Here Come the Americans as JPMorgan Charts Next Euro Bond Rush

Updated on
  • JPMorgan hosts conference in London for U.S. companies
  • For U.S. borrowers European bond yields look attractive

JPMorgan Chase & Co. is bringing together some of America’s biggest companies with more than 200 investors in its London offices next week.

The timing couldn’t be better for borrowers like American Airlines Group Inc., Cigna Corp., Hilton Worldwide Holdings Inc. and Xerox Corp. The days of easy money will soon start to fade in the U.S. as the Federal Reserve moves closer to lifting interest rates for the first time in almost a decade.

But that’s not the case in Europe where Mario Draghi has committed to expand the European Central Bank’s stimulus if needed. For U.S. companies that means it’s never been this cheap to seek debt in euros relative to borrowing in dollars.

Joshua Feed, a spokesman for American Airlines, declined to comment.
Representatives for Cigna, Hilton and Xerox didn’t immediately respond to calls and e-mails seeking comment.

“Given the supply pressure in the U.S., it makes sense for issuers with funding and hedging needs to diversify cross-border,” said Marc Baigneres, the head of investment-grade debt capital markets for Europe, the Middle East and Africa at JPMorgan. “European investors are quite keen to diversify their portfolio as long as the yield is attractive. There is very little reason not to buy.”

There are several reasons why American companies might be prompted to issue more debt in euros.

U.S. investment-grade companies have already sold more than $975 billion of dollar-bonds this year, on pace to eclipse the record reached in 2014, according to data compiled by Bloomberg. That’s helped push the extra yield investors demand to hold the debt relative to government securities up by 0.38 percentage point this year to 1.67 percentage points, the highest level in more than two years.

And while issuance of euro-denominated bonds from borrowers outside the region has already been booming, yields on the debt remain near record lows. What’s more, Wells Fargo & Co. estimates that European debt buyers have more than 200 billion euros ($225.7 billion) of cash to reinvest because of borrowers recently repaying debt.

Pent-up demand in Europe is “surfacing, and the pipeline of M&A and refinancing deals pending in the U.S. appears seemingly endless,” Wells Fargo strategists led by George Bory wrote in a note to clients on Aug. 28. “Investors should expect heavy issuance.”

One U.S. company has already made its move.

Apple Inc. sold 2 billion euros of debt on Thursday, its second offering in the currency, Bloomberg data show.

“European funding markets still look attractive to U.S. firms in absolute terms,” said Henrietta Pacquement, a portfolio Manager at ECM Asset Management. “I’d expect more paper to come the European market way.”