The Eurobond Market in 1990

EUROBOND MARKET PERFORMANCE IN THE 1980S

Eurobond issues rose to record high levels in 1989, to US$253.9 billion ("International Bond Issues Rose 12% in '89, OECD Says," 1990). This growth occurred in a year in which total borrowing on international capital markets declined ("International Bond Issues Rose 12% in '89, OECD Says," 1990). Performance at that level certainly would not appear to characterize a market in trouble; however, looks can be deceiving.

New Eurobond issues were led by bonds with equity warrants, and 97 percent of equity warrant bonds were issued by Japanese firms ("International Bond Issues Rose 12% in '89, OECD Says," 1990). Absolute dominance of one sector of an

1 2international financial market by players from a single country is not a healthy situation.

In 1989, Eurobonds denominated in American dollars and the Japanese yen were up ("International Bond Issues Rose 12% in '89, OECD Says," 1990). Conversely, those denominated in

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, such as the Federal Reserve Board in the United States, and nonfinancial institutions, such as multinational corporations. The funds involved in this borrowing and lending are deposits denominated in some currency other than that of the home countries of the entities in whose names the deposits are held, or deposits denominated in the 4home currencies of the depositors which are held by banks outside of the depositors' home countries (Scanlon, 1990). Several different explanations have been offered as to why the activities which led to the development of the Eurocurrency market were initiated. It was suggested that the reason lay in the efficiency of such a market for international financial transactions, in relation to domestic banking institutions. On the other hand, it has been held that the reason was a desire on the part of the Soviet Union to hold United States dollar balances at a time during which their dollar holding in the United States were impounded. Some observers believed that the reason lay in the 1957 sterling crisis, during which the United Kingdom imposed stringent controls on nonresident sterling borrowing and lending by British financial institutions.
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