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    Foreword by Hans-Joerg Rudloff

    Borders A History of the Eurobond Market

    without Bonds

  • Bonds Without


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  • Bonds Without

    Borders A History of the Eurobond Market


  • This edition first published 2015 © 2015 Chris O’Malley

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    Library of Congress Cataloging-in-Publication Data

    O’Malley, Chris. Bonds without borders : a history of the Eurobond market / Chris O’Malley.

    pages cm Includes bibliographical references and index. ISBN 978-1-118-84388-8 (cloth)

    1. Euro-bond market–History. I. Title. HG3896.O43 2015 332.63′23094–dc23


    A catalogue record for this book is available from the British Library.

    ISBN 978-1-118-84388-8 (hbk) ISBN 978-1-118-84387-1 (ebk) ISBN 978-1-118-84386-4 (ebk) ISBN 978-1-119-01084-5 (ebk)

    Cover Design: Wiley Cover Images: top photo: ©

    bottom photo: ©

    Set in 10/12pt Times by Aptara Inc., New Delhi, India Printed in Great Britain by TJ International Ltd, Padstow, Cornwall, UK

  • To my dear sister Kath, and sister-in-law Jan, who lost their battles with cancer during the writing of this book.

  • Contents

    Foreword by Hans-Joerg Rudloff ix

    Introduction: Fifty Years of the Eurobond Market xi

    Chapter 1 Before the Beginning To 1962 1

    Chapter 2 Building the Base 1963–1969 21

    Chapter 3 Oil and Turmoil 1970–1979 47

    Chapter 4 Masters of the Market 1979–1984 73

    Chapter 5 Going Global 1985–1989 99

    Chapter 6 The Derivatives Dash 1990–1995 125

    Chapter 7 Convergence and Credit 1995–1999 145

    Chapter 8 Of .Com’s and Cons 1999–2004 163

    Chapter 9 Mark-to-Model 2004–2007 187

    Chapter 10 Busts and Bailouts 2007–2010 207


  • viii CONTENTS

    Chapter 11 Sinking Sovereigns 2011–2013 229

    Postscript 247

    Glossary 251

    Index 259

  • Foreword

    B onds Without Borders is a testimony to a fascinating period in the development of theinternational financial markets. Chris O’Malley in his different positions at Credit Suisse First Boston and Samuel Montagu was an active participant in the fastest growing securities market in the world. He has undertaken the difficult task of describing the different stages of the history of modern international bond markets. His painstaking research into the defining moments of the market deserves great applause and most importantly gives the reader a fascinating picture of the dynamic pioneering work of investment banks and their people. It shows their unlimited commitment to the expansion and creation of a borderless world in which capital is moved to where it is most needed, with the best risk adjusted returns. The missionary spirit of people like Chris helped to put together, piece by piece, a market that today provides US$2.5 trillion to supranationals, governments, and corporations alike.

    Chris’s insights into the workings of the market have allowed him to concentrate on the essentials and enable the reader to understand the enormous progress achieved over the years in allocating capital through free markets. This book catches the spirit which drove the markets towards globalisation; providing an enormous benefit to emerging countries, and helping billions of people to achieve economic progress. This book offers a very timely reminder of how important open markets are for the unrestricted flow of ideas, goods, people and capital. Chris O’Malleys’ book makes a significant contribution to a better understanding of the great benefits open financial markets have brought to the world.

    In addition, this book demonstrates how important it is for the actors in the market to exercise their profession with the necessary care and prudence.

    Hans-Joerg Rudloff Chairman of Kidder Peabody 1978–1980,

    Chairman of Credit Suisse First Boston 1989–1998 and Chairman of the investment bank at Barclays from 1998 to 2014


  • Introduction: Fifty Years of the Eurobond Market

    I t was Paul who came up with the idea. Instead of singing the usual love song lyric of ‘I loveyou’, it should be in the third person ‘She loves you’ and other band members would respond with the refrain ‘yeah, yeah, yeah’. A few days after writing the song, The Beatles gathered at Abbey Road Studios, London, on 1 July 1963 to record ‘She Loves You’ for release as a single. Released in the following month it was a gigantic success, becoming the best-selling single of 1963, and remains the best-selling Beatles’ single in Britain. It was the breakthrough that led The Beatles to international success.

    As that recording session in Studio 2, Abbey Road was getting under way, five miles away in Gresham Street in the City of London a group of senior international bankers and lawyers were signing a subscription agreement for an international bond issue for Autostrade, an Italian road builder. It was the first of a new type of financing targeted at international investors. This new ‘Eurobond’, as it came to be known, represented an historic breakthrough in the international financial markets.

    * * *

    The Eurobond market, the largest international capital market the world has known, has a confusing name. Eurobond doesn’t refer exclusively to bonds issued in Europe or indeed, bonds denominated in the euro currency. (Nor does it refer to the term chosen by the authorities during the current financial crisis to describe a possible European sovereign bond underwritten jointly and severally by all Eurozone governments.) The term Eurobond defines the type of security rather than the currency or domicile of the obligation.

    A web search reveals the popular, but imprecise, definition that it is a bond issued in a currency other than the currency of the borrower. But this could also describe a ‘foreign bond’. A foreign bond issue is one offered by a foreign borrower to investors in a national capital market and denominated in that nation’s currency, for example, the Kingdom of Norway issuing a dollar bond in New York. Helpfully, foreign bond markets have all attracted nicknames: so a foreign bond in the US market is a ‘Yankee bond’, a foreign bond in the Japanese domestic market is a ‘Samurai bond’, and a foreign bond issued in the Australian market is a ‘Kangaroo bond’, and so on. A foreign bond issue will always follow the rules and practices of the relevant domestic securities market.

    Whereas a Eurobond issue is one denominated in a particular currency, but sold to investors in national capital markets other than the country of issue. It is a bond issue specifically targeted at cross-border distribution, hence the title of this book. It does not follow the rules



    of a particular domestic market. In the modern era this cross-border status is protected by documentation which protects the investor’s right to receive payment free of any national withholding taxes. However in earlier times, before national tax regimes, this cr