The global bond market has embraced the euro.
Though the currency won't be introduced into circulation until January, it has been the third-most-popular currency in worldwide debt issuance in 1998.
With 11.5% of the world's bonds denominated in the European currency unit this year, it ranks just behind the U.S. dollar and German mark in terms of popularity - and just ahead of the British pound and French franc.
By all accounts, the pace of issuance in euros is expected to pick up this fall.
"I see a heavy calendar in euro issuance in September," said Felicity Buchan, a vice president on J.P. Morgan's debt syndicate desk in London.
"European investors are really looking at the core European market much more, and looking at the differences in absolute yield on bonds," Ms. Buchan said. Right now, euro-denominated bonds have a marginally higher yield than bonds denominated in francs or marks, Ms. Buchan said.
The European currency unit, which will become the euro in January, is currently evaluated using a basket of currencies including the 11 that will convert to the euro this winter, plus the British pound and Greek drachma, which will not. The European currency unit usually has an exchange rate close to the U.S. dollar.
Bond issuers in euros are not limited to governments and corporations in the 11 participating nations. The government of Argentina has been one of the largest issuers, having raised $5 billion from euro-denominated bonds this year.
A broad international investor base exists for the euro. Investors in the United States, Japan, and all the continental European countries other than the Netherlands are buying euro-denominated bonds, Ms. Buchan said.
She said the other Asian countries still tend to favor the mark, and the Dutch are leery because the pound and the drachma won't be included in the conversion, despite being part of current European currency unit calculations.
U.S. commercial banks, big European banks, and Wall Street firms are still duking it out to see who will dominate the massive market.
J.P. Morgan & Co. outpaces all other U.S. banking companies by far, ranking third among underwriters of bonds in euros, with 8.3% of the market segment. Most of these bonds have been underwritten for European banks and sovereign nations, including the governments of Italy, Sweden, and Finland.
The only other U.S. bank that comes close is Bankers Trust Corp., which ranks 19th. It has focused on underwriting European junk bonds, of which only a handful have been denominated in euros.
Last month, BT Alex. Brown International, the London-based securities arm of Bankers Trust, kicked off a $141 million junk bond deal for French- based Remy Cointreau denominated in euros.
It was the first French bond deal issued by a non-investment-grade company.
A whopping 30% of the issue was placed in the United States. Although 70% of the bonds were placed in Europe, French investors bought only 16% of the total issue, said Youssef Khlat, managing director of European debt capital markets at BT Alex. Brown International.
"Remy was pleased with this," Mr. Khlat said. "The last thing in the world they wanted was to place everything in France. That's why they chose an American bank."
When investment bankers began discussions with Remy about six months ago, they debated with the French executives whether to denominate the issue in francs or euros. But today the euro is more clearly preferred by continental issuers.
"If investors like a particular currency there's demand for bonds in that currency," Mr. Khlat said, "and investor confidence in the euro has grown."
