in spreads was also reflected in spreads for Japanese corporate issuers in the MTN market, including those overseas subsidiaries of Japanese companies which had often been able to raise funding at deep sub-Libor spreads. In the last quarter of 1998 many were caught out. Some single-A rated Japanese corporates, which had previously paid sub-Libor in dollars for their funding, had to pay in excess of dollar Libor plus 100 basis points in order to raise even one-year funding (although this example was temporary and was partly a liquidity issue). This had the effect of crowding out non-Japanese issuers from some sectors of the Japanese MTN market. Japanese asset managers and corporate investors found they were able to achieve returns on Japanese credits which they had previously only achieved by buying MTNs with market-risk structures embedded. For many foreign issuers, therefore, Japan was no longer a market which provided them with good quality funding. By this stage a large part of the investment was going to the Japanese issuer sector. As a result, issuance for foreign borrowers was concentrated on smaller sized, structured deals which were often multicallable, such as inverse FRN bermudan callables and hyper reverse dual currency callables. Issuance in this area tended to be dominated by a small number of highly-rated borrowers, reflecting the fact that investors were focusing on the market risk of these structures and wished to minimize credit risk. If we had written this article four or five months ago, it would have ended here. The conclusions would have been that Japan has changed dramatically, that we have the makings of a real credit market in Japan, and that a large part of the MTN market will continue to be dominated by Japanese issuers paying attractive credit spreads. But in the last few months, the dramatic tightening in Japanese credit spreads has confounded some credit analysts and had major implications for issuers wishing to access the Japanese market. From the latter half of 1998 into the first quarter of 1999, some analysts noted that the Japanese market was the most attractive G7 country in terms of credit spreads. This was due to the over-sold situation on some Japanese credits and the related lack of liquidity. There was therefore some expectation that credit spreads would tighten. However, nobody foresaw the recovery in spreads, which has occurred. Once again, spreads have narrowed dramatically. The first factor is that a demand/supply imbalance has emerged as many issuers completed their refinancings prior to the end of March 1999. Yet, the investor base has remained very liquid. In addition, the injection of public funds (kou-teki-shikin) into the banking sector has played a part. Although, overall bank lending numbers continue to register year-on-year declines, lending competition among banks has been increasing for certain types of borrowers. For example, some Japanese banks have been focusing on expanding their loans to higher-rated issuers. This is partly due to the proposed Bank of International Settlements risk weightings, based on rating. Along with these factors is the added impact of a slew of retail-targeted deals, which have enabled issuers to raise funds at extremely tight spreads, as some of the excess liquidity in the retail sector is mopped up. Along with these factors is the added impact of a slew of retail-targeted deals, which have enabled issuers to raise funds at extremely tight spreads, as some of the excess liquidity in the retail sector is mopped up. So does this mean we are back to where we started? Are Japanese investors now ignoring credit risk again? And what are the implications for MTN issuers? It is important to note that the market has not completely gone back to the pre-1997 situation. While spreads have tightened dramatically, there is substantial variation of spread among issuers of differing credit quality. But according to some observers, the credit spreads available on Japanese borrowers do not fully reflect the inherent credit risks. Instead, the current situation primarily reflects the demand/supply imbalance between the liquid Japanese investor base and an issuer base in Japan which does not have a huge requirement for funding. For non-Japanese borrowers, this tightening in spreads on Japanese issuers has presented opportunities for issuance. This opportunity is evidenced by the rise in the share of yen MTN issuance by non-Japanese issuers. Whereas in the first quarter of 1999 non-Japanese issuers made up around 55% of total non-syndicated issuance in yen, so far in the third quarter of 1999, that share has now risen to around 78%, according to data from Capital NET. In the third quarter of 1999, there has been a large amount of issuance by non-Japanese single-A and triple-B rated corporates and banks in the one- to two-year sector as the spreads for these issuers have exceeded those available on similarly rated Japanese issuers. In addition we have seen increased issuance of plain vanilla and reverse dual currency deals by non-Japanese issuers in the 10- to 15-year sector. While this is also partly to do with the relative credit spread versus Japanese corporate issuers, the real comparison here is with the Japanese government bond (JGB). In recent months, we have seen a substantial widening out in the spread between JGBs and swaps - back to around the same levels which we saw in the last quarter of 1998. For example, this spread in the 10-year maturity is around 50 basis points at the time of writing, whereas in February, this year, the spread was below 20 basis points. With many investors targeting a spread over JGBs, this widening out of the JGB-swap spread has enabled some double-A rated non-Japanese issuers to raise 10-year funding at attractive Libor spreads, while at the same time providing investors with an attractive return over JGBs. Gazing into a crystal ball is always hazardous, but providing the tight demand/supply position does not change dramatically, the current situation is likely to continue until we have the next credit event in the Japanese market. When or what this might be is anyone's guess. But in the meantime, some non-Japanese issuers will continue to enjoy access to funding from Japan of the type which has not been available for years.

In a low absolute yield environment where investors are comfortable to move down the credit curve in search of better returns, top sovereign borrowers like Republic of Austria (Austria) must be hard pushed to find private placements at the right price. But Austria's message to the Euro-MTN market is that it's ready to be flexible with investors and boost liquidity on the private as well as the public side. There is always appetite for good quality paper from a European sovereign but even in this clique Austria is well placed. According to MTNWare, it is the only sovereign rated triple-A by both Standard and Poor's and Moody's. Since signing its euro5 billion ($5.08 billion) Euro-MTN programme in March, this year (see MTNWeek, issue 120) the borrower has done two public deals. It is the only one of the three sovereigns to come to market this year to make it into the new issuer top ten league table. As a sovereign, Austria is keen to take advantage of its rarity value and its top notch rating. Dr Helmut Eder, managing director, Austrian Federal Financing Agency, says: "We knew some Asian investors insisted on buying MTNs which we didn't offer. So setting up the programme is a good way to stop that leak and standardise documentation. The MTN platform is an easy-to-handle, quick procedure and the least formal." The response from investors to Austria's $500 million fixed rate issue in April this year was good. The Deutsche Bank-led deal has a five-year tenor and an annual yield to maturity of 5.539t primarily to Swiss and UK investors. This marks new territory for Austria since its government bonds are mostly bought by Austrian and German investors. Although public markets will still pay a premium for a high quality sovereign like Austria, it is difficult to find good yield pick-up compared to the early 1990's when absolute yields were relatively high. Private placement may be the alternative Austria is looking for. David Shasha, senior associate director, Deutsche Bank, says: "All markets are rather emotional. Arbitrage in the public markets has all but disappeared since the start of the year and triple-A issuers have not been too frequent. Structured private placements could do it for Austria. It's just a matter of finding the right structure." Dr Eder, at the Austrian Federal Financing Agency, stresses that the Euro-MTN programme will be used opportunistically when he sees the right deal. He says: "We're certainly prepared to do private structured transactions but we have not yet seen real arbitrage material. We'll be really flexible if such an opportunity comes along." However, one dealer says: "I suspect price is a problem. It shouldn't be but it is. There just isn't the market for prices like minus 30." But the difficulties in selling Austria's paper are offset by the advantages. Matthew Carter is head of MTNs at Credit Suisse First Boston which led Austria's inaugural 10-year transaction of Sfr500 million ($307.09 million). He says: "On the demand side, many investors are pursuing higher spreads and hence weaker credits. However, on the supply side, there's a fairly limited universe of issuers in Austria's peer group and not many of them are borrowing or willing to do exotics. Austria is therefore well positioned, especially if it is open to more sophisticated trades." Shasha thinks that the key to a successful MTN programme is an issuer's flexibility in terms of size, structure and posting targets. He says: "Austria could lose out on some opportunities if it isn't able to do smaller trades. Also, if Austria actively posted its targets a lot of the guess work would be removed." An official at Warburg Dillon Read, the Euro-MTN programme's arranger, sums-up the reputation of Dr Eder and his team. He says: "Republic of Austria is always impressive with its innovation and ability to react to opportunities. The MTN programme will further facilitate its funding flexibility." Austria's Euro-MTN facility is regarded as supplementary to other funding vehicles. It also has a Treasury bill programme and a government bonds auction procedure with a debt issuance programme for syndicated bonds connected to it. All have equal priority in the funding strategy. But, it is open to any dealer to come up with ideas since Austria has no named dealer group. Dr Eder says Austria is focused on pleasing investors. He explains: "We try to create liquidity for the investor community. That's what's important. We want to intensify and develop a liquid market in notes, bonds, derivatives and repos."

Euro-MTNs were an alien concept for Deutsche Bank before 1997 but today the bank ranks as one of the top dealers in the market with over $6.65 billion traded in 1999 off 203 issues (non-syndicated deals for less than $250 million excluding SPVs, self-led deals and issues with a term of less than 365 days). The retail bank's transformation into an investment bank meant turning attention to private Eurobonds and Tiina Lee was poached from her position as co-head of Euro-CP and Euro-MTNs at Lehman Brothers, to build the business from scratch. In three years she's done just that. She joined the MTN desk at Lehman Brothers in 1992 after 18 months as a graduate trainee at Hill Samuel. Over the past eight years she's seen the market mature and grow to a point where over 1367 borrowers have signed programmes, according to MTNWare. She says: "When I started about 20 issuers were in the market and most of the business was done by issuers like Gmac and Kingdom of Belgium. But we now have a market where every major borrower in the world has a programme." Big leverage-plays on interest rates in 1993 gave birth to the structured note market and boosted the use of the MTN facility. But when the Fed raised rates in 1994 the bottom fell out of the market and investors were hit hard. Lee believes this period was a turning point for the market as banks scrambled to restructure bonds and issuers such as Abbey National, Beta Finance and Svensk Exportkredit supported the market with buy-backs. This laid the foundations for a mature and complex market. Lee says: "Right at the beginning everyone said the MTN was very flexible but nobody really knew what that meant. As dealers, investors and borrowers became smarter and more sophisticated, nearly any form of perpetual debt could be done off an MTN. Structures such as callables and equity-linked notes are now run of the mill." But if dealers and investors learn to push the potential of the product, the pressure is on borrowers to keep up. Lee's advice to prospective new entrants to the market is simple. She says: "Decide what you can and can't do off a programme early on. This cuts down on wasted phone calls from both sides. Say it up front if you can't do certain deals like credit-linked notes."

Central Bank of Tunisia (Tunisia) surprised many market players when it closed a euro225 million ($234.5 million) 10-year fixed rate trade on August 2, this year. Sceptics believed the long maturity from a triple-B credit would never sell, particularly in a spread widening environment. And some European investors did pull out. But for those riding the credit curve Tunisia is an appealing option. With its investment grade Baa3 programme rating from Moody's and BBB- from Standard & Poor's, it has an edge over other emerging market borrowers. But Tunisia found it difficult convincing some European borrowers of its credit-worthiness. The pricing of its first trade was 280 basis points over 10-year Bunds, although this tightened in the secondary market to around 270 basis points. The lead bookrunners, Morgan Stanley Dean Witter (MSDW) and Merrill Lynch, which is also the arranger, struggled to fill their books. And a 144A option was hastily added as they looked to US investors, already familiar with Tunisia from its Yankee bond issuance, to make up the remaining 30the account. Nabil Menai, vice-president, at Merrill Lynch, says: "US investors know Tunisia well and are comfortable with this type of risk. Also they are keen to diversify their portfolios away from South America and Central Europe." Tunisia issued eight bonds between 1994 and 1997 in the Yankee and Samurai markets. The MTN issue was the first in the Euromarket. Darius Ahmed-Nejad, debt capital markets, at MSDW, says: "It was a classic benchmark transaction in terms of selling a new credit story. Many European investors were not familiar with the issuer's credit prior to the transaction, and market conditions were challenging at that time, so it did well to achieve the level it did." But Ahmed-Nejad admits the issuer's demand for a long maturity did cause problems. He says: "Tunisia can achieve aggressive funding levels in the five- to seven-year loan markets. The bond market provides 10-year funding levels, which the syndicated loan market does not. It involves a bit more credit work for a 10-year offering, but the success of the issue demonstrated it was do-able." Menai, at Merrill Lynch, says: "Investors in the Euromarket don't like long maturities, they don't have the same appetite for risk because the rewards are not there as they are in the US market." But Habib Sfar, director of forex and external finance at Tunisia's Central Bank, considers Tunisian paper is a safe gamble. He says: "Tunisia is the only country in North Africa with investment grade ratings. It offers good diversification for investors who buy its paper. And Tunisia is in the Mediterranean basin so it has the benefit of close proximity and tight relationships with Europe." Ahmed-Nejad, at MSDW, says: "Tunisia has a very compelling credit story. This, combined with the fact it is a rare issuer in the Euro-MTN market, makes it a very attractive investment. Many investors have credit lines open for Tunisia because it isn't coming to the markets that often." Tunisia has a comparatively small funding requirement for a sovereign. It hopes to raise between euro400 million and euro500 million in 1999. Republic of Lebanon signed in March 1999 and already has $525 million outstanding. Tunisia signed its $1 billion facility on July 2 1999. Sfar, at Tunisia, explains it was set up for convenience. He says: "Market volatility over the past two years has meant fewer windows for issuance. With the MTN facility we have the documents ready in place for when there is a formal need for government funding." Sfar continues saying: "Tunisia needs to raise more before the end of the year but it hasn't yet been decided in what form. We have other sources of funds open in the loan markets or we could issue another bond. It is important to be present in different markets." Tunisia's debut issue off its Euro-MTN programme was a plain vanilla note but the issuer insists it is open to structures. Though Sfar, at Tunisia, says private placements are not a priority. Ahmed-Nejad, at MSDW says: "This is a new issuer in the Euro-MTN market. Someone new doesn't start with fancy structures. It will take things step by step. And anyway the straight market is very good at the moment so there was no particular incentive for a complex structure." Tunisia's is one of only a handful of African issuers in the Euro-MTN market but its successful trade could pave the way for other African sovereigns looking to diversify. Sfar, at Tunisia, says: "Tunisia hopes that its successful issue will encourage African borrowers, like Morocco and Egypt, to look towards the Euromarket for funding." Yet Danielle Coolen-Prentice, head of funding, at African Development Bank, is sceptical about how economical such funding would be for African borrowers. She says: "African issuers that come to the international markets without a guarantor are paying a high price for that. And without investment grade ratings issuance will be very difficult. The Euromarket in particular is very expensive right now." But Tunisia doesn't think it will have any problems finding investors in the Euromarket and believes it will continue to achieve good levels. Sfar, at Tunisia, says: "Spreads in the Euromarket have widened since the crises in Russia and Argentina, but for a first issue in a new market, Tunisia was pleased with the level. We got cheaper funding than some borrowers with higher credit ratings. And the range and quality of investors was very good." Tunisia plans further privatisation and increased liberalisation of its economy. Government figures report 5.5:rowth in 1999, and Standard & Poor's outlook is stable. Menai, at Merrill Lynch, thinks the issuer will stand apart from others in emerging markets. He says: "Tunisia has a well diversified economy which is doing well. Its never defaulted or restructured its debt. It also has strong connections with Europe through its EU trade agreement. Investors know this and have strong confidence in the issuer."

JOINT ARRANGERS Chase Manhattan, Deutsche Bank (bookrunner) and DLJ have extended the deadline for sub-underwriters to join the jumbo £588m debt facility backing the leveraged buy-out of United Biscuits (UB). The facility is being syndicated under the name of the new company, Regentrealm. The sub-underwriting phase was due to close today (Friday) but the three leads have given banks another week to push the deal through credit.

Ever since the UK utilities were privatised a decade ago they have led the private utility sector in the Euro-MTN market. But 1999 was a tough year for UK gas, electricity and water companies as they struggled with increasingly strict regulators. And only this month is it clear what options are left to these issuers. Ofwat, which regulates the water sector and Ofgem, which oversees the gas and energy companies have finalised their reviews. Scottish Power, with $2.43 billion outstanding off its Euro-MTN programme, is the largest UK utility issuer in the market. Its profits will be cut by £

In a virtual roundtable Jo Thornhill and Harry Wallop put questions to issuers about funding strategies and changing conditions in the Japanese Euro-MTN market. Q. How did the crisis in Asia affect issuance in Japan off your Euro-MTN facility in 1998? Motokawa: "Many Japanese companies were downgraded by the US agencies last year. And Toshiba Corporation was no exception. Having the ratings downgrade made issuance very difficult for Toshiba in 1998. But we were helped by the fact that the Japanese investors knew our name and our activity was good. Although, we had to supply lots of information. European investors were much more cautious of our credit. Because of the problems Japanese banks experienced last year Japanese companies had to pay a premium to raise funds in the Euro-MTN market, for example we paid plus 50 basis points, which was a severe increase." Shimoyama: "Many Japanese issuers found it more expensive to raise funds off their MTN programmes. During the crisis we decided to limit new issues to avoid such costs. That is why we were able to minimize the effect of the crisis on our funding costs while the total amount issued off the programme obviously decreased during that period." Akerlind: "Strangely, the volume coming from Japan has been big, both this year and last. However, the investor base was different. Demand from the retail sector was lower in 1998. Though recently we have seen this turning again. The number of regional institutional investors buying structured products increased last year." McDougall: "I agree there were definitely less retail investors in the market. Abbey has not issued off its Japanese retail programme for some time now. And there was definitely less cash in the market. The fall-off could have been greater but people started to become credit conscious and investors appeared to be comfortable with Abbey's name so we escaped reasonably lightly. This year, we are raising funds in Japan at the same level as last year but we have seen a drop-off in volume. We are probably down to 70last year's volume." Ro: "Our Eurobond was due for refinancing in March 1999 and so we set up the Euro-MTN programme to replace this. The Euro-MTN was much more convenient and flexible than our domestic Eurobond, which was not really cost effective when issue size is small." A. How much of your funding is achieved in Japan? Akerlind: "In 1998, 55% of our total issuance was into Japan. In 1999 this will increase to around 75%. Confidence is definitely growing again, particularly the volume from the retail sector. There is more demand now and for a wider range of structures." Ro: "All our notes so far have been bought by Japanese investors. As a single-A rated issuer, European investors are cautious about taking our paper. It is much easier for us to sell into Japan at the moment." Shimoyama: "Almost all our paper is sold to Japanese investors. However, both this year and last year some European investors bought Mitsubishi Euro-MTNs. Before the crisis we were planning to issue more and more into Europe but we had to postpone that. However, from now on we will be planning to increase issuance into Europe." McDougall: "It's 50%. But we only use the programme for small private placements. We try not to chew up the programme by issuing standalone bonds off it." Q. Is investor confidence in Japan growing in 1999? McDougall: "I think so. It has definitely got busier as the year has gone on. And July and August have been very good for us." Motokawa: "The injection of cash from public funds from the Japanese government has aided the improvement of the situation. I think last year was rock bottom for the Japanese economy, but now we will see recovery." Ro: "The Euro-MTN market is a convenient and efficient, well-developed market already but I am sure it is set to grow going forward. Investor confidence in Japan is certainly growing again." Shimoyama: "In the short-term investor confidence is growing. But one never knows what will happen by the end of the year. You do not know what the catalyst is that could set off another crisis. The situation is like a coin with opportunity and panic on different sides. Which way will it turn? So I think confidence could decrease in the long-term, but I doubt as seriously as it did during the crisis." Q. How have structures and maturities that Japanese investors look at changed over the last few years? Akerlind: "We've seen an increase in equity-linked, Nikkei knock-in structures and inverse convertibles. But by far the most active is the burmudan callable powered reverse dual currency structure. With this note small institutional investors have an opportunity to take risk and achieve a good coupon, and get 100% redemption when the note is called." Ro: "We do not have high financing needs this year. The notes Fuji Xerox has issued have all been yen-denominated and of a simple structure." Motokawa: "Issuance is getting much more complicated, we are seeing increasingly structured trades such as index-linked notes and other options. It is cheaper to do structured trades and Toshiba always has a swap contract anyway. Japanese interest rates are very low so investors expect that in the long-term they must rise again. At the moment 10-year callable options are really popular. However, we prefer shorter maturities in the one- to five-year category." McDougall: "I don't think they have changed much. Investors have backed off from foreign exchange risk a bit recently, and are perhaps a little more conservative than before. Callables are particularly popular at the moment." Q. Have you been encouraged to look at more complex structures since interest rates in Japan are so low? Akerlind: "In the structured market we still aren't seeing many domestic Japanese borrowers. Non-Japanese issuers are more likely to do the structured trades. Japanese issuers are hesitant about the swap exposure and in order to execute these trades you have to have the knowledge and expertise as well as flexibility. They don't have the history of structured issuance. Ro: "We don't care what final form of note investors take, but our preference as an issuer is a simple type. We don't look for complicated structures." McDougall: "We've never had a problem with structures as long as they are legal and do not upset either the rating agencies or our investor base." Q. Do you think competition is increasing among borrowers in the Japanese Euro-MTN market? Akerlind: "We see more competition in Japan now than we used to. There are more issuers, both Japanese and non-Japanese looking for investors there. But SEK has been issuing into Japan for over 20 years. We have established a name and good reputation there and have the relationships in place." Ro: "As most of our investors are Japanese it hasn't been a great problem. But if we wanted to find European investors the competition would be much stronger between Japanese and non-Japanese issuers. Because currently European investors are less confident about investing in Asian companies, including Japanese. Fuji Xerox's credit rating would need to be higher and market conditions would have to be more favourable before these investors would probably buy our paper." Q. Do you think foreign borrowers are becoming more successful at attracting Japanese investors? Shimoyama: "It depends how you define successful. Now spreads are tight in Japan foreign issuers can seem generous in the coupons they offer to investors." McDougall: "Not really. We all lost out in Japan to a certain extent when during the crisis Japanese issuers' levels were very wide." Q. What have been the lasting effects of the economic crisis for the Japanese market? Motokawa: "Last year it was difficult for Toshiba to find investors. In 1999, so far, I think it has been an issuer driven market. Japanese investors have the cash, especially after the government injection of funds, but the sentiment among Japanese companies is weak, we are more cautious and watchful with our funding since the crisis." Akerlind: "It's a matter of credit worthiness. If an investor is buying a particular structure and is nervous about the risk it will want an issuer with a good credit rating. Many Japanese borrowers have had their ratings downgraded, so investors have been wary of buying structured paper from them." Shimoyama: "Last year's crisis had a huge impact. But I think the economy has reached rock bottom and is starting to recover. Japanese corporates need to restructure more and more. The mergers that are starting in the banking sector are a good thing for the Japanese macro-economy. Other sectors should follow the lead banks have taken in restructuring." McDougall: "The biggest and largest effect is that there is now more credit awareness, but that applies globally. Investors want to develop portfolios with a wide range of credits from around the world. At the end of the day, you have to look after your investors by educating them."

Brazil is believed to be planning to issue a jumbo 40 year non-call 15 exchange bond of up to $5bn as early as today (Friday). Bankers were yesterday suggesting that the sovereign had mandated Chase Securities and Goldman Sachs to launch an exchange issue, and that the deal could be done today if the US July payroll numbers due out in the morning are favourably received.

A record $11.5bn three tranche offering from Fannie Mae dominated the primary market this week as fixed rate debt markets slipped into their customary August torpor. The transaction, which targeted two, 10 and 30 year maturities, is the largest non-government corporate or agency bond issue in dollars and the second largest non-government security in any currency, behind the $14.6bn Deutsche Telekom deal launched in June.