Europe News

Europe’s periphery in fundraising rush

Ralph Atkins

Eurozone governments are taking advantage of unexpectedly low borrowing costs to push ahead with debt issuance, with some countries further ahead in their debt raising plans than in any year since the start of the eurozone crisis, the FT reports.

Across the currency bloc, debt agencies have raised 29 per cent of their estimated 2014 funding goals, according to calculations by Barclays – more than in any year since 2010.

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Among the furthest advanced are countries in the region's crisis-hit periphery. Portugal, for instance, has completed almost half its 2014 funding.

The surge in issuance, which will increase the eurozone's resilience if fresh financial storms erupt this year, highlights how financing conditions in the region have continued to improve even as the US Federal Reserve has tapered its programme of asset purchases.

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Governments are also issuing more longer term debt; the average duration of issuance so far this year is 8.7 years, up from 7.4 years in the same period in 2013, according to separate calculations by Deutsche Bank.

Fundraising in capital markets is typically biased towards the start of the year, but this year's surge is notable because in aggregate it exceeds even the front-loading in the previous two years, when exceptional factors such as the ECB's longer-term refinancing operation encouraged governments to issue bonds.

"The market has been good for 12 to 18 months but in reality bankers will still say 'who knows what might happen later in the year'," said Huw Worthington, bond strategist at Barclays. "If you look at the interest rates governments are issuing at they are fantastically low historically."

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"Eurozone sovereigns have had a great start to the year," said Achim Linsenmaier, co-head of sovereign, supranationals and agency syndicate at Deutsche Bank. "Peripheral sovereigns have seen a dramatic improvement – both in terms of the spread [in interest rates over German Bunds] and the type of investors interested in their bonds,"

Yields on eurozone government bonds have fallen at a faster rate than US Treasuries or UK Gilts, reflecting expectations of economic growth and weak inflation, plus the possibility that the ECB may loosen monetary policy further.

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Eurozone debt has also become increasingly attractive for investors seeking shelter from turmoil elsewhere in the world.

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"Europe has become completely detached from emerging markets – they are almost havens," added Erik Nielsen, chief economist at UniCredit. "Debt agencies have looked at the yields and thought 'this is amazing' – and used the opportunity."

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