Corporate bonds in the U.S. have seen slow times. Companies have been issuing less debt, with investment-grade bond issuance off by 18% year over year, according to Barron’s. High-yield bond offerings are down 25%.
Blame a number of factors: rising interest rates that have driven down prices as investors look for better deals, and also the continued availability of fairly cheap money for corporations. There’s just been less motivation for companies to issue bonds.
Things are starting to change and one of the areas where the turn is strongest is in the “reverse Yankee,” or a corporate bond issued by a U.S. company in Europe. Reverse Yankee issuance is up 324% over the same period in 2019, as the Wall Street Journal reported. One reason is the lower borrowing costs in Europe. Benchmark rates are still negative, and the cost of money is almost three percentage points lower than in the U.S. Hedging costs are also down, making it easier for companies to issue debt overseas and to cover the risk.
A second reason for the increase in reverse Yankees is the 2017 tax cuts, which make it less expensive in taxes for companies to bring money back from overseas. Rather than having the ready cash on hand, they may now need to borrow for doing deals and investing in European divisions.
Low yields on government bonds in Europe are also a contributor to the move. Investors there want higher returns and the amount of additional interest corporate bonds typically need to provide to attract buyers from government-issued bonds has dropped to 1.28 percentage points.