The introduction of a single European currency would create a robust debt market in Europe as well as prompt more institutions to invest in equities locally, according to Deutsche Bank. David Knott, head of the bank's global fixed-income research, said growth in Europe's debt market would be driven by an increase in corporate issues. The introduction of the euro would significantly reduce volatility in trading spreads between sovereign debts issued by different European countries, he said. This would bolster institutional investors' appetite for corporate debt, he said. In addition, Mr Knott said European corporates would find it increasingly cost-efficient - compared with traditional bank borrowing - to raise funds by issuing debts when European capital markets become more efficient after the introduction of the euro, he added. Deutsche Bank expects the non-bank, corporate-debt sector will grow to a level of 40 billion euro in 1999. At the same time, it said the total amount of asset-backed securities issued would be in excess of 30 billion euro. Mr Knott said the merging of local currency-equity markets in the first batch of 11 countries joining the European Monetary Union would create the world's second-largest such market after the United States, both in terms of market capitalisation and in the number of companies listed. European companies might not use as much equity funding to finance their businesses as their US counterparts, he said, but good equity-investment opportunities should emerge when the consolidation process kicks off in the many sectors of the European economy. Mr Knott said fund managers would gradually shift away from their traditional home country-biased strategies because the euro would remove many of the cross-border investment restrictions presently imposed.