Linkers markets

The creation of a linker market was formally recommended by the Committee to Review the Functioning of Financial Institutions (1977-1980) —known as the Wilson Committee, after its Chairman Sir Harold Wilson. However, Mark Deacon s and Andrew Derry s excellent book Inflation-Indexed Securities cites a recommendation by Keynes to issue linkers as early as 1924. There was a domestic precursor for the market, inasmuch as the UK government s National Savings department had been issuing inflation-linked savings certificates for retail investors since 1975. 

No thumbnail sketch of the UK linker market s early days would be complete without a mention of the one-off innovation of an index-linked convertible gilt, nicknamed the Maggie Mays. The 2% Index-Linked 1999 was convertible into a nominal bond (10.25% 1999) at three future conversion dates. At a time when inflation remained volatile, and with the term to option expiry spanning a general election whose outcome was uncertain, seldom has so much optionality been sold so cheaply. The bonds were all (or almost all) converted. 

Unlike some other linker markets, there is no minimum redemption floor of 100 in the event of deflation over the entire life of a bond. 

Here, and in the complexity of the real yield calculation, the United Kingdom suffers perhaps for being the prototype linker market. An eight-month lag is needed in order to always know with certainty the future money, or cash, value of the next coupon, so that the money value of that coupon can be accrued. The major innovation of the Canadian model is the use of a formula that accrues coupons on a real basis, removing the need to know precisely what will be paid in cash terms on the next coupon day. 

If you accept our theory, it probably makes the search for the risk premium an even more thankless task, but it does help to explain why the risk premium can seem to fall in the early stages of a linker market s development, as the bonds become less scarce. 

By way of example, consider the first US inflation-linked issue, maturing January 2007, where the early experience was of rising real yields while nominal yields fell. Much depends on the time horizon used, and this just shows how unreliable these betas can be. Already, the European linker market has experienced betas well below 1, above 1, and negative. 

For those countries with linker markets, the relationship between their net external positions and their real yields is loose becanse there are other real yield influences (and it has been better in the past). But it seems valid, nevertheless. (See Exhibit 8.16.)... 

As of this writing (1997), researchers are exploring combinations of acids, additives, and catalysts to achieve a suitable economic finish. However, commercial appHcation of these finishes would require costs akin to that of DMDHEU as well as compliance with formaldehyde release levels by consumers, regulators, and the textile industry. Another possible impetus could be marketing considerations. Nevertheless, this work has sparked intense effort in the use of cross-linkers containing ester cross-links and has broadened the scope of cross-linker research. 

Urea—formaldehyde and melamine—formaldehyde reagents are resin formers, which not only cross-link cotton but also copolymerize with themselves. These have been used both as simple cross-linkers or prepolymer systems. If too much of the polymerization is concentrated on the fiber surface, the fabric may be sufficiendy stiffer that it takes on a boardy character. As such, the finisher must control the action of agent to give the desired crisp hand but prevent the development of boardiness. Melamines have been recommended for applications when complete shrink resistance is required. However, both finishes were rejected for the white-shirt market because of loss of strength when hypochlorite bleach is used on account of vulnerable NH groups and the ensuing discoloration (37). 

A tempting comparison is that between standard solid-phase chemistry and fluorous chemistry. Both of these techniques have several attributes in common, including the use of linkers, frequent use of scavengers, and utility in many similar applications. Even though the use of standard solid-phase chemistry has many advantages, some aspects of polymer-supported synthesis strategies have drawbacks. Eluorous chemistry has in many ways marketed itself as an alternative to solid-sup-port chemistry due to its superior performance in a number of respects. ... 

Powder coatings have been widely accepted in the industrial coating market because they are completely solvent free and show excellent mechanical and physical properties (13). Usually they contain a synthetic binder, a reactive cross-linker, pigments, and several additives to improve flow and other film eharacteristics. Various application techniques have been developed in reeent years. Powder coatings are normally sprayed electrostatically on grounded substrates and are heat-cured thereafter. Because these systems do not contain organic solvents, no emission of organic solvents takes place. However, the need for an oven to melt the resin and start the chemical reactions makes this environmentally friendly process unsuitable for do-it-yourself markets. 

We have sketched out a couple of reasons why governments issue index-linked bonds already. We also said how the removal of inflation risk is valuable for the borrower, as it is for the investor, and earlier we described how in some countries rampant inflation resulted in a complete loss of investor confidence in nominal government debt, requiring the creation of an inflation-linked bond market out of necessity. However, there are other arguments why governments should issue linkers, and the reasons already given need to be added to, expanded upon and broken down into different subarguments. 

A second linker, the 3.4% OATf 2029, was launched a year later in September 1999, again linked to French national CPI, ex-tobacco. Growth in the outstanding market value of these two bonds was slow but steady—in particular, there was some disappointment that the instruments did not seem to be capturing the imagination of investors in Eurozone countries other than France. 

The AFT has steadily increased linker issuance since the product was launched, and currently targets approximately 10% of gross issuance in inflation-linked. Its commitment to a stable issuance pattern was reemphasised prior to the launch of the OATef 12 in October 2001. AFT maintains some discretion over which issues to auction and when, and is sensitive to expected market demand for that issuance. 

The first linker to be issued was a 20-year bond with a zero-coupon structure (No. 3001, 0% 2014). A selection of the eight Primary Dealers in the nominal market took responsibility to quote two-way prices for the new bond. The Debt Office held five common price auctions from April to June, which saw a face value of SEK16 billion being offered to the market. But demand for much higher real yields from the market meant that only SEK6.7 billion was allotted. 

In April 1999 the SNDO launched two new linkers, a new 30-year bond (3104, 3.5% 2028) and a new 16-year bond (3105, 3.5% 2015). These two bonds were issued with an inflation floor, meaning that the new bonds had a similar structure to United States and French inflation-indexed bonds. The format of issuing inflation linked bonds was changed, this time moving back to bid price auctions, every three months. The reason being that this type of auction was common at the international level, allowing clearer signals of the volume on offer. The primary dealers were permitted to switch linkers directly with the SNDO on a daily basis, in order to enhance the liquidity of the market. 

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