U.S. food and beverage company Mondelez International Inc. (MDLZ:US) is following Microsoft Corp. selling bonds in Europe as borrowing costs fall.
The maker of Oreo cookies is marketing a total of 2.4 billion euros ($3.2 billion) of fixed- and floating-rate notes, according to a person familiar with the matter. The average yield investors demand to hold corporate bonds in euros instead of government debt dropped six basis points this week to 123 basis points, the lowest since June 12, Bank of America Merrill Lynch index data show.
American companies are raising funds in the common currency at the fastest pace since 2008, with Microsoft’s 3.5 billion-euro issue yesterday boosting the total for the year to 44 billion euros, according to data compiled by Bloomberg. Borrowers are speculating the European Central Bank will hold benchmark rates at record lows as a report today showed the region’s economy slowed in the third quarter.
“In Europe we’re still in an environment of easing from the central bank, whereas everyone is expecting tapering in the U.S. early next year,” said Nicolo Bocchin, a Milan-based credit portfolio manager at Aletti Gestielle SGR SpA who helps oversee about 3.5 billion euros. “U.S. companies see that there is demand in Europe so they issue here where there are lower yields.”
The average yield gap between investment-grade bonds in dollars and euros widened to 1.3 percentage points this week, near the biggest discount since Sept. 13, according to Bank of America Merrill Lynch index data. Euro-denominated notes yield an average 2 percent while securities in dollars yield 3.3 percent, the data show.
Mondelez, based in Deerfield, Illinois, last issued bonds in euros in 2008, data (MDLZ:US) compiled by Bloomberg show. It is selling 400 million euros of floating-rate notes due June 2015 that will be priced to yield 50 basis points more than the three-month euro interbank offered rate, according to the person, who asked not to be identified before the transaction is completed.
The company is also marketing 750 million euros of bonds maturing January 2017 to yield 58 basis points more than the benchmark mid-swap rate and 1.25 billion euros of notes due January 2021 at a spread of 93 basis points, the person said.
Proceeds from the sale will be used for general corporate purposes and to fund a bond buyback, Michael Mitchell, a spokesman for Mondelez in Deerfield, said in an e-mail. The company is repurchasing as much as $3.4 billion of notes maturing between 2017 and 2020 in a tender offer expiring on Dec. 17, it said in an e-mailed statement today.
The cost of insuring corporate bonds against losses was little changed, with the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies rising 0.8 basis point to 82 basis points at 1:39 p.m. in London. The gauge dropped to a 3 1/2-year low of 77 basis points on Nov. 27.
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