According to the latest league tables available from Asian debt market newsletter Basis Point, fixed-rate issues totalling $8.444 billion were released in the first nine months of 1995, down 31 per cent on the same period last year.

This fall largely reflected a tougher interest rate environment, with borrowers unwilling to lock in fixed-rate funding when interest rates were high.

In contrast, floating rate issues flourished: floating rate issues in the first nine months of the year totalled $29.876 billion, up from $21.878 billion last year.

Bankers said the Hong Kong dollar floating rate market had benefitted from Hong Kong Monetary Authority moves to promote the Hong Kong dollar debt market as a regional source of funds.

Its liquidity adjustment facility (LAF) allows holders of debt securities with LAF eligibility to engage in repurchase agreements, which means they can sell securities to the authority after agreeing to repurchase them at an agreed time.

Banks holding such securities can use the LAF to raise money when they need to increase their liquidity, which makes such securities far more attractive as an investment.

Apart from government debt securities, qualifiers for the LAF include issues by Wharf (Holdings), Sun Hung Kai Properties, Hongkong Bank, Standard Chartered Bank and Bangkok Bank.

Bank of America (Asia) has applied for LAF access for its FRCD, as has US bank Merrill Lynch for its $1 billion issue.

Merrill Lynch is currently the only American qualifier for the facility because Bank of America (Asia) is registered as a Hong Kong entity.

Also qualifying is the Mass Transit Railway Corp's $1 billion note-issuance facility signed in January 1995.

HSBC Markets regained top spot in the Hong Kong dollar debt market in the September quarter, arranging 47 issues worth $9.09 billion for the year, taking a market share of almost 24 per cent.

Standard Chartered Capital Markets, number one for fixed and floating-rate issues in the June quarter, slipped to second place with four issues worth a total of $5.4 billion, according to Basis Point.

Third was Societe Generale Asia, with $3.65 billion in issues, followed by Schroders Asia, with $3.02 billion, and Sakura Finance Asia, with $1.57 billion.

In the floating rate market, HSBC Markets was top, with seven issues worth $6.3 billion. Standard Chartered Capital Markets was in second place with four issues worth $5.4 billion, and Societe Generale Asia in third place with $2.75 billion.

Fourth in the floating rate table was Schroders Asia, with $2.57 billion, followed by Sakura Finance Asia, with $1.57 billion.

In the fixed-rate market, HSBC Markets again dominated, with a total of $2.79 billion, with Union Bank of Switzerland (UBS) in second place with $1 billion.

Third in the fixed-rate league table was Societe Generale Asia with a total of $900 million, followed by Oakreed Financial Services with $825 million.

The Hong Kong Monetary Authority was fifth with $500 million - since January this year, the authority has been the arranging agent for a Hong Kong dollar note-issuance facility for the Mass Transit Railway Corp.

HSBC Markets' Andrew Fung said his company had gained the number one spot in the floating-rate market helped by a $1.2 billion floating rate certificate of deposit (FRCD) issue it arranged for Bank of Tokyo International (Hong Kong) in August.

HSBC Markets had brought a number of issuers to the market to issue from medium-term note programmes, including Toyota Motor Credit Corp and DePfacorr Bank Europe, Mr Fung said.

The September quarter also saw Eurofima, which provides European railways with rolling stock, tapping the market in a deal arranged by boutique bank Oakreed Financial Services.

Although floating rate issues came to nearly $30 billion, the third quarter was 'rather average', with no corporate floating rate note (FRN) issues, Mr Fung said.

'Corporates seemed to turn back to the conventional syndicated loan market,' he said.

'Perhaps most of the funding exercises are project-based, which requires flexible cash flow, and corporates with liquidity adjustment facility [LAF] eligible ratings have used the FRN market already.' A FRCD is an issue of debt securities by a bank, in which investors in the securities are paid a floating rate of interest.

FRNs are similar to FRCDs, but are generally issued by non-banks, and have a 100 per cent risk weighting, against FRCDs which generally have a lower risk weighting of 20 per cent.

The Bank of Tokyo was the first Japanese bank to qualify for the LAF.

LAF eligibility makes FRCDs or FRNs more desirable because holders can engage in repurchase deals with the authority.

This means they can sell the debt securities to it after agreeing to buy them back at a set price and date, allowing the investor more flexibility in managing liquidity.

Paul Smith, of UBS, the second-biggest arranger of fixed-rate Hong Kong dollar issues, said market conditions in the September quarter were better than at the same time last year.

Brian Yiu, UBS executive director of debt capital markets, said there were expectations of further easing of US interest rates.

Mr Fung said negative real interest rates meant investors were more attracted to floating rate issues but he said the possibility of a US interest rate cut, the introduction of seven-year Exchange Fund notes and a possible bond issue by the Airport Authority might revitalise the market.

But banks were also closely watching the effect of problems of the Daiwa Bank in New York, which has unveiled a US$1.1 billion loss from trading US treasuries.

If Japanese banks had to pay more for Hong Kong dollar funding - 12.5 basis points to 25 basis points higher than non-Japanese banks with the same credit rating - they might change their pricing policy.

As one of the largest groups in Hong Kong's loan and capital markets - Hong Kong has the largest number of overseas branches of Japanese banks - interest margins in the loan and FRN/FRCD sectors might rise, too, affecting borrowing costs of Hong Kong corporates and infrastructure projects.

This may take some of the steam out of the market temporarily.