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Even world debt is getting out of the dollar

Section: Daily Dispatches

Foreign Bonds to Top
Dollar Denomination
in 2007, Lehman Says

By Bryan Keogh
Bloomberg News Service
Monday, April 9, 2007

NEW YORK -- Bonds sold in non-U.S. currencies will surpass dollar-denominated debt this year for the first time since at least 1995 as foreign governments and corporations boost local issuance, Lehman Brothers Holdings Inc. predicts.

About $4.9 trillion of bonds sold worldwide this year will be in currencies other than U.S. dollars, while $4.8 trillion will be sold in dollars, New York-based Lehman said in a report released today. It would be the first year dollar debt trailed foreign issues since Lehman began tracking the data in 1995.

Issuance in currencies used in the U.K., Canada, and Asian nations other than Japan will likely set new origination records in 2007 as non-U.S. investors shift money out of intermediary accounts and into higher-yielding, local fixed-income investments, analysts led by Jack Malvey wrote in the report.

The "globalization trends under way in fixed-income origination suggest a more regionally diversified debt base with deeper local capital markets -- not a gravity shift from one country to another," wrote Malvey, who is Lehman's global fixed-income strategist.

About $1.39 trillion of bonds were sold in currencies other than dollars in the first quarter, or 18 percent more than the year-earlier period. That compares to a 10 percent jump in bonds sold in dollars to $1.36 trillion, Lehman said. It was the second-straight quarter, and fourth time in two years, in which non-dollar debt exceeded bonds sold in the U.S. currency.

Most governments other than in Japan and Eastern Europe sold more debt in the first quarter than a year earlier, the report said. Countries using the euro and Japan were the second- and third-biggest markets for government debt, after the U.S.

Fixed-rate corporate bonds sold in euros jumped 49 percent to $110 billion, surpassing such debt denominated in dollars for the first time since the European currency began, Lehman said. Floating-rate issuance climbed in Japan, Europe, and the U.K. as their central banks raised interest rates.

Government bonds sold in the euro zone exceeded the amount of such debt issued by Japan for the first time since 2000, according to the report.

"Depending on the quality composition of issuance and currency fluctuations, even the broadest global debt benchmarks may have a European leaning by the end of this decade," Malvey wrote.

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