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The advantages of the Eurobond market – the degree to which it is unfettered by regulation and the size of the investor base – have resulted in its truly phenomenal growth since that first issue in 1963. In that year the volume of Eurobond issues was just over $100 million. By 1986 it was over $183 billion. The UK government was able to raise $4.5 billion at a stroke in 1986.

It is much easier now to raise such large amounts because there is a highly developed secondary market in Eurobonds. A primary market if one in which bonds are sold for the first time; a secondary market is one in which existing bonds are traded. Traders sit in vest dealing rooms, surrounded by electronic screens displaying the current prices of bond issues, the latest moves in interest rates and the trends in the economy. They look for bond yields which have moved out of line with the rest of the market and can therefore be bought or sold for profit. They also try to anticipate whether interest rates will fall (and bond prices will rise) or rise (and bond prices will fall). If they make the right decision, they can earn their companies a lot of money; in consequence, they are some of the most highly paid men and women in the country.

London is the centre of the Eurobond market. The Americans have tried, without much success, to switch the market to New York by setting up international banking facilities, which allow banks to treat some of their New York offices as being off the US mainland. And in 1984 it was feared that the abolition of the US withholding tax (a tax on the investment by US citizens in bonds issued abroad) would lead to the Eurobond market drifting across the Atlantic. However, London retains the advantage of sitting between the time zones of New York and Tokyo, and it seems likely that the Eurobond market will remain focused on the City.

The location of the Eurobond market may still be London, but it is the American rather than the British banks who now have the lion’s share of the business of Eurobond arranging. The early lead of the European bankers evaporated when US banks set up London-based subsidiaries to recapture their hold over the dollar bond market. According to a table compiled by International Financing Review, the top five international bond managers in the first nine months of 1988 were Nomura, CSFB, Deutsche Bank, Daiwa and Nikko. There of the five are Japanese.

Although we have referred to the Eurobond market in the analysis above, it is a term which is becoming less and less appropriate. The capital controls and banking restrictions which spurred the start of the market have largely disappeared, and it is now more correct to refer to an international bond market in which international borrowers issue bonds and notes to international investors via international securities houses. Borrowers can now issue bonds in very sophisticated forms, some of which are described in the rest of this chapter.