* Euro-denominated issuance volumes double since 2007

* European institutional investors driving demand

* LatAm euro issues trade wider than dollar counterparts

By Claire Milhench

LONDON, April 13 (Reuters) - Peruvian and Indonesian euro-denominated bonds and Mexican sterling issues are just some of the more esoteric hard-currency issues attracting fund managers with their juicier yields compared with plain-vanilla emerging dollar bonds.

Once shunned by managers as too illiquid, the steady growth in issuance volumes of such bonds, particularly in euros, has led to a viable market.

Outstanding volumes of euro-denominated emerging market bonds stood at $72 billion last year, up from about $37 billion in 2007, ThomsonReuters data show, though their share of the overall market is steady at around 13 to 16 percent (see table).

Issue sizes have grown, as well. In February, the Mexican oil company Pemex set a record for the biggest-ever euro-denominated emerging market issue, raising 4.25 billion euros.

And because they are excluded from the most widely used emerging market benchmarks, such as JPMorgan's EMBIG for dollar bonds, they often trade at higher yields than their dollar equivalents, offering fund managers extra bang for their buck.

"You used to see 300 million euros issued, and now it's half a billion," said Alejandro Arevalo, an emerging market bond fund manager at Jupiter Asset Management. "From a liquidity side it has improved. It's more attractive as I am less concerned about whether I can get out of the bond if I need to sell it."

Demand for euro issuance has been underpinned by European insurers and pension funds, which need higher yields to meet future payments to policyholders. Arevalo refers to such investors as "sticky hands" because they tend to buy and hold.

"If there is a panic in the market, people tend to sell the benchmark securities first," said Wouter van Overfelt, a senior portfolio manager at Vontobel Asset Management. "So some of these dollar-denominated securities will sell off whereas the euro-denominated securities won't necessarily move as much."

He cited the example of Pemex, where big losses and poor sentiment in late 2015 sharply pushed up yields on its 2024 dollar bond but more or less spared the 2025 euro issue.



YIELD PICK UP

Due to European institutions' preference for local names, Latin American euro- or sterling-denominated bonds can trade at much wider yield spreads - several managers cited the pick-up offered by the Mexico's 2114 "century bond" denominated in sterling over its dollar equivalent.

Similarly, the 2025 and 2022 euro issues from Petrobras and Mexican cement firm Cemex respectively offer a yield pick up over their dollar equivalents of 40 to 90 basis points.

Tina Vandersteel, the head of GMO's emerging country debt team, was among those who bought Mexico's century dollar bond when it was issued in 2010. But she rotated out of it and into the 2114 sterling issue when sterling assets sold off before last June's Brexit vote in Britain.

As a predominantly institutional manager, GMO doesn't have a lot of in and out flows, she said.

The trade also suits managers who are benchmark-agnostic, like van Overfelt, who currently has about 35 to 40 percent of his fund in non-dollar hard currency debt.

"We see a lot of opportunities there today," he said, citing Indonesia's 2028 euro issue, which pays almost 50 percent more in spread terms versus the dollar equivalent. His largest overweight, Mexico, is expressed through the century bonds and Pemex euro bonds.

Bryan Carter, head of emerging market fixed income at BNP Paribas Investment Partners, also cites a Peruvian 2026 euro bond that offers a 30-basis-point yield pick up relative to its nearest dollar equivalent.

"If you can find them, they can be very interesting at those valuations - they are cheap because no one even remembers they exist," Carter said.

Euro debt supply has remained steady, with over $26 billion raised in the first quarter, TR data shows. About 9 percent of outstanding emerging market corporate debt is now denominated in euros, according to JPMorgan, but that rises to 21 percent for emerging Europe.

However, euro or sterling will not displace the dollar's hegemony in emerging bond markets. First, most dollar bonds are eligible for the JPMorgan's EMBI Global or CEMBI indexes tracked by funds managing hundreds of billions of dollars.

Second, euro-based investors tend to favour investment- grade, frequent issuers, so junk-rated or debut issuers from Africa, for instance, may not find takers.

Finally, the euro's increased market share may have come at the expense of other currencies - the yen, for instance, saw its share dwindle last year to 1.1 percent of bond sales versus 2.6 percent in 2007. That has reduced liquidity.

"Unless there are other investors looking at the same thing and unless there's liquidity, you won't get the repricing," Carter said. <

(Reporting by Claire Milhench, editing by Larry King) ((claire.milhench@thomsonreuters.com; +44)(0)(207 542 3571; Reuters Messaging: claire.milhench.thomsonreuters.com@reuters.net))