* Euro's share of world foreign exchange reserves falling
* Asia reduces participation in euro zone syndicated sales
* ECB bond buying masks exodus, concerns remain for long
* Graphic: international currency reserves reut.rs/2pgjamN
By Abhinav Ramnarayan
LONDON, May 5 Asian central banks are buying
fewer euro zone government bonds, leading to concern among
investors that price swings may become more dramatic in a market
still recovering from a series of debt crises.
Banks who sell bonds for euro zone governments say that if
emerging market central banks, hitherto big buyers of such
safe-haven debt, stay away, other investors may also be put off.
"Some of the Asian central banks like China and some of the
southeast Asian countries have been among the top 10 buyers in
syndicated deals in the past - but this year they have been
keeping away from the market," said one primary dealer for many
of the largest euro zone countries. This view was echoed by
three of his counterparts at other banks.
"If not for the ECB, this could have resulted in a real
sell-off, and the borrowers could have been forced to pay more
of a premium," the first banker added, referring to the European
Central Bank's bond-buying stimulus scheme.
Data on central bank appetite for euro zone sovereign and
government agency debt suggests both have been falling for
several years, with the drop recently accelerating.
Major investors in the market are watching this trend
"Central bank participation and how that is evolving is
key," said Richard Casey, head of government bonds for Pioneer
Investments, which has 228 billion euros of assets under
"If some central banks and non-resident investors are not
buying now, what valuations will be enough to entice them back
in? That's the question we are asking ourselves for the medium
term," he said.
Official statistics show Asian investors - who bankers say
are predominantly central banks - have this year bought up to
just 2 percent of syndicated bond sales by France, Belgium,
Italy, Austria and Finland.
That marks a significant fall from last year, when they
bought 14.35 percent of a Belgian 10-year bond syndicated sale,
13 percent of a French 20-year deal and even 3.4 percent of an
Italian 50-year bond sale.
In syndicated bond sales, banks sell bonds to investors on
the borrower's behalf.
Analysts say central banks' lower participation partly
reflects an overall fall in central bank currency reserves over
a number of years but also deeper concerns over the single
currency, most recently fuelled by the rise of anti-euro
candidates in several European elections.
Japanese investors, notably, sold a record 1.58 trillion yen
of French government bonds in February on concerns that
anti-euro, far-right leader Marine Le Pen could win the French
The fall in demand for euro zone bonds comes as the euro has
fallen in popularity as a reserve currency around the world.
IMF data on worldwide foreign exchange reserves shows a
steady decline in the euro's share from 28 percent in 2009 to
19.7 percent at the end of last year. Over the same period the
dollar's share has risen.
Distribution data from German state-owned development bank
KfW and the European Investment Bank, which sell large volumes
of both dollar and euro bonds, also suggests Asian central banks
are shifting away from the single currency.
For example, Asian investors bought 11 percent of a 5
billion euro sale of KfW 10-year bond sale in February, but
later the same month they bought 30 percent of a $4 billion
four-year KfW bond sale, according to data from International
Financing Review, a Thomson Reuters company.
"If people are worried about how sustainable the euro is,
not just over the next three or five years but in the long term,
you probably want to reduce your allocation," said Deutsche Bank
rates strategist Abhishek Singhania.
(Editing by Hugh Lawson)