Euro Corporate

Market Value Percent (%) of Euro Corporate Index ... 

Bonds with embedded call and put options comprise a relatively small percentage of the European bond market. Exhibit 1.6 shows the percentage of the market value of the Euro Corporate Index and Pan-Euro Corporate Index attributable to bullets (i.e., option-free bonds), callable and putable bonds from the late 1990s through 31 May 2003. Accordingly, our discussion of bonds with embedded options in the remainder of the book will be confined to structured products. 

EXHIBIT 2.1 New Issuance of Euro Corporate Bonds from 1998 to 2002... 

EXHB1T 6.5 Euro Corporate Issuance by Major Sector... 

EXHIBIT 6.8 Euro Government Yields and Euro Corporate Spreads... 

Euro Corporate Spread (left-hand axis, inverted)... 

In the Euro corporate market s short life, the level of credit spreads and spread volatility have increased almost beyond recognition. As we show in Exhibit 6.9, with the exception of the recovery from the market shock of 11 September 2001, credit spreads moved out more or less in a straight... 

EXHIBIT 8,8 Euro Corporate Fixed-Rate Spread... 

EXHIBIT 6.10 Euro Corporate Market Monthly Spread Volatility (12-month moving average)... 

Emerging market spread volatilities are shown in Exhibit 23.10. The spread risk of Latin American obligors tend to be above average, currently largest for Argentinean and Brazilian markets that have a spread risk comparable to a B to CCC rated euro corporate. The risk of Asian issuers is on the other hand below average and comparable to the interest rate observed in developed markets. We clearly observe a wide spectrum of risk characteristics that confirms the need to build a separate factor for each market. 

We selected a universe of corporate bonds with maturities (on 31 May 2001) between two and six years from the iBoxx Euro Corporate Nonfinancial Index. We chose a cut-off at two years to ensure the bonds would still be in the index at the end of the 1-year test period. This produced 97 nonfinancial corporate bonds, which we aggregated into their own index. 

As with other parameters we have discussed, the name concentration also needs to be measured on a duration contribution basis. There can be substantial differences between duration contribution and percentage of market value of issuers. Exhibit 26.16 highlights the top five issuers by both criteria in the iBoxx Euro Corporate Index. 

EXHBir 26.18 Spread Curves of Selected Issuers in the Euro Corporate Market... 

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