Tesco Plc (TSCO), the U.K.’s biggest grocer, and AT&T Inc. (T:US), the largest U.S. telephone company, are selling bonds in euros as borrowing costs approach the lowest in 4 1/2 months in Europe.
It’s Tesco’s first sale of notes in the currency since 2011, while AT&T joins a surge of U.S. companies selling the most debt in Europe in six months, according to data compiled by Bloomberg.
U.K. services growth unexpectedly accelerated in October to the fastest in 16 years, indicating continued strength in the economic recovery at the start of the fourth quarter. Borrowing costs may start to increase next year when the Federal Reserve reduces its stimulus program, which economists forecast will happen in March.
“Yields are still attractive on a historical level so companies are making the most of it,” said Nick Burns, a credit strategist at Deutsche Bank AG in London. “Companies may also be aware that while consensus doesn’t expect tapering before March, at some point it will come back on the radar and cause yields to rise. It could be the perfect combination of factors to issue debt now.”
The average yield on investment-grade bonds is at 1.8 percent, near the lowest since June 17, Bloomberg bond index data show. The cost of insuring the debt against losses is holding near a 3 1/2-year low, with the Markit iTraxx Europe index little changed at 83 basis points at 11:30 a.m. in London.
Tesco is marketing 500 million euros ($675 million) of seven-year notes to yield 68 basis points more than the mid-swap rate. The Cheshunt, England-based company is also selling 500 million euros of four-year notes with a spread of 45 basis points, according to a person familiar with the matter.
“Market conditions are supportive and this is an opportune time for us to refinance debt that is maturing early next year,” Tom Hoskin, a spokesman for Tesco in Cheshunt, said by e-mail. The retailer has 600 million pounds ($963 million) of bonds coming due in February 2014, according to data compiled by Bloomberg.
AT&T is offering 1 billion euros of bonds due December 2021 to yield 95 basis points more than the swap rate. It’s also marketing 1 billion euros of 12-year notes with a spread of 130 basis points, a person with knowledge of that transaction said.
The Dallas-based company will use the proceeds for general corporate purposes and to help fund a debt buyback, said the person. AT&T said in a statement today it is offering to buy back as much as $4 billion of bonds.
Sarah Lubman, an external spokeswoman for AT&T based in New York, didn’t respond to an e-mail seeking comment sent outside office hours.
Also in the European market today, French carmaker Renault SA (RNO) is adding 250 million euros to 300 million euros to its 3.625 percent bonds due September 2018 while France’s postal service, La Poste SA, is adding 250 million euros to its 2.75 percent bonds maturing in November 2024, according to people familiar with the deals.
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