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US companies now account for more than a fifth of a Bloomberg index of euro corporate bonds. While this isn’t unprecedented — a negative deposit rate in Europe attracted many reverse Yankees in the easy money era — the percentage has increased since the start of the year to 21.9%.
“You cannot be faulted as a chief financial officer or treasurer to be accessing euros right now,” says Fabianna Del Canto, co-head of EMEA capital markets at Mitsubishi UFJ Financial Group Inc. “It’s an attractive relative cost, with low coupons in a stable environment versus risking the unknown in the US.”
“You look at screens sometimes and you don’t know if it’s the dollar market or the euro market in terms of the names announcing transactions and the amount of cross border activity,” she adds.
Diverging interest rates — the basis for corporate borrowing costs — play a huge part in euro bonds’ attractiveness, particularly for companies with operations in Europe who don’t have to exchange back into dollars. The average yield on an index of US corporate bonds is quoted at 5.3%, and the European equivalent is 3.18%. Last month that difference was the widest in three years.
Google’s parent Alphabet raised €6.75 billion the day after raising $5 billion in the US. It will pay a coupon of 3.375% for its euro bond maturing in 2037, and 4.5% for its dollar 2035 maturity.
“Continuously high Treasury yields, driven by high US debt and deficits, means high borrowing costs for US households and companies,” says Kaspar Hense, a fixed income portfolio manager at RBC BlueBay.
With international investments into the US slowing, companies will need to find extra funding abroad. This could mean yet more reverse Yankees, Hense adds.
