It is not the first 30 year corporate euro, but this €600m bond, fully public and benchmark-sized, marks a new start.
European institutions have not been interested in 30 year corporate paper — even 20 year deals were unusual until recently. Yet in the US, 30 year tranches are as common as three years.
But investors showed up in droves for BAT's deal, part of a €3bn four tranche issue.
German investors, supposedly unadventurous, bought 41%. Less surprisingly, UK accounts — the hungriest long-end investors in the world — took 37%. France's 7% haul suggests the big Paris fund managers have not quite embraced the product yet but are dipping their toes. Italy was there and even central banks bought 2%.
The draw can be summed up in two letters: QE. If the 30 year Bund yield on January 1 of 1.36% was sick-making, try 0.69%, where it trades now.
Any portfolio managers allocated to long debt must be crying for credit, just as credit managers are cheesed off with getting a 0.875% coupon on an eight year BAT bond.
Once quantitative easing grips Europe, long bonds will be compelling. When companies can lock in rock-bottom rates for 30 years, there will be takers.
More tenors will open up the market to larger deals. A €3bn issue in euros used to be a landmark event. This year, they have been 10 a penny.
US companies are flocking to issue euro bonds not just for tight pricing, but because they can get large size and a range of maturities. One advantage euros has over dollars is that investors will buy non-standard maturities like a 13 year — while the US sticks to standard on-the-run tenors.
If euros can offer 30 years — and all the maturities between 12 and 30 — its appeal will only increase.
