Bonds without Borders: A History of the Eurobond Market

CHAPTER 9 Mark-to-Model 2004–2007

How long ago is history? The Chinese Premier Zhou Enlai in responding to a question in the early 1970s about the historical importance of the French Revolution famously responded that it was too early to say. On that basis none of our narrative is history. However commentators have subsequently reasoned that the Chinese leader misunderstood the question and believed the questioner was asking about the riots in Paris in 1968 some three years earlier. In 2009 readers of the BBC History magazine were polled to discover how long ago events had to be, to be considered history. Roughly 60% answered that it had to be at least a decade ago. Either way our final chapters may not be considered history, as our selection of events may not prove to be the most historically relevant. But to create a story of the market's first half century we must attempt to identify those developments that will prove to be of some historical significance.

As mentioned above, when the euro was launched some 75% of Euromarket issuance was on behalf of banks. Unlike corporates, banks' borrowings are driven by their regulatory capital requirements. The central stipulation of Basel I was that banks should keep a protective minimum capital reserve to asset ratio of 8%. Designed in the first instance for large, international G-10 banks, Basel I was subsequently adopted by banking supervisors in more than 100 countries. The capital markets quickly devised funding structures that ...