Depressed yields in Europe are attracting US multinationals in droves.
The number of US domiciled companies issuing euro bonds has reached a record year-to-date high with the value of those transactions running at nearly four-fold the pace of just a year earlier.
US corporates have raised €27.2bn in euro bonds in 24 deals since the year began, including multi-billion euro offerings from Coca Cola, Mondelez International, AT&T, and Kinder Morgan, according to data from Dealogic. The figures eclipse the size of the combined euro debt offerings by US companies through the same point in time over the preceding six years.
Companies have taken advantage of sliding sovereign bond yields, which has in turn lowered the coupon businesses must pay to appeal to investors, Andrew Kresse, head of North America corporate derivative marketing at JPMorgan says.
The reason many US companies are issuing in Europe, is because we've seen an increase in the interest rate differential. In addition many are leaving that money in Europe, which is a natural hedge to their assets and operations in the Europe.
Yields in many European countries are negative when adjusting for inflation, and the difference between yields on comparable German and US 10-year debt has climbed to 175 basis points. The differential has widened as monetary policy between Europe and the US diverges.
While expectations of the pace at which the Federal Reserve will lift rates this year has been marked down, it still stands in contrast to the European Central Bank, which has just started buying €60bn worth of bonds a month.
Many multinationals have also raised capital in Europe to blunt the effect of the depreciation in the euro. Richard Peretz, corporate treasurer of UPS, said that while the shipping behemoth had not tapped debt markets recently, US-based companies had to think about ways to hedge translation effects of currencies.
Companies have to look at their operations and balance the goals of the business with the volatile markets in currencies. We operate and have expenses every day in Europe and most companies that operate offshore must think about that.
Mr Peretz's comments, which followed the JPMorgan annual treasurer's forum in New York, echo those from executives across myriad industries. Hundreds of S&P 500 companies have warned of the impact the dollar has had on results, including Nike, Apple, United Technologies and Pfizer.
The shift to Europe has not dampened activity in the US, as companies try to lock in yields before the Fed's expected move later this year. Mr Peretz notes:
Short term rates are so attractive in US in the commercial paper market that it may not be necessary to go across the ocean to issue debt.