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6 | ifr special report | April 2008 NON-CORE BOND MARKETS ROUNDTABLE


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far this year, but I think one of the particular high points has been the Australian market.


IFR: Do you agree that we are going to re-establish a sense of normality at some stage of this year, or are we going to have to wait until 2009?


Holger Kron: If I look at the systemic risk rising now, especially what we have seen happening with JP (Morgan) and Bear Stearns, I imagine that the crisis will take a further toll and people will avoid credit by any means. The funding issue with financials is, in my opinion, the reason why we will see further problems, because there is a huge community invested in “wrong assets”, who need to run for funding, and the good names will get the funding and the bad names will see problems. As long as there is tension between financials long of funding and financials short of funding, with them not trusting each other, I think credit will have a very difficult time. And this could last quite a while. We have seen massive intervention by


central banks, and the way the whole system is trying to sort this out right now indicates that there is still an enormously nervous background and I cannot see this resolving itself very fast. However, the price of credit is getting interesting. If and when you are long money and want to invest in credit, with good research you can find really nice trades. But there are two sides; one is long funding and the other is short. The long funders will make a very nice living this year and the short funders will have a very tough time. What we have seen with Bear Stearns and JP might be repeated. This will not help the market for now. At the moment it feels stressed.


David Smith: You have made a distinction there between the non-core niche markets, where you have both a strong domestic base — dollar markets in Australia and New Zealand or, indeed, in Canada, where the Maple market is also supported by an offshore market — and you definitely have to believe that these markets probably will open up later in the year. But I think in an emerging market context in terms of local currency markets, much as you should never say never, I would be surprised if financial issuance was 10% this year, and that would be an optimistic assessment.


IFR: Is Rabobank looking at the emerging currencies at all?


Sjaak-Jan Baars: Yes, of course. It is a fair part of our funding programme: I think a comparable number to KfW as far as proportion is concerned. What is interesting is that it has been very stable over the last few years in terms of percentage, because you would have expected those markets to be quite volatile, and you would expect differences in volumes. But if you look at the total issuance package, then it seems to be fairly stable. So, it is definitely an important part of our funding programme and I expect that will continue in future. I think the (investor) focus will be mainly on Triple As, and I do not see that changing very soon.





As long as there is tension between financials


long of funding and financials short of funding, with them not trusting each other, I think credit will have a very difficult time.


IFR: So what is the hot tip for the currency of the year? Every year we seem to ask “what is the new Icelandic krona?” and generally decide that it is the Icelandic krona. So, what is the new Icelandic krona this year?


Moti Jungreis: The Icelandic krona has its own issues at the moment. Unlike Turkey, I am not sure the Icelandic krona will be able to re-energise itself as a currency, but, at the end of the day, when you look at those things, you have to look at the underlying swap market and who provides the liquidity. Part of the problem in Iceland right now is that the local banks are the main players in the swap market and, since people are running out of credit lines for the local banks, liquidity is really drying up. It is going to take a while until people resume appetite for the local banks. If you go to other countries, such as Turkey, it is more internationally driven: there is a much deeper swap market, with 20 or so partic- ipants. So, what is the next currency? I think


IFR: You say the overall percentage has been stable over recent years, but how much has the actual currency mix changed? Is it noticeably different from year to year?





Sjaak-Jan Baars: Of course there are differences between the currencies and these balance each other out. That is also the beauty of being active in these non- core markets, there is always a currency with a good story to tell and where you can do some issuance. Based on that, you can always issue something and, as a result, you have a good hedge and you can achieve volumes that in the end will be fairly stable.


we have to see how the recent turmoil shapes itself. What we have seen in the last few weeks is obviously a US-based crisis. The emerging markets have actually been a safe haven, so they have not really backed up to create any real op- portunities. We have only started seeing that in the last two or three weeks, with a back-up in currency and yields in rand or Turkey (and Iceland obviously), but for now, I do not think there is a market that is screaming “I am the new guy on the block”. Turkey could be one if there was a further correction. I think at the same time, to put it in perspective, currencies such as Brazil still continue to be almost something of a safe haven. So, you get a decent yield and a currency that is funda- mentally very strong. It has not corrected more than 2% or 3% at any given time. It has probably been one of the best places to be and could continue to be so.


Horst Seissinger: I think you are right if we are talking about volume. But if we are talking about growth, I would expect that some of the African currencies might be important in the future. Certainly, they are starting from a very low level with respect to volume, but the growth in some of these countries I think will be larger than in the more traditional emerging market currencies.


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