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August 22, 2010 8:58 pm
Non-US companies have issued record volumes of US bonds this year, as they turn to dollar markets to access cheap funding.
The rush has been led by European companies, which have favoured the US over their domestic debt markets due to a combination of lower rates and higher activity. In total, European groups have accounted for more than half of this year’s issuance of so-called ‘Yankee’ bonds – dollar-denominated bonds sold by non-American companies into the US.
So far this year, 773 have been issued, raising $412.9bn – beating the $378.1bn raised up to this point last year, according to data provider Dealogic.
Nearly 20 per cent of all bond issuance by European companies has been in the form of Yankee bonds, the highest percentage of total issuance in the past 10 years.
European companies have raised $236bn in the US so far this year – the same amount as last year but through a record 501 issues. This is the highest number of Yankee bonds to be sold in any year since the euro was created and more than double the number issued over the same period last year.
While the US corporate bond market has had its busiest August on record, Europe has been relatively quiet. “The dollar market looks attractive and is busy and active for European issuers. We expect this trend will continue,” said Mark Lewel-len, head of European corporate origination at Barclays Capital.
Among the non-US issuers making debut bond offerings in the dollar market this year are Russian Railways, Anglo Gold Ashanti, Brambles of Australia and Qatari Diar.
“Much of our corporate pipeline is in the dollar market. US investors are very keen on non-US names,” said Mr Lewellen.
Companies are being attracted to the market by low interest rates. For example, US technology group IBM has issued bonds paying 1 per cent – the lowest coupon ever on a three-year corporate bond.
But the biggest rise in European dollar issuance has been among banks, which have sold more Yankee bonds in the year to date than in any year since 2000. Royal Bank of Scotland, the UK state-backed bank, raised $3.6bn last week in its biggest US dollar unguaranteed senior bond offering.
For European companies, the decision over where to issue bonds has been made easier by lower costs for swapping the proceeds of dollar bond issues back into euros.
“Yankee bonds are helping European banks’ fill their so-called ‘funding gap’,” said Jean-Marc Mercier, head of European syndicate at HSBC. “They are securing fantastic cost of funding levels in the US.”
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