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.
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?
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.
That's the key sentence.
So all we need to do is have more government debt and we'll win?
(/sarcasm)
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.
"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
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
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.
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.
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?
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