What is a Reverse Yankee Bond?

The Trump administration has made clear its aim to change the regulatory landscape for businesses, throwing up unique opportunities for fixed income investors

Hermes 21 February, 2017 | 11:02AM
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Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, Hermes Fraser Lundie, Co-head of Credit, and Andrey Kuznetsov, Senior Credit Analyst, explore the opportunities provided by reverse Yankees.  

Yankee bonds, which are issued in the US by a foreign government or company, have been a mainstay of the US fixed-income market for several decades. But in recent years, an increasing number of American companies have been doing the reverse: issuing debt in Europe. As a result, the so-called reverse Yankee market has already reached €330 billion and is primed for further growth driven by proposed changes to US tax law.

The Trump administration has made clear its aim to change the regulatory landscape for businesses, and if the rumoured end to the tax-deductibility of interest expense on debt becomes reality, it would likely lead to further expansion of the reverse-Yankee market. Why? American firms would be incentivised to issue bonds offshore in much the same way that many currently try to book profits overseas, in order to minimise the tax burden on their onshore profits.

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About Author

Hermes  Hermes is a multi-asset fund manager offering global institutional and pension fund clients access to a broad range of specialist, high conviction investment teams.

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