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Euro displaces dollar in bond markets
Financial Times ^ | 01/14/2007 | David Oakley and Gillian Tett

Posted on 01/15/2007 7:39:37 AM PST by SirLinksalot

Euro displaces dollar in bond markets

By David Oakley and Gillian Tett in London

Published: January 14 2007 22:08 | Last updated: January 14 2007 22:08

The euro has displaced the US dollar as the world’s pre-eminent currency in international bond markets, having outstripped the dollar-denominated market for the second year in a row.

The data consolidate news last month that the value of euro notes in circulation had overtaken the dollar for the first time. Outstanding debt issued in the euro was worth the equivalent of $4,836bn at the end of 2006 compared with $3,892bn for the dollar, according to International Capital Market Association data.

Outstanding euro-denominated debt accounts for 45 per cent of the global 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.

One factor driving this is that European companies are moving away from their traditional reliance on bank loans – and embracing the capital markets to a greater degree.

Another is that 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 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 capital markets have doubled in size in terms of bond issuance during the past six years.


TOPICS: Business/Economy; News/Current Events
KEYWORDS: bond; dollar; euro

1 posted on 01/15/2007 7:39:38 AM PST by SirLinksalot
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To: SirLinksalot

So, debt owed on Euro transactions is Higher than Debt owed on the Dollar. Is that good, or Bad? That sounds bad to me. If the Euro drops in value, won't that debt be harder to recover?


2 posted on 01/15/2007 7:50:29 AM PST by Nathan Zachary
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To: SirLinksalot

I remember that Iran is now selling oil in Euros now, and others are leaning that way.

It's not great, but its not awful. Temporary setback.


3 posted on 01/15/2007 7:52:42 AM PST by HotTubDave
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To: SirLinksalot
The rising role of the euro comes amid growing issuance by debt-laden European governments.

That's the key sentence.

4 posted on 01/15/2007 7:53:46 AM PST by Fan of Fiat
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To: Fan of Fiat

So all we need to do is have more government debt and we'll win?
(/sarcasm)


5 posted on 01/15/2007 7:55:26 AM PST by listenhillary (You can lead a man to reason, but you can't make him think)
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To: SirLinksalot

This is because European nations are running horrendous deficits. And it's only going to get worse because they see incapable of cutting back their extremely generous welfare systems, especially pensions and health care.


6 posted on 01/15/2007 7:57:29 AM PST by WashingtonSource
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To: SirLinksalot

"Outstanding debt issued in the euro was worth the equivalent of $4,836bn at the end of 2006 compared with $3,892bn for the dollar, according to International Capital Market Association data."

Just so everyone has the facts (not that this is something to brag about)

I think they are taking debt issuance for the year, not aggregate outstanding value. European debt tends to be shorter tenor so of course you are going to see more issuance as more guys are coming to the watering hole each year to replace maturing debt. The US Bond market is north of 20 trillion dollars. In addition, the figure for the US seems small in the article...

A few facts from the BMA -
1,800bn Municipal Bonds
3,100bn Treasurys
2,300bn Agency Bonds
4,000bn Corporate Bonds
2,500bn Money Markets
4,000bn Mortgage (Agency)
584bn Private Label Mortgage
1,500bn Asset Backed Securities
19,784bn Total

http://www.investinginbonds.com/MarketAtAGlance.asp?catid=31&id=78


7 posted on 01/15/2007 8:10:33 AM PST by max_rpf
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To: WashingtonSource

Us Americans know a little bit about debt too - our current debt is 403% of GDP. That's far higher than any euro country.

Don't look at this link if you are easily depressed or don't like scrolling all the way to the bottom to find America!

http://www.nationmaster.com/graph/eco_cur_acc_bal-economy-current-account-balance


8 posted on 01/15/2007 8:31:23 AM PST by CornishYank
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To: Fan of Fiat
Non-story alert!

Well, gee, uh, if YOU were issuing long-term debt, would you prefer to pay 4% or 5.25% on the coupon? Can I get an 'a-men' now, c'mon bruthas, or at least a 'DUUUUHH!' ?

Sheesh. 'Journalists', eh? Sheesh.

9 posted on 01/15/2007 8:34:56 AM PST by SAJ (debunking myths about markets and prices on FR since 2001)
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To: HotTubDave

Pricing oil in euros instead of dollars is an explicit attack on the USA.

Saddam thought he could weaking the USA by doing the same three months before he fell.


10 posted on 01/15/2007 9:17:15 AM PST by longtermmemmory (VOTE! http://www.senate.gov and http://www.house.gov)
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To: CornishYank
Us Americans know a little bit about debt too - our current debt is 403% of GDP.

What do you mean by our?

Don't look at this link if you are easily depressed or don't like scrolling all the way to the bottom to find America!

Why would that be depressing? You don't think this proves your 403% claim, do you?

11 posted on 01/15/2007 10:09:30 AM PST by Toddsterpatriot (There is no cause so right that one cannot find a fool following it.)
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