LONDON: From Harley Davidson to Colgate-Palmolive, US companies are flocking to borrow in euros and their record issuance is breathing life into a market where yields have been hammered by the European Central Bank’s renewed stimulus push.
Offshore fundraising by US firms – dubbed the “reverse Yankee” in reference to Yankee bonds, which are sold by foreign entities in the US – has been a regular feature of the euro debt market. But issuance by non-financial, investment-grade US firms has quadrupled this year from 2018 levels, to around €93 bil (RM426.7 bil), Dealogic data shows.
That accounted for 27% of a total €346 bil of euro-denominated investment-grade corporate bond issuance, according to the data.
From pharmaceuticals to consumer goods makers to fintech, the reverse Yankee has become the go-to market for US companies which are now the largest source of corporate bond sales in Europe, according to BofA.
And if the boom extends into 2020, the US would become the largest country in the ICE-BofA eurozone corporate debt index, overtaking France, the bank says.
The rush is driven primarily by rock-bottom borrowing costs in the eurozone, where interest rates are at minus 0.5% and the average yield on corporate euro-denominated bonds has fallen to 0.48% – down from 1.25% at the start of 2019.
European credit markets offer “the best funding conditions for global issuers” said BofA’s head of credit strategy Barnaby Martin. “They’re not going to be able to find that anywhere else.”
Euro issuance allows US borrowers to replace high-coupon, shorter-dated dollar debt with longer, lower-coupon euro debt. That lowers financing costs and improves the results of companies with euro-denominated assets, said Marc Baigneres, head of Western Europe investment-grade finance at JPMorgan.
Mergers and acquisitions are another factor – fintech Fidelity National Information Services, for example, raised 5 billion euros back in May as part of a multi-currency deal to finance its purchase of card payment firm Worldpay. – Dec 23, 2019, Reuters
