Companies Get Paid to Borrow as Global Bond Binge Resumes

  • Sanofi, Henkel issue debt with yields less than zero
  • U.S. bond sales push year-to-date issuance past $975 billion

Corporate bond issuance went from a summer lull to a new milestone on Tuesday.

Europe’s Sanofi and Henkel AG became the first companies outside of the banking industry to raise debt with yields less than zero. Issuance on both sides of the Atlantic kicked into a higher gear after Monday’s Labor Day holiday in the U.S., with companies including Siemens AG and Home Depot Inc. announcing plans to sell more than $18 billion of bonds.

“This is what happens when you get back from Labor Day,” said Tom Murphy, a money manager at Columbia Threadneedle Investments. “September is supposed to be a pretty big month. It’s coming off August, which was a record month for issuance as well. At this point, the market is set up to absorb it well.”

Yield Refuge

Investors seeking refuge from negative yields brought on by easy-money monetary policies outside the U.S. are embracing investment-grade dollar debt, which has gained 9.2 percent this year after losing 0.7 percent in 2015, according to the Bloomberg Barclays U.S. Corporate Bond Index

Sanofi, the French drugmaker, sold 1 billion euros ($1.12 billion) of three-year notes at a yield of minus 0.05 percentage point. German household products maker Henkel issued 500 million euros of two-year notes also at a yield of minus 0.05 percentage point.

Officials at Paris-based Sanofi and Dusseldorf, Germany-based Henkel weren’t immediately available to comment on the sales.

U.S. dollar offerings from blue-chip companies on Tuesday will bring total issuance this year above $975 billion and on pace to exceed $1 trillion for a fifth year, Bloomberg data show. In Europe, issuers excluding financial firms have sold almost 190 billion euros of bonds this year, the most for the period in any year since the introduction of the single currency in 1999.

Bond Purchases

Sterling-denominated sales were given a summer boost when the Bank of England followed in the footsteps of the European Central Bank and said it planned to buy corporate bonds as part of its measures to stimulate the U.K. economy. Issuance reached 3.4 billion pounds ($4.5 billion) last month, the most for any August in data going back to 1999 and the biggest monthly tally since January 2014.

“This is an attractive time to issue,” said Gordon Shannon, a London-based money manager at TwentyFour Asset Management, which oversees 7 billion pounds of assets. “The all-in cost of borrowing is currently very low with spreads and yields at historical lows. The ECB and Bank of England’s presence in the market buying corporate bonds creates an excellent technical backdrop.”

U.S. investment-grade bonds offer 1.37 percentage points extra yield over Treasuries, according to Bloomberg Barclays Index data. While that’s down from 2.15 percentage points in February, it’s up from the five-year low of 0.97 percentage point in June 2014.

“The demand is strong and funding is still very cheap,” said Travis King, head of investment-grade credit at Voya Investment Management. “You’re going to see the opportunistic issuance.”

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