Royal Dutch Shell Plc sold its first bonds in Europe since 2009 as the cost of borrowing in euros relative to U.S. dollars approached the lowest in more than five years.
Europe’s largest oil producer, which typically issues dollar-denominated debt, issued a total of 2 billion euros ($2.8 billion) of seven- and 12-year notes, according to data compiled by Bloomberg. It’s now 1.29 percentage points cheaper to borrow in euros instead of U.S. dollars, 10 percentage points from the biggest discount since December 2008, Bank of America Merrill Lynch index data show.
The Federal Reserve will press on with cuts to its bond-buying program and link its interest-rate policy to a range of economic indicators instead of the jobless rate as unemployment falls, according to economists surveyed by Bloomberg before a policy meeting ending today. That compares with the European Central Bank’s pledge to keep rates low, which President Mario Draghi has reiterated at every central-bank meeting since July.
“Shell may be able to issue at a lower all-in cost in euros than in dollars at the moment,” said Juan Esteban Valencia, a Paris-based strategist at Societe Generale SA. “There’s an advantage to doing funding in euros as yields have fallen so dramatically and will remain very low for a long time, something that might not be the case in the U.S.”
Ross Whittam, a spokesman for Shell in London, declined to comment on the bond sale.
Shell, based in The Hague, sold 1 billion euros of notes due March 2021 to yield 33 basis points more than the mid-swap rate and 1 billion euros of bonds maturing March 2026 at a spread of 48 basis points. That compares with an earlier forecast range of about 40 basis points for the seven-year securities and 55 basis points to 60 basis points for the longer-dated notes, according to a person familiar with the sale.
The securities are rated Aa1 by Moody’s Investors Service, the second-highest investment-grade rating.
“Shell is a very solid name and there’ll be investor interest for these bonds,” said Esteban. “There’s a lot of money out there that needs to be invested.”
Also in credit markets today, Unilever Plc, the London-based unit of the world’s second-biggest consumer-products maker, sold 250 million pounds ($416 million) of bonds maturing December 2018, Bloomberg data show. The notes were priced to yield 67 basis points more than U.K. government debt.
The average extra yield investors demand to hold investment-grade corporate bonds in pounds instead of government notes is 139 basis points, seven basis points from the narrowest spread since October 2007, according to Bank of America Merrill Lynch index data.