Non-E.U. investors are most present in Europe's government bond and CDO markets, according to a recent survey of investor trends in European debt by The Bond Market Association.
TBMA surveyed 20 leading book runners of European bonds to gauge the regions and type of investors (fund manager/hedge fund/retail) most likely to invest in European ABS and CDOs, government bonds and investment grade and high yield corporate debt.
The survey found that about 21% of investment in European government bonds comes from Asia-based investors; while on the investment grade corporate bond side only 10% of investment comes from sources outside of Europe, with just 5% attributable to Asian investors. In the U.S., nearly 20% of investment in the corporate bond market comes from China and Japan, and Asian investment in Treasurys accounts for nearly 50% of the market.
Within the structured product asset classes, there is a notable disparity between the levels of non-EU investment in CDOs, where it accounted for 25% of investments, and ABS, where it made up just 11%, according to the survey.
The high yield bond market is where U.K. investment is most dominant, accounting for 45%, according to the survey. Hedge funds are also heavily invested in high yield bonds, where they contribute 27% of total investment compared to an average of roughly 14% of total investment across the asset classes. Hedge funds are least invested in ABS where they account for just 7% of investment
Investment from Central Banks and other public entities accounted for a quarter of total investment in the European government bond market but just 5 % of the investment grade corporate market and one percent of the high yield bond market.
The vast majority of ABS and collateralized fund obligation investments are sold to institutional investors. Fund managers account for an average of 30% of investment across the five asset classes. Fund managers represent over 40% of investment in the high yield market but just 22% of the CDO market.
Retail or private client investment across all asset classes in the European bond markets is marginal, ranging from 0% in asset-backed securities to 3% in investment grade corporate bonds. Corporate investment in the European bond markets is also marginal, ranging from zero in the high yield market to 2% in the investment grade corporate bond market.
A spokesman for the group said that the survey idea was born from a more informal survey conducted last year that incorporated the results of only seven European banks. At the beginning of 2006 the European High Yield Association (EHYA) integrated its activities with TBMA thus creating a bigger and more accessible pool of participants to poll for TBMA's origination survey.
"The results of this survey show, for the first time, where investors from different geographic locations are putting their money in the European debt markets and which type of investors prefer which asset classes," said Bertrand Huet, vice president and European regulatory counsel of the Bond Market Association commented. "The results also confirm the overall lack of retail investment across all asset classes in the Euro bond markets."
A BMA spokesman said that while the group has not formally committed to doing the survey annually, it was an option that was being considered.
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