In the first two weeks of the year 54 yankee bonds were issued by banks, raising more than $36 billion – more than the entire 2010 issuance, according to Dealogic. More deals are expected in February. European banks such as Lloyds TSB, Barclays, Nordea, BNP Paribas, Barclays and Crédit Agricole all turned to the US to raise money. Rabobank Nederland sold $2.75 billion in yankee bonds.
The deluge of issuance is in part a result of the negative euro-dollar basis swap.
Jeff Meli and Bradley Rogoff, credit analysts at Barclays Capital in New York, explained the situation in a January report.
"A negative basis swap spread benefits the European issuer by lowering its effective cost of funding relative to issuing directly in the EUR market," they wrote. "Currently, the five-year USD-EUR basis swap spread is –26bp. This means that a European bank needing five-year EUR funding can pay 26bp less (Euribor plus the negative 26bp five-year basis swap spread) for EUR funding by issuing a USD bond and entering a cross-currency basis swap, compared with issuing a EUR-denominated bond directly (in which it would be required to pay Euribor)."
| Negative EUR/USD basis swap boosts Yankee bonds |
| Five-year basis swap |
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| Source: Barclays Capital |
American pie
US investor appetite has also been driving issuance.
