Euro zone price discounting drives growth in activity

By Jonathan Cable

LONDON (Reuters) – Price discounting drove growth in all of the euro zone’s major economies in March, helping business activity increase at its fastest rate for nearly a year, a survey showed on Tuesday.

New orders came in at their fastest rate since May 2011 and the survey found that companies have now been cutting prices for three years, although not as sharply in March as before.

Nevertheless, the Markit survey provided some welcome news for the European Central Bank (ECB) just weeks after it embarked on a trillion-euro asset-purchase program.

The private sector in Germany, Europe’s largest economy, grew at its fastest pace in eight months and although it also increased in France, the pace of expansion slowed.

Italy’s service industry returned to growth, fuelling hopes of an economic recovery there after years of on-off recession, and Spain’s expanded at its fastest pace since August.

“France is lagging behind a little bit but the others are doing pretty well. It just shows that quantitative easing was working even before the ECB bought a single bond,” Soctiabank’s Alan Clarke said.

“It’s vindicating the ECB for what it is doing.”

Official data showed euro zone consumer prices fell again in March as expected but that the decline was the smallest this year. Industrial producer prices declined by less than expected in February from a year earlier.

“Encouragingly for the ECB, there was further evidence in the services survey that deflationary tendencies are easing in the euro zone,” IHS Global Insight’s Howard Archer said.

Markit’s final March Composite Purchasing Managers’ Index (PMI), seen as a good indicator of growth, stood at 54.0, a touch below the preliminary estimate of 54.1 but well ahead of February’s 53.3. A reading above 50 implies growth.

The financial information firm said the PMIs pointed to first quarter growth of 0.3 percent, slightly less than the 0.4 percent predicted in a Reuters poll taken last month. [ECILT/EU]

Price-cutting also helped drive up service industry activity at its fastest pace in eight months. The March services PMI rose to 54.2 from 53.7, just below the flash 54.3 estimate.

With recovery gathering steam and confidence growing because of the ECB’s QE program, service companies were at their most optimistic since May 2011. The business expectations sub-index came in at 64.8 compared with February’s 64.1.

Sentix research group’s index tracking morale among investors and analysts in the euro zone climbed to its highest level since August 2007 this month as they took heart from the European Central Bank’s bond-buying program.

(Editing by Louise Ireland)

Euro zone deflation eases, unemployment drops

Deflation in the euro zone persisted in March but the rate of decline slowed, further easing concerns that the economy faces a dangerous spiral of falling consumer prices.

Prices in the 19-nation euro zone were down 0.1% in March, less than the drop of 0.3% in February with low energy costs still impacting the cost of living, the EU statistics agency Eurostat said.

Prices had slumped 0.6% in January.

As in previous months, the decline was mainly driven by a steep fall in the prices of energy, which was 5.8% cheaper in March than a year earlier.

Core inflation, which excludes the volatile components of energy and unprocessed food costs, was 0.6% year-on-year, down from 0.7% in February and the same as in January.

The bottoming out of price falls is likely to be welcome news for the European Central Bank, which wants to keep inflation below, but close to 2% over the medium term.

It started printing money in March to inject more cash into the economy and make prices rise again.

Meanwhile, in another positive sign for the euro zone economy, Eurostat said euro zone unemployment fell to 11.3% of the workforce in February from an upwardly revised 11.4% in January – the lowest rate since May 2012.

Eurostat said there were 18.204 million people without jobs in the euro zone in February, 49,000 people fewer than a month earlier.

On Monday, Fitch ratings agency said a renewed euro zone debt crisis was the biggest risk to the global economy, even greater than unstable oil prices and despite the ECB’s quantitative easing programme.

Joblessness remained hugely varied across the 19 nation euro zone, with a record low in Germany and alarmingly high levels persisting in Spain, at 23.2%, and 26% in crisis-hit Greece, the highest rate in Europe.

Youth unemployment in Greece stood at a huge 51.2% and 50.7% in Spain.

The data for Italy, the euro zone’s third biggest economy, remained a worry with unemployment up to a high 12.7% in February and youth unemployment at 42.6%. French unemployment remained flat at 10.6%.

The biggest drops in unemployment were felt in small nations Estonia down to 6.2% from 8.4% a year earlier and Ireland, down to 9.9% from 12.1%.

Across the 28-member EU, unemployment stood at 9.8% in February, down from 9.9% in January and 10.5% a year earlier.

Euro zone price fall slows as expected, deflation fears ease

By Jan Strupczewski

BRUSSELS (Reuters) – Euro zone consumer prices fell again in March, as expected, but the decline was the smallest this year, indicating the price of goods and services could start rising again soon.

Meanwhile, the region’s unemployment rate fell to its lowest in almost three years, a sign the economy is picking up steam and inflation is likely to rise.

Consumer prices in the 19 countries sharing the euro fell 0.1 percent year-on-year this month, the European Union’s statistics office Eurostat estimated. Prices fell 0.3 percent in February and 0.6 percent in January.

The bottoming out of price declines is likely to be welcome news for the European Central Bank, which wants to keep inflation below, but close to 2 percent over the medium term. It started printing money in March to inject more cash into the economy and ward off concerns of persistently falling prices, or deflation.

“Inflation will soon flatten out, and will turn clearly positive in the second half of the year,” said Nick Kounis, head macro and financial markets research at ABN AMR.

“The drag from energy will ease in the coming months, while food price inflation (now unusually weak) is likely to gradually edge up as it follows developments in agricultural prices with a long lag,” he said.

“Finally, later in the year – and more so in 2016 – the impact of the weaker euro will feed through. Overall, then we look to be in a world of ‘lowflation’ rather than ‘deflation’,” Kounis said.

As in previous months, the decline was mainly driven by a drop in the price of energy, which was 5.8 percent cheaper in March than a year earlier.

Core inflation, which excludes volatile energy and unprocessed food costs, was 0.6 percent year-on-year, down from 0.7 percent in February and the same as in January.

“The data will likely dilute fears that deflation could become entrenched in the euro zone with long-term debilitating growth effects,” said Howard Archer, economist at IHS Global Insight.

“In fact, it may not be long before the markets start seriously questioning whether the ECB will continue to fully enact its quantitative easing programme all the way through to September 2016,” Archer said.

In another positive sign for the euro zone economy, Eurostat said euro zone unemployment fell to 11.3 percent of the workforce in February from an upwardly revised 11.4 in January — the lowest rate since May 2012.

Eurostat said 18.204 million people were without jobs in the euro zone in February, 49,000 people fewer than a month earlier.

(Reporting By Jan Strupczewski; Editing by Philip Blenkinsop, Larry King)

Higher German prices could help spur euro zone inflation

By Michelle Martin

BERLIN (Reuters) – German consumer prices rose in March for the first time this year when harmonised to compare with other European Union countries, and could help spur euro zone inflation.

EU-harmonised consumer prices were up 0.1 percent on the year in Europe’s largest economy after dropping 0.1 percent in February, preliminary data from the Federal Statistics Office showed on Monday.

Some economists said the pickup in German inflation, along with data on Monday showing Spain’s EU-harmonised inflation rate rose to -0.7 percent in March from -1.2 percent in February, would likely give the euro zone figure due to be published on Tuesday a boost.

The German reading was in line with a Reuters forecast. Germany’s non EU-harmonised national consumer price index rose by 0.3 percent on the year with service prices increasing while food and energy prices dropped less sharply than in the previous month.

Christian Schulz, senior economist at Berenberg Bank, said the Spanish and German figures could even help the euro zone break a run of negative inflation figures: “On the basis of these two countries, there is a chance that euro zone inflation could climb out of negative territory in March.”

Still, even if inflation returned in the euro zone it would remain well below the European Central Bank’s target of close to but just below 2 percent over the medium term.

A Reuters poll conducted before Monday’s data was published showed economists expect euro zone consumer prices to fall by 0.1 percent in the single currency bloc in March after dropping by 0.3 percent in February. (ECONEZ)

Jennifer McKeown, economist at Capital Economics, said that because German wage growth has been moderate at a time when the economy still has spare capacity, core inflation is not likely to pick up suddenly, especially while oil is cheap.

“We expect energy prices to continue to exert a heavy drag on the headline rate for the next six months or so, which may see headline inflation dip back into negative territory in the near future. But the drag should ease somewhat later this year.”

(Editing by Noah Barkin and Susan Fenton)

Gold near 2-1/2 week high on U.S. rate expectations

By Jan Harvey

LONDON (Reuters) – Gold held near 2-1/2 week highs on Wednesday as upbeat euro zone economic data supported the euro versus the dollar, and as expectations receded that a U.S. interest rate rise is imminent.

The metal’s five-day rally to Tuesday, its longest since January last year, came after Federal Reserve chair Janet Yellen sounded a cautious note last week on the U.S. economy and the pace of any rate hike.

Spot gold (XAU=) was at $ 1,192.40 an ounce at 1024 GMT, little changed from Tuesday, while U.S. gold futures (GCv1) for April delivery were up 80 cents an ounce at $ 1,192.20.

“Yellen last week made it clear that the Fed will probably take more time before we see further interest rate hikes. That was clearly supportive for gold, so we weren’t surprised to see prices rising again,” Commerzbank analyst Daniel Briesemann said.

Gold hit its highest since March 6 on Tuesday at $ 1,195.30 an ounce, before paring gains after U.S. data showed an uptick in underlying inflation pressures and gains in home prices.

“Yesterday’s CPI data from the U.S…. led to renewed expectations for timely rate hikes, which put the brakes on (gold’s) increase,” Briesemann said. “We have different data which are keeping each other in balance. Unless we get a clearer picture on what’s going on, gold prices may not move that much.”

Since the Fed met last week, expectations for a U.S. rate rise have shifted, with most of Wall Street’s top banks now expecting the Fed to hold off until at least September, compared with previous expectations of June, a Reuters poll showed.

Gold prices had been hurt by expectations for a near-term rate hike, which would lift the opportunity cost of holding non-yielding bullion while boosting the dollar.

The U.S. unit fell against the euro on Wednesday, further underpinning gold, as the single currency benefited from a robust German business morale survey that added to expectations that an economic recovery in the euro zone is strengthening. [FRX/]

However, physical gold demand in Asia, which supported the market when prices were around $ 1,145-55, is looking sparse at current levels and is not providing the cushion seen previously, precious metals house MKS said in a note on Wednesday.

“Further, it feels that this demand is not likely to re-emerge in any meaningful quantities until prices get back around $ 1170-75,” it added.

Among other precious metals, silver (XAG=) was up 0.4 percent at $ 16.95 an ounce, while spot platinum (XPT=) was up 0.5 percent at $ 1,142.20 an ounce and spot palladium (XPD=) was up 0.6 percent at $ 765.97 an ounce.

(Additional reporting by A. Ananthalakshmi; Editing by Janet Lawrence)

GLOBAL MARKETS-Strong euro zone business data sends euro, shares higher

* Better-than-expected European PMIs boost euro, hurt dollar

* Gauge shows China factory activity skids to 11-month low

* Cautious Fed view on rate hike keeps dollar off recent highs

By Jemima Kelly

LONDON, March 24 (Reuters) – The euro rose and European shares edged up on Tuesday, responding to signs the euro zone economy is gaining momentum, while a slowdown in factory activity in China kept oil and commodities-linked assets under pressure.

In a sign the European Central Bank’s bond buying programme may already be paying dividends, a composite purchasing managers’ survey for the 19 members of the euro zone jumped to a near four-year high of 54.1 in March, well above forecasts.

The euro gained 0.4 percent in early European trading to hit a six-day high of $ 1.1001, adding to a recent rally after the single currency last week registered its best performance against the dollar in 3-1/2 years.

At 0850 GMT, the FTSEurofirst 300 index of top European shares was up 0.1 percent at 1,602.56 points, having lost 0.7 percent on Monday.

“The environment for the euro zone is getting extremely positive: low interest rates, a weakening euro and falling commodity prices, coupled with strong action from the ECB,” said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris.

“The only big risk seen in the medium term is the prospect of a rate hike by the Fed, but that’s mostly priced in already.”

San Francisco Federal Reserve Bank President John Williams said on Tuesday the strong dollar would drag on U.S. growth this year, though the economy was strong enough to handle it.

The dollar plunged last week after the Fed cut its inflation outlook and its growth forecast and the market pushed out its consensus of when the Fed will raise rates to at least September.

On Tuesday the dollar was down 0.3 percent against a basket of major currencies at 96.759, well below its 12-year peak of 100.390 struck on March 13.

CHINA GROWTH WORRIES

Brent crude oil held close to $ 56 a barrel on the signs of slowing growth in China and as Saudi Arabia said its production was close to an all-time high.

The China flash HSBC/Markit Purchasing Managers’ Index (PMI) dipped to 49.2 in March, below the 50-point level that separates expansion from contraction. Economists polled by Reuters had forecast a reading of 50.6, slightly weaker than February’s final PMI of 50.7.

The private survey is likely to add to calls for more monetary easing from Beijing.

“China is the big risk,” said Ian Stannard, head of European FX strategy at Morgan Stanley in London. “It can put the whole of Asia ex-Japan under pressure and there is some feed-through to G10 through the commodity currencies.”

The Shanghai Composite share index ended slightly higher, gaining for a tenth straight day in a rally that has pushed major Chinese indexes to their highest levels in nearly 7 years.

Japan’s Nikkei stock average slipped 0.2 percent, pulling away from the previous session’s 15-year highs.

In Japan, a similar manufacturing survey added to concerns that its slowly recovering economy also may be losing momentum, with activity expanding at a much slower clip as domestic orders contracted.

Ahead of a closely watched Spanish inflation-linked debt sale, Spanish and Italian 10-year bond yields rose 4 basis points in early trading to 1.30 and 1.33 percent, respectively.

German equivalents – the euro zone benchmark – were flat at 0.22 percent.

(Additional reporting by Patrick Graham and John Geddie in London, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; editing by John Stonestreet)

GLOBAL MARKETS-Greek pledge and cautious Fed soothe investors

* Euro set for best week in over two years

* U.S. stocks set to open higher on weakening dollar

* Brent set to rack up third weekly price drop

* Greek yields fall after Athens’ assurances (Updates prices, adds U.S. stocks)

By John Geddie

LONDON, March 20 (Reuters) – The euro headed for its best week in more than two years on Friday while yields on low-rated bonds fell as investors welcomed the Fed’s caution on rate hikes and a reform pledge from Athens that could avert a cash crunch.

Illustrating the problems low inflation is causing for central banks looking to normalise monetary policy in countries such as the United States and Britain, oil was set to rack up its third consecutive weekly price slump.

Futures showed Wall Street set to open 0.3 percent higher, with stocks on course for their best week in a month, as a Fed-induced weakening of the dollar gave a boost to U.S. exporters.

European shares edged up while euro zone bond yields fell after assurances from Athens that it will submit reforms needed to unlock bailout cash. The ECB’s trillion euro asset purchase scheme was also in focus at the end of its second week.

“The outlook for European markets is better than it has been for years, and the risks now are largely political,” said Christian Schultz, senior economist at Berenberg.

Greek bond yields dropped 45 basis points to 12.10 percent, while Portuguese, Spanish and Italian equivalents were all down around 1-2 bps. German bonds — the euro zone benchmark — were flat at 0.19 percent, just above a record low.

The euro was 0.5 percent higher against the dollar at $ 1.0712, well below Wednesday’s high above $ 1.10 but leaving the single currency on track for its best week since January 2013.

“What’s been dominating the euro over the course of the last week has been the moves in the dollar. The FOMC announcement was, on margin, more dovish than expected,” said Phyllis Papadavid, senior global FX strategist at BNP Paribas in London.

The pan-European FTSEurofirst 300 share index was up 0.3 percent at 1.601.42 points, having hit a new 7-1/2 year high just after markets opened.

The impetus gained from Wednesday’s dovish statement from the U.S. Federal Reserve has begun to ease, but European indices were supported by gains in the construction sector after Holcim and Lafarge agreed to new merger terms.

Asian stocks were broadly unchanged, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.05 percent after rallying 1.3 percent the previous day. It was on course for a gain of over 2 percent for the week.

The region’s decliners included shares in Hong Kong, Malaysia, South Korea and Thailand. Australian and Chinese stocks were among the gainers in a choppy session.

The dollar index was down 0.5 percent at 98.72 but still well above a low of 96.628 plumbed midweek. The index was on track for slight loss on the week after touching a 12-year high above 100.00 on March 13.

The dollar saw its biggest fall in six years against the euro on Wednesday, after the Fed’s dovish statement.

In commodities, Brent crude oil was down 1.3 percent at $ 53.69 a barrel, hurt by oversupply worries after Kuwait said OPEC had no choice but to maintain output levels.

U.S. crude was down around 0.5 percent, just above the six-year low of $ 42.03 a barrel hit earlier in the week.

(Editing by Catherine Evans)

Greek pledge and cautious Fed soothe investors

By John Geddie

LONDON (Reuters) – The euro headed for its best week in more than two years on Friday while yields on low-rated bonds fell as investors welcomed the Fed’s caution on rate hikes and a reform pledge from Athens that could avert a cash crunch.

Illustrating the problems low inflation is causing for central banks looking to normalise monetary policy in countries such as the United States and Britain, oil was set to rack up its third consecutive weekly price slump. [O/R]

Futures showed Wall Street set to open 0.3 percent higher, with stocks on course for their best week in a month, as a Fed-induced weakening of the dollar gave a boost to U.S. exporters.

European shares edged up while euro zone bond yields fell after assurances from Athens that it will submit reforms needed to unlock bailout cash. The ECB’s trillion euro asset purchase scheme was also in focus at the end of its second week.

“The outlook for European markets is better than it has been for years, and the risks now are largely political,” said Christian Schultz, senior economist at Berenberg.

Greek bond yields dropped 45 basis points to 12.10 percent, while Portuguese, Spanish and Italian equivalents were all down around 1-2 bps. German bonds — the euro zone benchmark — were flat at 0.19 percent, just above a record low.

The euro was 0.5 percent higher against the dollar at $ 1.0712 , well below Wednesday’s high above $ 1.10 but leaving the single currency on track for its best week since January 2013.

“What’s been dominating the euro over the course of the last week has been the moves in the dollar. The FOMC announcement was, on margin, more dovish than expected,” said Phyllis Papadavid, senior global FX strategist at BNP Paribas in London.

The pan-European FTSEurofirst 300 share index was up 0.3 percent at 1.601.42 points, having hit a new 7-1/2 year high just after markets opened.

The impetus gained from Wednesday’s dovish statement from the U.S. Federal Reserve has begun to ease, but European indices were supported by gains in the construction sector after Holcim and Lafarge agreed to new merger terms.

Asian stocks were broadly unchanged, with MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> up 0.05 percent after rallying 1.3 percent the previous day. It was on course for a gain of over 2 percent for the week.

The region’s decliners included shares in Hong Kong, Malaysia, South Korea and Thailand. Australian and Chinese stocks were among the gainers in a choppy session.

The dollar index was down 0.5 percent at 98.72 <.DXY> but still well above a low of 96.628 plumbed midweek. The index was on track for slight loss on the week after touching a 12-year high above 100.00 on March 13.

The dollar saw its biggest fall in six years against the euro on Wednesday, after the Fed’s dovish statement.

In commodities, Brent crude oil was down 1.3 percent at $ 53.69 a barrel , hurt by oversupply worries after Kuwait said OPEC had no choice but to maintain output levels.

U.S. crude was down around 0.5 percent, just above the six-year low of $ 42.03 a barrel hit earlier in the week.

(Editing by Catherine Evans)

US firms use cheap euros to access dollars, but window closing

By Jamie McGeever

LONDON, March 18 (Reuters) – The stark divergence between U.S. and euro zone monetary policy has made it more attractive than ever for U.S. companies to raise cash in euros and swap it back into dollars this year, but that window of opportunity could be closing.

The euro/dollar cross currency basis swap, effectively the cost of swapping one currency into the other without the exchange rate risk, recently showed the highest premium for dollars in more than two years.

This could deter U.S. firms from raising funds in euros and swapping them back into dollars, although the cost of raising dollar funds outright on the wider capital markets is even more prohibitive thanks to the widening gap between official U.S. and euro zone borrowing rates.

As long as it’s cheaper for U.S. firms to access dollar funds via the cross-currency basis markets, it will remain an attractive option, even if the rush to do so seen at the start of the year slows down.

“Valuation will make corporate issuance quite opportunistic as long as the cost of doing so is cheaper than credit spreads,” said Fabio Bassi, head of European interest rate derivatives strategy at JP Morgan in London.

Several U.S. multinationals have come across the Atlantic to raise billions of dollars in recent weeks, including Coca-Cola , AT&T and Mondelez.

There’s no clear-cut measure of how much it costs U.S. firms to raise funds in euro capital markets. That’s determined by each firm’s creditworthiness, risk perception in the eyes of investors and specific terms of the fund-raising in question.

U.S. firms have raised the most funds in euros year-to-date since the pre-crisis calm of 2007, even though the cost of swapping those euros back into dollars has risen to its highest in over two years.

They have issued 35.2 billion euros of bonds so far this year, according to Thomson Reuters data. That’s as much as the previous six years’ comparable totals combined, the highest since 2007 and the second highest since 2000.

They’re on track to raise a record amount this year of between 75 and 90 billion euros, according to Bank of America Merrill Lynch recent estimates. Potentially, that would be nearly double last year’s total of 51 billion euros.

These numbers show that proportionally, the share of U.S. investment grade debt issuance in euros this year will virtually double to as much as 30 percent of all issuance.

WIDER US-EURO ZONE SPREADS

Issuance tends to be greater in the first quarter anyway as companies budget and plan for the year ahead. A plentiful supply of global liquidity and a maturing euro zone market have also helped.

Not all of those euros will be swapped back into dollars, however. Some will be used to fund euro zone-based investment and spending, or for currency hedging purposes.

But the cost of doing just that on the cross-currency basis swap markets may still be relatively attractive. The benchmark three-month euro/dollar cross-currency basis swap rate hit -30 basis points recently, a level not seen since late 2012.

That negative number implies the premium an investor demands to swap his euro-interest rate exposure into dollar-denominated rate exposure. JP Morgan reckon the “break-even” level is around -38 basis points, although it could feasibly move out to as much as -50 basis points.

On Wednesday it had eased back to around -25 basis points.

Compare that to the spread of relative U.S. and euro zone government bond yields, as the European Central Bank launches its trillion-euro bond buying programme to tackle deflation and revive growth just as the Federal Reserve prepares the ground for its first interest rate since June 2006.

The six-month U.S. yield is 16 basis points and the euro zone equivalent is -21 basis points, giving a spread of 37 basis points.

The gap widens the further out the curve you go. The two-year U.S. yield is 0.67 percent and the euro zone equivalent is -0.21 percent, giving a spread of 88 basis points. The spread between equivalent 30-year yields recently hit 200 basis points, the widest on record.

“The pace of issuance is unlikely to continue, despite the busy pipeline,” said James Cunniffe Corporate on the bond syndicate desk at HSBC in London.

“But the rates are clearly attractive,” he said.

(Editing by Mark Heinrich)

U.S. firms use cheap euros to access dollars, but window closing

By Jamie McGeever

LONDON (Reuters) – The stark divergence between U.S. and euro zone monetary policy has made it more attractive than ever for U.S. companies to raise cash in euros and swap it back into dollars this year, but that window of opportunity could be closing.

The euro/dollar cross currency basis swap, effectively the cost of swapping one currency into the other without the exchange rate risk, recently showed the highest premium for dollars in more than two years.

This could deter U.S. firms from raising funds in euros and swapping them back into dollars, although the cost of raising dollar funds outright on the wider capital markets is even more prohibitive thanks to the widening gap between official U.S. and euro zone borrowing rates.

As long as it’s cheaper for U.S. firms to access dollar funds via the cross-currency basis markets, it will remain an attractive option, even if the rush to do so seen at the start of the year slows down.

“Valuation will make corporate issuance quite opportunistic as long as the cost of doing so is cheaper than credit spreads,” said Fabio Bassi, head of European interest rate derivatives strategy at JP Morgan in London.

Several U.S. multinationals have come across the Atlantic to raise billions of dollars in recent weeks, including Coca-Cola <CCE.N>, AT&T <T.N> and Mondelez <MDLZ.O>.

There’s no clear-cut measure of how much it costs U.S. firms to raise funds in euro capital markets. That’s determined by each firm’s creditworthiness, risk perception in the eyes of investors and specific terms of the fund-raising in question.

U.S. firms have raised the most funds in euros year-to-date since the pre-crisis calm of 2007, even though the cost of swapping those euros back into dollars has risen to its highest in over two years.

They have issued 35.2 billion euros of bonds so far this year, according to Thomson Reuters data. That’s as much as the previous six years’ comparable totals combined, the highest since 2007 and the second highest since 2000.

They’re on track to raise a record amount this year of between 75 and 90 billion euros, according to Bank of America Merrill Lynch recent estimates. Potentially, that would be nearly double last year’s total of 51 billion euros.

These numbers show that proportionally, the share of U.S. investment grade debt issuance in euros this year will virtually double to as much as 30 percent of all issuance.

WIDER US-EURO ZONE SPREADS

Issuance tends to be greater in the first quarter anyway as companies budget and plan for the year ahead. A plentiful supply of global liquidity and a maturing euro zone market have also helped.

Not all of those euros will be swapped back into dollars, however. Some will be used to fund euro zone-based investment and spending, or for currency hedging purposes.

But the cost of doing just that on the cross-currency basis swap markets may still be relatively attractive. The benchmark three-month euro/dollar cross-currency basis swap rate hit -30 basis points recently, a level not seen since late 2012.

That negative number implies the premium an investor demands to swap his euro-interest rate exposure into dollar-denominated rate exposure. JP Morgan reckon the “break-even” level is around -38 basis points, although it could feasibly move out to as much as -50 basis points.

On Wednesday it had eased back to around -25 basis points.

Compare that to the spread of relative U.S. and euro zone government bond yields, as the European Central Bank launches its trillion-euro bond buying program to tackle deflation and revive growth just as the Federal Reserve prepares the ground for its first interest rate since June 2006.

The six-month U.S. yield is 16 basis points and the euro zone equivalent is -21 basis points, giving a spread of 37 basis points.

The gap widens the further out the curve you go. The two-year U.S. yield is 0.67 percent and the euro zone equivalent is -0.21 percent, giving a spread of 88 basis points. The spread between equivalent 30-year yields recently hit 200 basis points, the widest on record.

“The pace of issuance is unlikely to continue, despite the busy pipeline,” said James Cunniffe Corporate on the bond syndicate desk at HSBC in London.     “But the rates are clearly attractive,” he said.

(Editing by Mark Heinrich)