Euro Dispjlaces Dollar in Bond Markets
David Oakley and Gillian Tett in London
Outstanding euro-denominated debt accounts for 45 per cent of the international - or cross-border - market, compared with 37 per cent for the dollar. New issuance last year accounted for 49 per cent of the global total.
That represents a startling turnabout from the pattern seen in recent decades, when the US bond market dwarfed its European rival: as recently as 2002, outstanding euro-denominated issuance represented just 27 per cent of the global pie, compared with 51 per cent for the dollar.
The rising role of the euro comes amid growing issuance by debt-laden European governments. However, the main factor is a rise in euro-denominated issuance by companies and financial institutions around the world.
The creation of the single currency in 1999 has permitted development of a deeper and more liquid market, consolidated by a growing eurozone. This has made it more attractive for issuers around the world to raise funds in the euro market. And, more recently, the trend among some Asian and Middle Eastern countries to diversify their assets away from the dollar has further boosted this trend.
René Karsenti, executive president of ICMA, said: “It is the stable interest rates in Europe that have helped and the fact that [the euro] has strengthened and shown resilience.”
Since the start of 2003, the European Central Bank’s main interest rate has fluctuated only 1.5 percentage points, ranging from a low of 2 per cent in the middle of that year to 3.5 per cent, its rate today.
In comparison, the Fed funds rate, the main US interest rate, has fluctuated 4.25 percentage points, ranging from 1 per cent in the middle of 2003 to 5.25 per cent, its level today. The euro has also risen to trade around $1.30 against the dollar, from around parity three years ago. Sterling issuance has grown in the past three years, reinforcing its attraction as a niche currency among some investors. The yen, in comparison, has fallen out of favour.
Overall, international, cross-border capital markets have doubled in size in terms of bond issuance during the past six years. These data exclude domestic issuance, such as sterling bonds sold by the British government.