This is a golden era for American corporate executives who have a knack for financial engineering.
As benchmark yields around the world plunge, U.S. companies are once again pulling out their calculators and spreadsheets to figure out where they can borrow most cheaply. It turns out Europe is looking pretty good again.
Last month, nonfinancial U.S. companies issued 9.3 billion euros of bonds in Europe, the busiest month for such debt sales since last May, Wells Fargo analysts Nathaniel Rosenbaum and George Bory wrote in a report last week. These companies, which included Ford, Carnival, Honeywell and Amgen, accounted for about 20 percent of European investment-grade bond issuance in February, up from less than 10 percent the month before.
And Americans like their bond offerings as they like their food portions -- as big as possible, with the average size of their European issuances reaching 2.1 billion euros, the biggest in at least three years, the Wells Fargo data show. (There is, of course, a more practical reason that bigger is better in bonds: European investors want the flexibility to sell bonds whenever they want, and larger debt offerings are typically more liquid.)
It's hard to blame U.S. executives for their renewed love of Europe, at least when it comes to borrowing money. After all, European government bond yields are reaching silly levels, with yields on Germany's 5-year note reaching yet another record low of a mind-numbing negative 0.4 percent on Monday. Meanwhile, average relative yields on European investment-grade corporate bonds have fallen to 1.54 percentage points, 0.48 percentage point below those in the U.S., Bank of America Merrill Lynch index data show.
European government-debt yields may fall further because the region's central bank is expected to announce additional rounds of stimulus to ignite persistently low inflation.
In contrast, U.S. benchmark yields are supposed to be rising on the heels of the Federal Reserve's December interest rate increase, although they've shown little sign of cooperating. Arguably, this is due in part to Europe's stimulus, which has helped suppress rates globally.
The main hangup for American executives who are looking across the Atlantic is the currency conversion: If they want to bring their borrowings home, they have to pay about 50 basis points to swap out of their euros for five years, which may eventually be worth it if euro-region yields keep falling. Of course, if these U.S. companies have significant European operations, they can keep their money in euros.
Who's next? Wells Fargo suggests we may see some more Apple, IBM or Philip Morris bonds in euros.
This all goes to show how monetary policies don't stop at borders anymore. While the European Central Bank wants to stimulate the Continent's economy, it's essentially helping U.S. companies to lower their costs. The world has become one big rate-shopping bazaar.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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