Euromarket: Definition and History

The euromarket, particularly the euro medium-term note (EMTN) market, has evolved significantly over the past few decades, becoming a crucial source of funding for various entities across the globe. This article will explore the definition of EMTNs, their history, and the current trends in the euromarket.

Definition of Euro Medium-Term Notes (EMTNs)

A euro medium-term note is a flexible debt instrument that is traded and issued outside of the United States and Canada. EMTNs are medium-term debt securities that offer diversity in terms of currency and maturity, typically ranging from a few months to up to 30 years. These instruments are designed to provide issuers with the flexibility to manage their debt in a manner that suits their financial needs.

History of the Euromarket

The euromarket, including the EMTN segment, has its roots in the early 1970s when the United States began issuing medium-term notes (MTNs) as an alternative to short-term commercial paper and long-term bonds. Initially, MTNs were primarily used by auto finance companies, but they gained significant momentum in the 1980s, becoming a fundamental source of debt financing for major corporations.

Outside the United States, the EMTN market has grown exponentially since the 1990s. For instance, Telenor established its EMTN program in 1996, which has been updated annually and serves as a master agreement for the issuance of bonds, including private placements and public benchmark bonds.

Advantages of EMTNs

The diversity and flexibility offered by EMTNs are two of their primary benefits. Here are some key advantages:

• Diverse Funding Options: Companies can issue EMTNs in various currencies, providing a broader range of funding options.
• Lower Costs: The fixed costs for underwriting make it impractical for corporate bonds to make small offerings, typically amounting to more than $100 million. Conversely, drawdowns from EMTN programs can be as low as $30 million, making them more cost-effective for smaller issuances.
• Specialized Features: EMTNs can be tailored to meet the borrower's specific needs, including collateralized, floating rate (FRN), amortizing, and credit-supported forms.

Current Trends in the Euromarket

The euromarket continues to attract new businesses and industries, driven by the need for flexible and diversified funding options. Here are some current trends:

• Growing Demand: The demand for EMTNs remains strong, particularly among multinational corporations, federal agencies, and sovereign nations.
• Market Expansion: The euromarket is expanding globally, with more companies from various regions tapping into the EMTN market for their funding needs.
• Technological Advancements: The use of digital platforms and technology has streamlined the issuance process, making it easier for companies to access the euromarket.

Conclusion

The euromarket, particularly the EMTN segment, has evolved significantly over the years, offering a flexible and diverse range of funding options for companies globally. The euromarket is poised to remain a crucial source of funding for various entities, driven by its unique advantages and the growing demand for flexible debt instruments.