Crystal Kim
2 min read
Why work hard for the Yankee dollar when better options beckon across the pond?
That logic would explain the surge in what are called reverse Yankees, which refer to US companies issuing euro-denominated debt. According to data compiled by Bank of America, non-financial US companies have borrowed some €40 billion (~$45 billion) this year as of May 9. If that pace keeps up, the annualized figure would eclipse the 2019 record of around €90 billion.
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A slew of factors is driving US companies to tap Europe’s debt markets, but perhaps chief among them is that the cost of borrowing is relatively cheaper there.
The European Central Bank cut its interest rate to 2.25% last month, while the Federal Reserve has maintained its target range at 4.25% to 4.5%. That dynamic is apparent in yields: Euro coupons are about two percentage points lower, on average, than dollar coupons in investment-grade corporate bonds.
Blue-chip companies with operations in Europe might find euro-denominated bonds particularly appealing because they wouldn’t have to account for the exchange of euros to dollars. They could then use their savings to pay off the interest and the principal.
US corporate giants that have tapped Europe’s credit market this year include:
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Alphabet, Google’s parent company, which raised its first-ever euro bonds in five tranches totaling €6.75 billion last month.
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IBM, which issued a €3.5-billion bond offering in February, a follow-up to its oversubscribed jumbo deal in 2023. Pfizer issued €3.3 billion in euro bonds in mid-May, tapping that debt market for the first time in seven years.
Tapping the euro bond market isn’t a new trend — reverse Yankees were also in vogue last year as the ECB started to lower rates in June for the first time since 2016. The wave of new issuance seen this year is probably driven by companies wanting to lock in funding, given the uncertainty around the Trump administration’s trade policy and its effect on markets.
Continental Flex. Companies that can show a strong appetite for their euro bonds among investors in the region reaffirm their standing with shareholders in the US. Plus, wealth managers’ penchant for investment-grade corporate bonds is rising for the same reasons companies want to issue them — income and stability.
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