THE MTN IS READY FOR EUROPE
"In January 1985, 25 leading economists on Wall Street forecast where interest rates would be a year later," recalled John Gilliam, member of one of the world's most exclusive clubs, the partnership of Goldman, Sachs. "And 23 of them were dead wrong. If they cannot forecast rates successfully, it's not surprising that corporate treasurers reckon that averaging the cost of a portion of your funds is not a bad idea at all."
In the last three years, medium-term note outstandings have increased five-fold. The current tally, according to Margaret Rea, managing director at Merrill Lynch Money Markets, is some $35 billion. Rather than go long with a major underwritten bond issue, more and more treasurers have been drawn to issuing smaller, regular slugs of MTNs, taking advantage of varying interest rates and maturity structures to average out their cost of funds. The notes have found a ready home among institutional buyers attracted by yields higher than on US government and government agency paper, which previously dominated the medium-term maturity spectrum. This has confounded the sceptics who thought that the market would lack liquidity.
As Euromoney went to press, Merrill Lynch took the long-awaited next step, by exporting the concept to Europe.