dollar finds a rival

Doug Henwood dhenwood at
Mon Feb 1 20:08:44 PST 1999

[More evidence that the euro is giving the US$ a run for its money.]

FINANCIAL TIMES - February 2 1999

Euro beats dollar in bond issues By Edward Luce, Capital Markets Editor

The euro has pushed the dollar into second place in international bond markets in its first month of trading.

Since its launch, the euro has been the currency of choice for half of all new international bond issues, with a value equivalent of $69.3bn. The dollar took 40 per cent ($55.7bn) of the total.

Analysts have warned that the euro's share of international borrowing would probably fall back, but the challenge to the dollar's supremacy would not fade away.

"If you judge by the bond markets, we are now in a dual currency world," said Simon Meadows, global head of debt syndication at CSFB.

The next most popular currency was sterling with a share of less than five per cent. The Japanese yen barely registered, according to data from Capital Data BondWare.

The euro was also more popular than its 'legacy' currencies used to be. The proportion of bonds issued in all eleven euro "legacy" currencies ran at between 30 and 35 per cent in recent years.

The euro has capitalised on the enthusiasm of European pension and insurance funds for new types of bond, including offerings from European companies. Dozens of assets managers, including Credit Suisse Asset Management and Rothschild Asset Management, have launched dedicated funds for euro-denominated corporate bonds.

A number of European companies, such as Olivetti, the Italian telecoms firm; Energie, the Austrian utility; Carrefour, the French supermarket chain; Abbey National, the British bank, and Benetton, the Italian fashion company, have either issued bonds in euros in the last three weeks or plan to do so.

"If you look at who has borrowed in euros it goes right across the spectrum from banks and companies to governments," said Roger Bates, head of the Deutsche Bank's Emu project team in London.

However, bankers say that the euro's share of the international debt markets is likely to drop slightly to take account of the fact that many borrowers wanted to make a splash in the currency's first month of existence.

"A lot of borrowers wanted to be the first to establish a new benchmark and attract publicity," said David Munves, credit market strategist at Lehman brothers. "However, the euro has at the very least achieved parity with the US dollar in the bond markets."

The euro's popularity has been aided by the recent weakness of the US dollar against the Japanese yen owing to the widening US current account deficit and the rise in Japanese bond yields.

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