Euro strengthens as foreign central banks increase bond purchases.

LONDON, July 16 (Reuters) - Central banks have increased their purchases of euro zone bonds this year, according to data, in a positive sign for the euro as the bloc seeks to benefit from diversification outside of US markets.

The president's clashes EUADonald Trump's clashes with long-time allies on trade and security, along with attacks on the Federal Reserve, have raised concerns about the safe-haven status of the U.S. dollar, the world's number one reserve currency, which has fallen 9% this year.

Meanwhile, the euro has appreciated by 12%, and authorities are eager to seize the moment to reinforce its role as a reserve currency. The increased demand from central banks, which manage trillions of dollars in foreign exchange reserves, is therefore noteworthy.

Official institutions, including central banks and sovereign wealth funds, have purchased a fifth of eurozone public debt sold in consortia year-to-date, up from 16% for the whole of last year, according to Barclays, the analysis showed, using data from the debt management office.

Debt sales in which official institutions received large portions include 55% of a sale of 30-year German bonds, one day after the country announced a historic shift to a more flexible fiscal policy in March, and 27% of a sale of 10-year Spanish bonds in May.

Syndications, through which governments contract banks to sell bonds directly to investors, allow results to be closely monitored to track changes in demand.

Syndicated sales raised over 200 billion euros ($232,40 billion) last year for eurozone governments and are an important source of financing.

Allocations to official institutions did not increase in 2024, data showed, after rising from 8% in 2021, after which eurozone interest rates turned positive after almost a decade of rates below 0%.

Asian demand

Bankers who manage debt sales said that demand from Asian institutions stood out this year and was distributed across all sectors.

"Some Asian clients in particular are returning to the eurozone government bond space," said Benjamin Moulle, global head of primary lending for sovereigns, supranationals and agencies at Credit Agricole CIB.

"Major Asian central banks are much more confident and comfortable than before when it comes to investing in EGBs."

Political stability in Europe, relatively smaller budget deficits and lower inflation, which gives the European Central Bank more room to cut rates even further if necessary, have made the region's debt attractive to central banks, Moulle said.

Carla Diaz Alvarez de Toledo, director-general of treasury and financial policy at Spain's Ministry of Economy, told Reuters that the country had seen increased demand for its bond sales over the past two years from official institutions in the Nordic countries, the Middle East, and Asia.

Although the growing demand for the bloc's debt is positive, bankers stressed that it is too early for central bank reserve managers to significantly alter currency allocations in response to this year's events.

Central banks may be transferring their eurozone bonds to longer maturities, as they haven't been buying long-term bonds in recent years, said a second banker who organizes public debt sales.

They remain focused on the US dollar and generally adjust their asset allocation models at the end of the year, so a major shift is unlikely to have occurred yet, said the banker, asking not to be identified.

"What's really happening is incredibly difficult to say," said Rohan Khanna, head of euro interest rate strategy at Barclays.

"I've had these conversations with sovereign wealth funds from China and Europe. Their opinion is that it's still too early."

Although these investors are considering whether to invest the incremental inflows received outside the U.S., they recognized that the U.S. Treasury bond market has no real alternative, Khanna said.

(US$ 1 = 0,8606 euros)

Reporting by Yoruk Bahceli; Editing by Dhara Ranasinghe and Rachna Uppal