UNTIL A WEEK ago, the headlines on Europe's new currency at least had the merit of being consistent. "Euro hits new lifetime low", they read, almost daily. Buoyed by strong economic data and worries over the dollar, the tide finally turned last week, but the impression remains of a weak and sickly currency that struggles to justify its existence over those it replaced.
Look beyond the headlines, however, and in a number of respects the new currency is beginning to do just what it was supposed to. One area is prices, where there is already strong evidence of homogenisation towards the lowest common denominator. But perhaps the biggest unwritten success story of the euro so far is the region's fast-developing bond market.
Currencies seem to tell a story, bonds do not, which may explain the under-reporting of some astonishing facts. The volume of new euro issues in the second quarter of the year rose by 43 per cent compared with a year ago. This marked a sharp acceleration from the equally strong 32 per cent in the first three months of the euro's life.
"The decline in the euro/dollar has been virtually irrelevant for developing growth in the eurobond market," said Eden Riche, head of international investment grade debt capital markets at Donaldson, Lufkin & Jenrette (DLJ). "We have seen an explosion in both the number and the size of the issues."
According to the Bank for International Settlements, the launch of the euro in January was a big factor in the 58 per cent surge in long-term international debt securities in the first quarter to a record $415bn. It said activity in the new currency posted an 84 per cent gain from the 1998 average for the 11 legacy currencies and the ecu, to $147bn.
The real growth is in corporate bonds. UK companies to have tapped the euro debt markets includes Railtrack, which is raising 3bn euro to help fund its pounds 27bn investment programme, and Pearson, which has sold 400m euros in five-year bonds.
Corporate bond issuance is almost three times what it was a year ago, having grown by 22 per cent between the first two quarters of the year. The 9.4bn euro Olivetti bond for the Telecom Italia takeover was the largest corporate bond issue ever in the EU. Without it, the deal might have been impossible.
A solid grounding for the development of a vibrant European debt market is provided by the 11 euroland countries, who together have tradeable debt more than 20 per cent larger than the US Treasury market. Emerging markets such as Argentina are also tapping in.
According to Graham Bishop, of investment bank Salomon Smith Barney, the development of the euro-denominated bond market has been a considerable success story. "Investors have shown their willingness to finance imaginative takeover bids, which may start a trend towards a bottom-up restructuring of EU industry and commerce."
There are a number of reasons for the growth of the market. Despite the currency's mixed start, the launch of the euro removed large amount of currency risk …