By Christopher Whittall 

Days after the European Central Bank detailed its plan to buy corporate bonds, consumer-goods giant Unilever NV has sold one of the stingiest new issues ever: a slug of debt that pays zero coupons and will offer investors a return of practically nothing.

In one tranche of the EUR1.5 billion debt sale, the Anglo-Dutch company sold EUR300 million of bonds maturing in 2020 with a coupon of 0%, offering investors a yield of just 0.08%.

Those bonds are one of the lowest-yielding euro corporate debt sales on record, and highlight how unprecedented central bank stimulus measures continue to push down financing costs throughout debt markets.

Borrowing costs have fallen for big European companies since the ECB said in March it planned to start buying nonbank euro-denominated corporate debt. Unilever's deal is one of the first since the central bank said last Thursday that this scheme will begin in June.

The sale raises the prospect of whether companies could one day persuade investors to pay them to borrow money, as some governments now do.

"For highly rated corporate bonds, this is a bonanza time," said Sanjay Joshi, head of fixed income at asset manager London & Capital.

"You've got the ECB buying, you've got huge inflows into high-grade investment funds and you've got historically low costs of capital," he added.

The average yield on five-year euro-denominated investment-grade corporate debt was 1% Friday, compared with 1.3% before the ECB's announcement, according to Barclays. Yields fall as prices rise.

Investors have poured $10.6 billion into high-grade and high-yield bond funds over the past eight weeks as they begin "front running" the ECB, Bank of America Corp. said in a research report Friday. That compares with more than $17 billion that has left equity funds over the same period.

With borrowing costs falling, companies have rushed to sell new debt.

Drinks giant Anheuser-Busch InBev NV sold EUR13.25 billion of bonds just a week after the ECB's March announcement, in the largest ever sale of euro-denominated corporate bonds.

Later that month, French drugmaker Sanofi SA sold EUR500 million of bonds maturing in 2019 at a yield of 0.05%, the record low for euro-denominated debt sold in public markets, according to data provider Dealogic.

"The ECB's corporate program has changed sentiment enormously," said Conor Hennebry, co-head of northern European corporate bond origination at Deutsche Bank AG.

Mr. Hennebry said that he expects many other companies to issue bonds in May, with the close of the current corporate results season.

Banks handling the Unilever debt sale received orders of around EUR4 billion from investors, in a sale that also included eight-year and 12-year bonds, according to a deal notice released by the banks.

The eight-year bonds had a coupon of 0.5% and offered a yield of around 0.70%, while the 12-year bonds had a 1.125% coupon with a yield of 1.21%, according to the deal notice. Citigroup Inc., Deutsche Bank AG, HSBC PLC and Banco Santander SA handled the sale.

With yields falling so low, bankers wonder if investors will soon have to pay selected companies for the privilege of lending them money.

Some governments, such as Japan and Germany, have already issued negative yielding debt. Central banks in Europe and Japan have cut their interest rates into negative territory, pulling down bond yields.

The effects have spread into secondary markets, where nearly a third of investment-grade sovereign bonds now have negative yields, according to Citigroup Inc.

For corporate bonds, around 11% of the EUR1.65 trillion market in euro-denominated investment-grade debt now trades at negative yields, according to Souheir Asba, a credit strategist at Bank of America Corp.

Those bonds are typically older issues that have only a short time left to maturity.

Whether companies can sell fresh debt at negative yields for longer terms remains to be seen, even with the presence of large new buyer, the ECB.

"I think it would be possible to sell [corporate] bonds at a negative yield, but you do wonder whether investors would actually buy it," said Mr. Hennebry.

Some investors with excess cash who are already own negative-yielding debt "might be interested," he said.

Write to Christopher Whittall at christopher.whittall@wsj.com

 

(END) Dow Jones Newswires

April 25, 2016 14:06 ET (18:06 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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