es Inc. (WMT) is selling bonds in euros for the first time since 2009 as the cost of borrowing in the currency relative to U.S. dollars approaches the lowest in more than five years. The world’s largest retailer, based in Bentonville, Arkansas, is marketing a total €1.5 billion ($2 billion) of eight- and 12-year bonds, according to a person familiar with the sale. The average yield on investment-grade corporate bonds in euros dropped 25 basis points this year to 1.88%, 1.34 percentage points less than comparable dollar notes, Bank of America Merrill Lynch index data show.
American borrowers are coming to Europe amid speculation interest rates in the region will remain suppressed longer than in the U.S. European Central Bank President Mario Draghi pledged last month to hold down borrowing costs well into the economic recovery while Federal Reserve Chair Janet Yellen signaled benchmark rates could start rising as soon as next year.
“There’s a very low chance the ECB will raise rates soon, which means bond yields will remain at low levels for the next few months,” said Craig Veysey, head of fixed income at Sanlam Private Investments Ltd. in London, which has about $3.2 billion of assets under management in the U.K. “The conditions will be there for borrowers to issue more cheaply, whereas rates could go up in the U.S. as soon as April 2015.”
Wal-Mart’s €850 million of eight-year bonds will be priced to yield 43 basis points more than the mid-swap rate while its €650 million of 12-year notes offer a spread of 58 basis points, according to the person with knowledge of the sale, who asked not to be identified because they’re not authorized to speak about it.
The retailer issued €1 billion of 20-year bonds in September 2009 with a spread of 98 basis points more than swaps, according to data compiled by Bloomberg.
Hybrid Debut
Elsewhere in European credit markets, Deutsche Annington Immobilien SE, Germany’s biggest residential landlord, is marketing its first hybrid bonds, according to a person familiar with the deal. Issuance of note that combine elements of debt and equity surged to a record last quarter, with non-financial companies selling a 13.2 billion euros in the period, according to data compiled by Bloomberg.
Bayerische Landesbank, Banco Popular Espanol SA and NIBC Holding NV are selling covered bonds in Europe. NIBC, the Dutch lender whose owners include private-equity firm J.C. Flowers & Co., is marketing its second sale of conditional pass-through bonds, a new type of mortgage-backed debt that attracts top ratings and prevents fire sales of assets.
