OREANDA-NEWS. Fitch Ratings says in a new report that the share of European currency bonds issued by non-European companies rose to its highest level since at least 1999 in 1Q15, as low corporate bond spreads and divergent monetary policy relative to the US increased the appeal of the European market. While the vast majority of established US issuers in Europe have solid investment-grade (IG) ratings, QE-driven search for yield is pushing European investors into embracing a wider range of credits, including 'B'-rated issuers.

Foreign firms accounted for 24% of total 1Q15 corporate issuance in the European credit market, doubling their share from 2014. US corporates account for the largest share, at 77%, up 17% on their portion in 2014.

While many US issuers seek to borrow in euros to finance European subsidiaries or for local acquisitions, the opportunity to achieve cheaper funding via a cross-currency basis swap exists as an additional motivating factor. A strong, positive correlation exists between scale of the spread discount and the share of US issuance in Europe.

Tighter spreads on European corporate bonds relative to their US counterparts more than offsets the cost to swap euro-denominated proceeds into US dollars based on five-year swap rates, with the spread discount increasing with longer tenors and lower-grade credits.

The appeal of Europe is likely to continue throughout 2015 as the US-Europe spread gap widens due to the US economic recovery while European rates remain anchored due to QE.

The majority of established international issuers have IG ratings. However, a number of 'B'-rated US firms have recently debuted in European markets to finance their European operations or for acquisitions and to diversify their investor base to include European investors.

Our report, "Foreign Issuers in European Credit Markets" available on www.fitchratings.com, provides details of historical and recent issuance, sector and regional breakdown and overall context. It includes a list of notable international issuers with links to Fitch ratings and research.