For the past two years, the European bond market has outpaced the domestic market, and more American companies are issuing their corporate debt across the pond, according to a study released yesterday by the Federal Reserve Bank of New York.

“The U.S. bond market has lost a large share to the Eurobond market, including a noticeable portion of U.S. debt issuers,” an assistant vice president in the research and statistics group at the bank, Stavros Peristiani, wrote.

Year-to-date, the largest nonfinancial American companies to issue debt in Europe are Time Warner Cable, with nearly $5 billion in European bond issuance, and pharmaceutical giant Amgen, with nearly $4 billion in European debt. Neither company has issued any U.S. bonds this year, according to data from Thomson Financial. AT&T rounds out the top three American companies to issue in Europe with $2.7 billion worth of Eurobond issuance; it has also issued $1.15 billion domestically.

According to the Federal Reserve Bank’s report, 82% of American firms issued debt in the U.S. last year, a 10% drop from 1995. At the same time, just 9% of European companies issued debt here last year compared with more than 20% in 2000.

“This trend is not surprising, given the expansion of the London market and its position as a rival to New York as the center for capital markets,” says Richard Peterson, an economist at Thomson Financial. “Companies would rather issue debt in an appreciating currency like the Euro, than in a depreciating currency like the dollar, which has lost so much value it is now almost on parity with the Canadian dollar.”

Among the reasons European debt markets are attractive to U.S.companies is the relatively lax regulations. “Throughout the 1990s, the European financial system underwent a major transformation stemming from financial liberalization, a reduced reliance on banks as intermediaries between savers and borrowers, and the euro’s emergence as a leading global currency,” Mr. Peristiani wrote.

For companies seeking international cachet, issuing in Europe can help enhance their global profiles while enabling them to hedge their foreign currency exposures. The cost of issuing Eurobonds has also lessened and is now more in line with the cost of issuing in the U.S. It costs about 50 basis points to issue an A-rated 10-year bond in Europe, versus more than 100 grade corporate borrowers, at the expense of the U.S. bond market,” Mr. Peristiani wrote.

The emergence of the European markets is in part a result of globalization, and this could cause problems for the domestic bond market. “In an extreme scenario, most high-grade U.S.companies could issue exclusively overseas, leaving the domestic bond market to be dominated by lower rated companies,” the report said. “A primary debt market composed mainly of high-yield issuers would be more vulnerable to macroeconomic fluctuations and systemic risks.”

Still, it is not all bad news for the domestic market. “The U.S. bond basis points in 1996. “The sharp decline in gross spreads in the Eurobond market has thus made it more attractive to investment market has grown significantly over the past 10 years,” the chief economist at Reis Inc., Sam Chandan, said. “It is not as if the U.S. market has been constrained in its growth because on the margin, some American companies may be looking to the European markets.”

Mr. Peristiani also examined the American and European equity markets, and found that despite relinquishing some of their market share, the New York Stock Exchange and the Nasdaq continue to be the world’s most actively traded markets. While there are fewer foreign IPOs on the domestic exchanges, markets overseas are also experiencing similar declines. “The decrease in listings on the NYSE and the Nasdaq therefore is not necessarily a sign of weaker U.S. markets,” he wrote.

The situation, however, is bleaker with the debt markets. “The U.S. bond market has fallen behind the Eurobond market in terms of the total volume of debt issued, and it is no longer the first choice for some U.S. debt issuers,” Mr. Peristiani wrote. “Nevertheless, despite borrowing from the Eurobond market in great numbers, American companies continue to use the U.S. and Eurobond debt markets in a complementary fashion to meet their funding needs.”