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(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.
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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.