BlackRock Sells Euro Bonds

Fund manager taking advantage of cheap borrowing costs, thanks to ECB’s quantitative-easing program

 The Wall Street Journal

By JOSIE COX

Updated April 28, 2015 3:00 p.m. ET

BlackRock Inc. has sold euro-denominated bonds for the first time ever, joining a wave of U.S. firms that have already taken advantage of rock-bottom borrowing costs in the region, thanks to the European Central Bank’s massive quantitative-easing program.

The New York-based fund manager, which has close to $5 trillion in assets under management, met with investors in several European cities last week and started marketing the new bonds in early European trade Tuesday.

Later in the session, bankers on the deal said that the company had sold a total of €700 million of bonds that mature in 10 years at an implied yield of just under 1.3%.

Last month, the ECB launched a huge bond-purchase program under which it has pledged to buy up to €60 billion a month in top-quality bonds, until September 2016, to fuel economic growth by pumping money into the region’s financial system.

Investors have piled into European debt in anticipation of bond prices surging as a result of the additional demand, pushing yields on many government bonds below zero and on corporate bonds to just a handful of basis points.

Also on Tuesday, Poland became the first emerging market to price bonds with a yield below zero, when it sold 580 million Swiss francs ($607.37 million) of three-year bonds. Yields fall as bond prices rise.

This year has already seen global companies like Warren Buffett’s Berkshire Hathaway Inc., Coca-Cola Co., Mondelez International Inc. and Kellogg Co. come to the euro bond market to make the most of this cheap funding opportunity.

“In our view, once the earnings season subsides on the other side of the Atlantic, we are very likely to see another wave of U.S. issuers test the euro markets,” Société Générale credit strategists Guy Stear and Juan Esteban Valencia wrote in a recent note.

Wouter Sturkenboom, a senior investment strategist at Russell Investments in London, which has around $272.8 billion in assets under management, said that the trend would likely be accentuated further if, or indeed when, the U.S. Federal Reserve raises interest rates.

“Many corporates can already save as much as 100 basis points [or one percentage point] in yield terms by choosing euros over U.S. dollars to issue bonds, so I don’t see why the trend should slow down any time soon,” he added.

He said some U.S. firms also have euro-denominated liabilities—making euro-denominated bonds even more attractive.

“Raising debt in euros instead of dollars, saves them the cost and hassle of having to convert it into euros to cover euro costs,” he said.

According to Dealogic data, close to €29 billion worth of euro bonds have been sold by U.S. corporations already in 2015, more than at this point during any previous year, and well on track to beat last year’s full-year figure of €38.6 billion.

The Société Générale strategists said they expect overall bond issuance in euros—not just from the U.S.—to hit an all-time high this year, largely due to the wave of non-European issuers choosing to do transactions in the bloc’s single currency.

After years of dominating the euro capital markets, France has already this year been replaced as the most active jurisdiction in euros by the U.S., in terms of bonds issued, representing 22.3% of all issuance so far in 2015, according to Société Générale.

Helping to spur the trend is the fact that although yields in Europe are tiny, many U.S. corporate bonds have priced with a larger yields than those that are being offered by European companies of a comparable credit quality.

“As a European investor, you may have to do more background work to fully understand a U.S. company and to be able to decide whether you want to lend it money, if it hasn’t been in the euro market before,” said Edward Farley, a fund manager at Pramerica, which has around $540 billion in fixed-income assets under management.

“Some of the names that have come over from the U.S. have not been very well-known by euro investors, so they have compensated by offering a slightly higher yield, which in turn makes the bond more attractive from an investor perspective,” he said.

BlackRock, which is rated A1 by Moody’s and AA- by Standard & Poor’s, has issued bonds in the U.S. dollar market in the past but has never publicly ventured into the euro market for funding. Mr. Farley declined to say whether he bought bonds from BlackRock on Tuesday.

Earlier in April, it reported earnings of $822 million, or $4.84 a share for the first quarter of 2015, up from $756 million, or $4.40 a share, in the same period a year before. Barclays, Citigroup and J.P. Morgan arranged Tuesday’s bond issue.

Write to Josie Cox at josie.cox@wsj.com

Corrections & Amplifications:

U.S. companies have issued €28.72 billion in euro-denominated debt through April 28, 2015. In an earlier version of a chart that accompanied this article, deal values were incorrectly labeled in dollars. (April 28)