Photographer: Michael Nagle/Bloomberg

Will Repatriation Hurt Bond Sales? We're About to Find Out

Investment-grade bond market participants were predicting a drop in issuance this year, and that was before passage of President Donald Trump’s signature piece of legislation made it cheaper for corporations to bring money held overseas back to the U.S.

Now companies moving cash back to the U.S. from overseas are taxed at a rate of 15.5 percent compared to the 35 percent rate they would have paid previously. Roughly half of the companies in the S&P 500 combined for about $1 trillion in cash overseas, according to data compiled by Bloomberg. Companies could avoid that 35 percent rate by keeping their profits offshore.

Zachary Chavis, a portfolio manager at Sage Advisory Services, which has $12 billion in assets under management said he sees issuance as flat to down 5 percent in 2018 due, in part, to cash coming back from overseas. “It may take a while to play out - there’s a seven-year window - but at the margin, the repatriation of cash will slightly decrease new investment-grade issuance this year.”

Will Repatriation Push the Needle Lower?

The return of overseas cash will likely lower IG issuance in 2018, but by how much?

Bloomberg

Overseas cash amounts based on most recently available company filings

The eleven companies listed sold about $127.4 billion of debt but have $420 billion of overseas cash, according to the most available data. Apple may provide tea leaves for how high-grade corporate bond borrowers react in to the new tax environment. It reports earnings later today.

— With assistance by Adam Tempkin, Lara Wieczezynski, Mike Campellone, and Rizal Tupaz

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