Bonds, bonds and more eurobonds. According to a March 4th article in Bloomberg Business, Warren Buffett’s Berkshire Hathaway is joining the growing lost of global firms issuing eurobonds to take advantage of record low interest rates.
Berkshire Hathaway is working with Bank of America, Deutsche Bank, Goldman Sachs and Wells Fargo. regarding a potential eurobond sale later this year, according to a knowledgeable source who wishes to remain anonymous. Of note, the average yield on investment-grade corporate eurobonds plummeted to a record low of 0.88% on February 26 and now stands at 0.90%.
Berkshire Hathaway joining the eurobond party
If anything, Buffett and Berkshire are late to the eurobond party as many U.S.-based firms have been issuing bonds in euros over the last few months. Kellogg, Whirlpool Corp., Coca-Cola and oreo maker Mondelez International have all issued euro-denominated debt this week, pushing the total to a weekly record of 14.6 billion euros ($16.2 billion) . U.S. companies have issued 28 billion in eurobonds this year, the most since 2007, based on Bloomberg data.
ECB also starting to buy more bonds
As has been in the news lately, the European Central Bank announced it is planning to boost its bond-buying program to close to 60 billion euros of assets a month for at least the next 18 months. ECB President Mario Draghi said the bond purchases will start this month. Across the Atlantic, U.S. Federal Reserve Chair Janet Yellen is considering raising interest rates soon as the American economy heats up..
Statement from analyst
“U.S. corporations are likely to benefit from low absolute costs and potential future currency movements if they borrow in euros,” commented Duncan Warwick-Champion, head of research at ECM Asset Management Ltd., “It’s really as simple as that.”
“Most of the names coming across the pond are relatively high quality issuers,” Warwick-Champion pointed out. “They offer diversification opportunities for European investors.”