An early tip on first-quarter underwriting results: Despite the carnage in global stock markets so far in 2001, the bond underwriting market is having not simply a banner year, but a monumental one. Both the agency and investment-grade corporate bond markets are assured of posting their largest-ever quarterly new issuance volumes when the quarter ends next week, and there are no signs that the pace will lessen.

As of last Wednesday, long-term agency new issuance was a stunning $82.9 billion, up 25% from last quarter and almost $10 billion larger than the market's largest prior quarter on record - the $74.3 billion posted in second-quarter 1999, according to preliminary research by Thomson Financial. Market observers expect the quarter to end with issuance in the $90 billion range.

"There's just so much activity going on - anyone who needs capital has been getting it," said one banker who said he has been arranging successful bond deals left and right since the year began.

Of course, highlighting the yin-yang relation between debt and equity, the news that the debt market is entering outer space came within days of the implosion of the New York Stock Exchange and Nasdaq, which sent many investors scurrying for safety, possibly in the bond markets. The bond market's wild success this quarter is partly owed to that exodus, and market players said there has been a growing feeling that 2001 could be the bond market's year in the sun, after years of being mainly in the shade.

As far as underwriters, if there is a comparable winner thus far, it looks to be Salomon Smith Barney, which has had nearly a 25% market share in investment-grade deals for much of the year-to-date and whose underwriting volume ($41.9 billion as of last Thursday) is more than most of its competitors' combined totals.

While some analysts had predicted that heavy volume would mean investors would have to shell out price concessions to get attention in a saturated market, that has so far not been the case.

The agency bond market is sharing in the bond market largesse to such a degree that analysts predict that the number of existing agency bonds will outnumber the dwindling Treasury market by spring 2002.

Some agency market players note that much of the issuance has come from the wild changes occurring in the callable agency market. Because of the Fed rate cuts and rising bond yields, much of the callable agency market is now in fact callable, and the agencies have been busy calling their existing securities and issuing in their stead new bonds, often with discount coupons.

"We're at yield levels now where almost the entire universe of callables is in the money," said Andrew O'Flaherty, a director at Deutsche Banc Alex. Brown. O'Flaherty said that in the morning of last Thursday alone, he had seen 25 separate callable issues cross his desk.

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