Big U.S. companies are starting to inch back into the corporate bond market despite all of the uncertainty around kind of everything in this economy.
And companies haven’t just been issuing bonds here in the U.S.; Google’s parent company Alphabet just announced that it sold more than $7.5 billion worth of Eurobonds.
American companies that issue bonds in Europe are typically big household names. Think T-Mobile, Alphabet and IBM.
“So they would have A) a large need for capital, and B) some notoriety or at least familiarity with European investors,” said Drew Pascarella, who teaches finance at Cornell University.
He said these companies typically have big operations in Europe, which means they rake in plenty of euros.
Those companies could bring those euros back home, but they’d have to convert them to dollars and deal with a fluctuating exchange rate.
But if they issue Eurobonds, “You can use the European profits that are in euros to pay off the interest and principal on that European debt,” said Pascarella. “Versus having to convert it back to U.S. dollars.”
Eurobonds are particularly attractive right now thanks to the European Central Bank.
“The ECB has cut rates quite significantly, and by contrast, the Fed was cutting rates, and they’ve subsequently been on hold,” said Winnie Cisar, head of strategy at CreditSights.
She said big American companies with good credit ratings “are assessing you know, where do I see the strongest ability to raise the amount of capital that I need, at the most attractive financing level possible.”
And right now, borrowing costs in Europe are almost two percentage points cheaper than in the U.S.
“That is a massive motivating factor right now,” said Cisar. “There can be some significant cost savings.”
One more factor motivating companies to issue bonds in Europe: The value of the dollar has been falling relative to the euro.
“One way you can hedge against that risk of course, is borrowing in another currency,” said Chris Low, the chief economist at FHN Financial. “The Euro is pretty much the next best thing.”
Low said companies probably want to have euros in the bank right now “because effectively, if the dollar continues to go down, it’s like an additional return on that asset.”
Low said he expects the amount of Eurobonds issued by American companies to hit a record within the next few months.
