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May 17, 2017

Written by Katalin Kóródi, Dealogic Research

Reverse Yankee bonds reached record high YTD

Attractive pricing levels have kept US borrowers in Europe, as funding costs in euros have declined on an absolute coupon basis compared to the US dollar. In January 2015, the European Central Bank announced its quantitative easing program, which has pulled Eurozone bond yields to historic lows, and euro-denominated debt volume increased by 46% from 2014 to 2015. Since then, with the Federal Reserve potentially shifting borrowing costs higher, volume for reverse Yankee bonds has remained relatively high — already reaching €57.4bn via 48 transactions so far this year. The reverse Yankee market is also primed for further growth, amid currency volatility and rumored changes to US tax law, specifically the end of tax deductibility for interest expenses on debt.

US banks move across the Atlantic for funds

Due to cheaper financing in the euro market, large financial issuers have piled into European markets since 2015. This year, US banks set a record YTD high by issuing €24.7bn of debt. The heavy issuance comes as banks raise debt to satisfy the total loss-absorbing capacity (TLAC) requirement and to boost their net stable funding ratios. The 16 deals from FIG issuers so far this year are in fixed- or floating-rate format and have an average tenor of 7.07 years, the lowest since 2012. On the other hand, US corporates also tapped the euro market for €32.6bn so far in 2017, including the recent General Electric megadeal worth €8.0bn.

US FIG deals among Europe’s largest YTD

In 2017 YTD, the second largest euro-denominated bond, and the largest from a US FIG issuer, came from Bank of America for €4.5bn. US banks were also responsible for several other multi-billion dollar deals near the top of the charts. They include Morgan Stanley (€3.5bn), Goldman Sachs (€2.3bn and €2.0bn), and Wells Fargo (€2.0bn and €1.5bn), which have all taken the opportunity and sold new debt offerings in the European market so far this year.


Data Source: Dealogic, as of May 17, 2017