From her office in London, Cynthia Taylor will have a good view of the effects of the euro.

Photographed by Ron McMillen

Director of Investment, Fixed Income Investment Manager, for MetLife Investments Limited in London, Cynthia Taylor is venturing into a new world. For the first time she looking at not just high grade bonds but also the relatively new, up-and-coming, high-yield bond market in Europe. It is here that she now faces her greatest challenge to date: How to deal with the new currency--the euro.

The euro--which will be phased in beginning January 1, 1999--is expected to cause changes in the way Europeans view debt, or bond, investments. Europeans who used to do a great deal of investment in currency arbitrage--primarily of other European countries--shied away from taking credit risk, including high yield bonds or junk bonds. However, the introduction of one currency will virtually wipe out the European currency arbitrage market.

In addition, the convergence of European interest rates toward lower German government bond yields makes investing in government bonds much less attractive. The only way to pick up yield in the future will be to take credit risk by investing in corporate credit or financial institutions.

She already feels a surge in interest for the high-yield bond market. "Europeans historically have been extremely uncertain about taking credit risk," she explains. "Many U.S. investment bankers are coming over now to develop this market. There was a time when people said credit was passe," Taylor says proudly. "Now, all of a sudden, 'credit' is the a buzzword over here." It will be her reputation, her relationships and her experience that will earn her the business.

And Cynthia Taylor has a leg up on the competition as a result of having spent the last five years in London working in the debt market. She has spent those years building a reputation and solid relationships that will set her apart from all of the newcomers. "Many of the family-owned businesses, established after World War II, are being sold," she says. "LBO firms are buying up these businesses." While significant levels of American money can be found in most of these LBO firms, British and other European business people are running the funds and serve as representatives on the new company boards.

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