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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% of the global market, compared with 37% for the dollar. New issuance last year accounted for 49% 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% of the global pie, compared with 51% 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% in the middle of that year to 3.5%, its rate today.
In comparison, the Fed funds rate, the main US interest rate, has fluctuated 4.25 percentage points, ranging from 1% in the middle of 2003 to 5.25%, 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.