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Capital Markets: Bond Markets - Emerging From The Shadow Of The Dollar - Despite Being Dismissed By Forex Traders When It Was Launched Five Years Ago, Last Year The Euro Became The Dominant Currency In Bond Issuance, Says Edward Russell-Walling.

Article Excerpt
It wasn't very long ago that forex traders, nursing losses, were rudely dismissive of the euro. Whatever the vagaries of the foreign exchanges, in the capital markets, the new currency has triumphantly come of age. In 2003, for the first time, there was more international bond issuance in euros than in dollars, a trend that seems likely to continue, even though this year's volumes have been disappointing.

Last year's euro-denominated international issuance totalled E988bn ($1113bn), according to figures from Thomson Financial, against dollar- denominated proceeds of $898bn. Though the euro deals were of smaller average size, there were considerably more of them - 2316 compared with 1333 dollar issues.

There were specific influences swelling these numbers, notably a refinancing spike as early euro issues approached maturity. More than anything else, however, they represent a cultural step-change, as Europe's corporate borrowers increasingly embrace the capital markets and its investors develop their appetite for corporate paper.

Five years on

The single most important historic driver, of course, was the 1999 launch of the currency itself. Until then, the dominant single currency in the Eurobond market was the US dollar. "Since the euro came along, we have seen a more consolidated core of liquidity in Europe," observes Morven Jones, managing director debt capital markets at Lehman Brothers. "Because of that, the euro now rivals the dollar in international bond finance."

Other drivers are only now gathering steam. One is the part-push, part-pull that is propelling corporates out of traditional bank borrowings and...