The cost of borrowing in euros has dropped to the lowest since March versus the dollar as issuance in Europe trails the U.S. and the Federal Reserve moves toward raising interest rates.
Borrowing costs in euros averaged 1.25 percent for investment-grade companies on Thursday versus 3.41 percent in dollars, according to Bank of America Merrill Lynch indexes. That widened the difference to 2.16 percentage points versus a year-to-date low of 1.82 percentage points on July 8.
U.S. non-financial companies, including Coca-Cola Co. and General Electric Co., have sold a record 52 billion euros of bonds this year, according to data compiled by Bloomberg, as European Central Bank quantitative easing holds down borrowing costs. By contrast, U.S. bond yields have climbed this year because of record issuance and expectations the Fed will raise interest rates as soon as next month.
“The economics of funding clearly and heavily favor issuing in Europe,” said Zoso Davies, a credit strategist at Barclays Plc in London. “Our expectation is that U.S. companies, who were here very heavily in May, will be back in September.”
Futures contracts indicate traders see an about 50 percent chance the Fed will increase official borrowing costs at its September meeting, up from 29 percent odds on June 30.