Draghi Replaces Yellen as Savior for Borrowers Before Fed D-Day

For borrowing governments, the euro is picking up from where the dollar left off.

Mario Draghi’s pledge to boost stimulus is saving Europe’s developing nations almost 400 basis points in borrowing costs as they sell bonds denominated in euros rather than dollars. That’s already led to the busiest fourth quarter in three years for debt sales in the shared currency even as dollar issuance dried up. Once the Federal Reserve pulls the plug on near-zero interest rates, the euro may become even more popular among sovereign borrowers, said Sergey Dergachev of Union Investment Privatfonds GmbH.

Evidence is growing that euro-denominated debt is finding more takers globally. Issuers from Peru to Indonesia helped boost developing-nation bond sales in the currency to a record in the second half as the European Central Bank expanded money supply through asset purchases. The trend is the most pronounced in eastern Europe, where this year’s largest issuers like Poland and Bulgaria are much more closely tied to the euro area through trade, investment and culture.

Governments are rushing to capture lower borrowing costs as the window for cheap dollar funds is seen closing in a matter of weeks. There is a 68 percent chance the Fed will raise interest rates for the first time in nine years on Dec. 16, according to signals from the futures market. Earlier expectations for a delay until March had to be trimmed after Fed Chair Janet Yellen told U.S. lawmakers that action next month remains a “live possibility,” a case later bolstered by American job gains.


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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.