U.S. companies are tapping into European debt markets at record rates, which has attracted lower borrowing costs and opportunities to diversify their funding sources as tariffs on President Donald Trump trigger uncertainty over large market volatility.
As of May 9, strong demand from European debt investors has enabled U.S. non-financial companies to borrow €40 billion in reverse Yankees in so-called reverse Yankees (US companies raise funds in the euro-timed bond market) according to Bank of America data. Since then, new deals worth billions of euros have been priced.
Google parent Alphabet and telecom company T-Mobile US are among multi-billion dollar deals worth €6.75 billion and €2.75 billion, respectively. Pfizer issued 3.3 billion euros in bonds in four shares on Wednesday. If the European company's issuance rate continues to exist in Europe, the full year figure will exceed the previous record of €8.8 billion in 2019.
This year's issuance is compared with the 30 billion euro bonds issued by U.S. companies in May last year. U.S. issuers now account for the first time in the European non-financial investment-grade market than borrowers in any other country.
The surge this year is also driven by uncertainty over the scale and consequences of U.S. President Donald Trump’s tariffs, as some companies choose to borrow quickly and lift their funds out of obstacles in case the economy is shocking to drive borrowing costs.
“In a relatively volatile year, global issuers want to get a year’s funding budget. So you’ve seen a year where the major issuers could be relatively positive,” said Marc Lewell, head of EMEA/Apac Bond Syndicate at JPMorgan.
Large U.S. companies that operate in many countries sometimes raise funds in Europe rather than the United States to diversify their sources of funds and provide natural hedging to prevent exchange rate fluctuations. This reverse Yankee issuance (in stark contrast to the so-called Yankee bonds sold by foreign borrowers in the U.S. market) becomes more attractive, with the greater the difference in borrowing costs.
The gap in yields has widened as the European Central Bank’s interest rates are lower than that of the Federal Reserve. The federal government held its federal funding target range between 4.25% and 4.5% for the third consecutive meeting, while the European Central Bank lowered its interest rate to 2.25% last month.
The gap between the 10-year U.S. Treasury bonds and German Bund yields hit more than two points in December, the highest since 2019, although it has since tightened to 1.8 percentage points.
This is reflected in the yield on credit, with additional borrowing costs paid by US investment-grade companies last month two percentage points higher than those paid by Europe.
"Company issuers with European business or European asset bases in the United States ... want to take advantage of the fact that euro coupons are significantly lower than dollar coupons," Lewell said.
Companies that raise and spend the euro can also protect themselves from further currency movements after huge foreign exchange rate changes in recent months. The euro has fallen from $1.12 in late September to $1.01 in early February, and then returns to $1.12 as markets try to measure the impact of Trump's unstable tariff policies. But for those raising funds to bring back to the United States, the cost of currency hedging benefits from lower interest rates.
Damien Hill, corporate bond fund manager at Insight Investment, said the recent wave of issuances was driven by cheap national funding costs for U.S. companies borrowing in euros.
He added: "Despite this opportunity, we hope that the issuers borrowed on the euro will keep going up."
According to PWC data, the reverse Yankees account for 30% of the euro release this year. Usually this number is below 20%.
Barnaby Martin, European credit strategist at BOFA, said French companies no longer dominate European companies’ issuance. "The biggest implication is that the euro credit market may be more sensitive to American political decisions," he wrote in a note.
Reverse Yankees are also a sign of the strength of U.S. companies, allowing them to show lenders that they have multiple available capital banks and are not limited to executing large transactions in the U.S.
“The reverse Yankees are a very powerful signal to send back to the dollar market…(that) you can do the same euro trade as the dollar trades on the market”, which is very positive for borrowers. ”