uploads///Movement of Investment Grade Bond Yield and Spread

Why Yankee Bank Issuers Find US Corporate Debt Attractive


Nov. 20 2020, Updated 10:50 a.m. ET

Lower cost of borrowing

A lower cost of borrowing and tighter spreads have attracted foreign banks to flock to the US corporate debt market. Foreign financial borrowers are also attracted to the US bond market (LQD) (CSJ) due to favorable cross-currency basis swaps and the strength and intensity of the US dollar (UUP) (USDN) market.

Peter Aherne, head of North America Capital Markets, Syndicate and New Products at Citigroup said, “The currency basis continues to be persistently negative and therefore attractive to issue in US dollars and swap it back to euros, yen, and Aussie dollars.”

Yankee issuers are foreign banks or corporates that raise funds by issuing bonds in the United States.

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Recent foreign bank issues

Foreign banks have raised ~$24.6 billion so far in August. Recently, Westpac Banking (WBC), Barclays (BCS), Société Générale, and Standard Chartered have issued high-grade bonds in the United States.

Spreads have narrowed considerably post-Brexit, which is also attracting foreign banks. The option-adjusted spread (or OAS) fell by 5 basis points last week and ended at 1.4% on August 19, 2016, its lowest level since June 15, 2015. Meanwhile, spreads have fallen by 33 basis points on a year-to-date basis.

It’s expected that if conditions remain favorable, more foreign banks will prefer to raise funds in the US debt market.

Sjaak-Jan Baars, Rabobank’s global head of long-term funding, said, “On a relative basis, if you look at the global bond markets, US dollars is currently the cheapest market to access.”

In the next article, we’ll look at the deals and volumes of investment-grade corporate bonds.


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