American corporations are lining up to issue euro-denominated bonds, with issuance volumes reaching a record $100 billion this year. This trend reflects both Europe's attractive financing environment and the growing desire among issuers and investors to diversify away from the dollar.

Recently, major companies including Alphabet, Visa, PepsiCo, payment services provider Fiserv, and telecommunications giant Verizon have all issued euro-denominated bonds.

According to London Stock Exchange Group (LSEG) data, these overseas financing instruments, known as "reverse Yankee bonds" (named in contrast to "Yankee bonds" issued by foreign companies in the US), have already exceeded the full-year 2024 total of $78 billion.

This current trend is viewed as favorable for the euro. Market concerns about unstable US trade policies have contributed to the dollar's 10% decline this year, while European Central Bank President Christine Lagarde has been advocating for a "global euro moment."

"There's a significant amount of capital ready to be deployed into European credit markets," said Matteo Benedetto, co-head of EMEA investment grade bond syndicate at Morgan Stanley.

Benedetto, who primarily arranges European bond issuances for corporations, noted: "Behind these capital flows lies a broader trend - assets are being reallocated to euro-denominated assets, potentially moving away from the dollar."

A report published this month by ING indicates that global issuers are showing increasing preference for euro-denominated bonds based on capital flow patterns.

Investors and bankers believe the reverse Yankee bond issuance boom will continue, driven by lower borrowing costs, favorable foreign exchange trends, and demand for asset diversification away from the dollar. However, analysts caution it's premature to declare a turning point for dollar dominance.

Benedetto explained that for US companies currently, issuing euro-denominated bonds and converting proceeds back to dollars results in comprehensive costs that are either lower than direct dollar bond issuance or roughly equivalent, assuming comparable credit ratings and similar bond maturities.

This year's growth in reverse Yankee bond issuance has been primarily driven by non-financial corporations, which have issued nearly 50 billion euros (approximately $59 billion) in bonds, representing a 32% year-over-year increase.

Among these, Alphabet (whose market capitalization first surpassed $3 trillion on Monday, September 15) raised nearly 7 billion euros through bond issuance in May. In the same month, Fiserv raised 2.175 billion euros in this market, while Verizon raised 2 billion euros in July through 7-year and 12-year bond offerings.

Alphabet, Visa, PepsiCo, and Verizon did not respond to requests for comment, while Fiserv declined to comment on its bond issuance activities.

Meanwhile, LSEG data shows that US financial companies have nearly doubled their reverse Yankee bond issuance this year to approximately 35 billion euros.

Zurich-based Vontobel Asset Management is among the many investors snapping up euro bonds from American companies.

"For investors, this is also an attractive area because they can diversify to some extent away from European core asset allocations," said Christian Hantel, head of global corporate bonds at Vontobel.

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Hantel noted that the substantial issuance of euro-denominated bonds by US companies has also increased the weighting of American corporations in traditional bond indices, making such bond issuances difficult to ignore.

According to Morningstar data, as of the end of August, US corporate issuers' weighting in the iShares Core Euro Corporate Bond ETF (representative of investment-grade corporate bonds) has risen from approximately 18% at the end of 2024 to nearly 19%, ranking second only to France.

Giulio Baratta, co-head of global investment grade financing at BNP Paribas, stated that reverse Yankee bonds have been fully absorbed by eurozone markets and demonstrate advantages in issuance scale, pricing efficiency, and flexibility in maturity selection for issuers.

According to documents filed by Pfizer, when the company issued 3.3 billion euros in bonds in May this year, both BNP Paribas and Morgan Stanley were among the underwriting banks. Baratta also revealed that BNP Paribas participated when IBM issued 3.5 billion euros in bonds earlier this year.

Baratta, who also oversees BNP Paribas's corporate bond capital markets business, pointed out that US companies can now issue bonds with maturities up to 20 years in the euro market, breaking through the traditional range of 5-12 years.

The underlying reasons include market expectations that US economic growth will outpace Europe, making investors more inclined to invest in bonds issued by American companies. Additionally, dollar weakness has enhanced the attractiveness of the euro as an "investment channel." The euro has appreciated nearly 14% against the dollar this year, currently trading at around 1.17 dollars per euro, with some analysts predicting it could rise to 1.20 dollars per euro.

ING data shows the euro remains the second most commonly used currency in international bond markets after the dollar, accounting for approximately 39%. Markets are closely monitoring the euro's performance in this area while examining central bank foreign exchange reserve holdings and trade settlement currency choices for signals of dollar diversification trends.

"This doesn't necessarily mean 'don't invest in US companies,' but for investors, having the opportunity to diversify from dollar assets to euro assets is something they're happy to do," said Connor Olvany, portfolio manager for the European credit team at Legal & General Asset Management in London.