(Bloomberg) -- Blue-chip US companies are raising euro debt at breakneck speed in a bid to lock in significantly lower borrowing costs across the pond.
So-called reverse Yankee issuance reached €23.4 billion ($24.3 billion) so far this year, the highest for this period since 2007, according to data compiled by Bloomberg. Big ticket deals from T-Mobile USA Inc. and International Business Machines Corp., as well as offerings from major Wall Street banks, have contributed to the total.
US companies are attracted by the European Central Bank’s deposit rate, which is 175 basis points lower than the Federal Reserve’s key rate. That’s a big draw for firms that don’t need to swap the debt back to dollars, which can also lower their overall debt costs because of the weakness of the euro versus the dollar. Even companies that do exchange the debt back may be able to save because of the rate differential, while also benefiting from diversifying their investor base.
“For a global borrower, there is a huge interest-rate differential that is set to persist or get wider,” said Matteo Benedetto, co-head of investment grade syndicate at Morgan Stanley. “A corporate can raise low coupon euro debt and not swap it back to dollars to act as net investment hedge in their European operations, lowering their overall debt costs. We expect to see an increase in reverse Yankees this year.”
The interest-rate dynamic isn’t completely new. There was about €108 billion in reverse Yankee issuance last year, the highest in five years, as companies took advantage of lower ECB rates. But the deals are picking up momentum this year as borrowers assess how the policies of US President Donald Trump might cause further divergence between central banks.
Market pricing reflects the view that the ECB will cut its deposit rate at least three times by the end of the year, after the central bank lowered it to 2.75% in January. And, on Wednesday, a higher than expected January US inflation number meant traders reassessed the timing of the Fed’s next rate move. The market is now pricing in just one quarter-point reduction in the remainder of 2025.
Underlying that gap is the threat that US tariffs will hurt Europe’s economy, while Trump’s America-first policies will fuel inflation at home. Demand for protection against the dollar further appreciating is near the highest in roughly two years, supercharged by Trump’s economic policies.
“With monetary policy divergence likely to be a key theme throughout 2025, we see scope for a renewed wave of reverse Yankee issuance,” CreditSights strategists lead by Logan Miller wrote in a note. “The differential between euro IG and US IG yields is near the highest level in two years, presenting an arbitrage opportunity on a currency unhedged basis.”
Some companies leave the debt from reverse Yankee bonds in euros, while others include a cross-currency basis swap, meaning that they effectively raise funds in one currency while repaying the debt in another.
IBM sold €3.5 billion of bonds last week, followed by a $4.75 billion deal in the US, across a total of nine tranches. The euro-denominated five-year bonds will pay a coupon of 2.9%, while the equivalent dollar debt will pay 4.8%.
T-Mobile USA, meanwhile, raised €2.75 billion in a three-part offering last week. The telecom company saved around nine basis points of spread on a currency swap basis for the seven-year debt, while the other tranches were priced at similar levels to what the company would be able to raise in dollars, according to Bloomberg calculations and estimates of people familiar with the deal.
A spokesperson for T-Mobile USA didn’t respond to a request for comment.
For US companies that need to swap the debt back to dollars, euro bonds offer funding “at around equivalent levels to their dollar debt,” and help to diversify their investor base,” said Giulio Baratta, BNP Paribas SA’s head of investment-grade finance debt capital markets for EMEA. “There are more and exciting deals in the pipeline for the coming weeks.”
And for investors, reverse Yankee deals give them a chance to buy debt in big US companies that may benefit from Trump’s policies, and potentially get slightly wider spreads in the euro market.
“As a global portfolio manager, we love reverse Yankees,” said Steven Fawn, head of global credit at Amundi UK Ltd. “It’s a good area if you want to express US risk, with the exceptionalism of the US last year continuing into this year.
--With assistance from Alice Gledhill.
(Updates with details on US CPI print and Fed rate cut expectations in the sixth paragraph)