The ECB's Visible Hand: Unilever Issues Debt With 0% Coupon, 0.06% Yield

Tyler Durden's picture

On Friday we wrote our latest take on how the ECB's CSPP, or corporate bond buying program, in which we explained how this ECB's latest market manipulating adventure is about to crush the fundamentals of the European (and soon, courtesy of the ECB's "SPV" loophole, global) bond market. We showed how the ECB, in its latest attempt to become an even more market-moving hedge fund, is set to buy billions in corporate bonds and not just European but also international, as long as they have a European-domiciled (read Ireland or Netherland) SPV holdco.

The big picture details were as follows:

  • May buy in primary and secondary markets
  • Issue share limit of 70% per ISIN
  • Inclusion of bonds issued by insurance companies
  • Can buy bonds of companies incorporated in the euro area whose ultimate parent is not based in the euro area
  • Remaining maturity of 6 months and maximum of 30Y

BofA's disturbing assessment of the ECB program for broader markets was surprisingly gloomy:

Firstly, the credit market could (worryingly) become much less sensitive to fundamentals such as commodity prices. For instance, if commodity prices fall, debt spreads of Glencore could still tighten if the ECB remains an active buyer of their bonds.

Secondly, there is clear motivation for non Euro-Area companies to issue Euro debt via a Euro-Area incorporated SPV. Our understanding is that the process (and time needed) to set up such a vehicle is not too cumbersome.

 

If this is the way that the credit market in Euros develops, then the ECB could potentially be “corporate QE’ing the world”. All credit markets stand to benefit in such a scenario as the trickle-down effect looks significant to us.

 

Yet, investors will need to keep an even closer eye on the likelihood that credit spreads disconnect from fundamentals. For instance, if the ECB buys UK credits then this will exacerbate the lack of Brexit premium in the £ credit market.

And while we speculated how long until we get a US shale company "incorporating" an SPV in Europe to take advantage of the ECB's backstop generosity, we didn't have long to wait until we found the first aberration of how Mario Draghi is making a mockery of price discovery.

As Dow Jones writes, moments ago Unilever NV was set to raise money in bond markets Monday that will cost the consumer-goods giant almost nothing, in the latest sign of how the European Central Bank's stimulus measures are slashing funding costs across the continent.

In one tranche of a €1.5 billion deal, the Anglo-Dutch company was set to sell €300 million of debt maturing in 2020 with a coupon of 0%, potentially offering investors a yield of just 0.06%, according to deal guidance released Monday by underwriting banks.

The Unilever bonds will be one of the lowest-yielding euro debt sales on record, and one of the first since the ECB released details on Thursday of its plans to start buying corporate bonds in June.

As predicted in early March, borrowing costs for major European corporations have dropped sharply since the ECB said in March it planned to start buying nonbank euro-denominated corporate debt later this year. This is understandable: after all with a central bank backstopping bond risk, there is no risk in buying these bonds. In fact, we expect the Unilever tranche to promptly break to the upside after the break for trading, pushing its yield negative, a historic first for a corporate bond.

Dow Jones writes that banks handling the Unilever deal have received orders of around EUR4 billion from investors for the debt sale, which also included eight-year and 12-year bonds, according to the deal notice. The eight-year bonds are expected to offer a yield of around 0.66%, while the 12-year bonds are expected to offer a yield of around 1.18%, according to a person familiar with the deal. Both these bonds will have positive coupons.

The bonds will price later Monday. Citigroup Inc., Deutsche Bank AG, HSBC PLC and Banco Santander SA are underwriting the deal.

And thanks to the ECB, we fully expect all of these Unilever tranches to promptly sport a negative yield after they break for trading in what is now a euphoric corporate bond market which like Europe's Treasury market, will no longer be driven by fundamentals and entirely by central bank frontrunning.

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SomethingSomethingDarkSide's picture

Awwww yiissss, get me more shares of that company who wouldn't exist without a big, fat government titty to suckle on.

 

NOW, MORTIMER!

froze25's picture

So the ECB will now be issuing interest free debt to allow for stock buy backs to keep the prices artificially high. Awesome this will end well.

GRDguy's picture

Banksters will get title when the stock goes south. They don't care about the money. After all, it as only thin-air to begin with.

Poundsand's picture

Money for nothin... And your chicks for free.

Dire Straits

thesonandheir's picture

Why are Unilever issuing debt, for what reason? If this is just for buybacks a la US stocks then this is plainly absurd.

SomethingSomethingDarkSide's picture

Yes, buckle up for insanity, amigo

Ghost of Porky's picture

Hold still, Ben and Jerry. You're about to get milked.

John Kich's picture

Trump Got It Right Again. This Is the Undeniable Proof...

However the mainstream media isn't saying a word about it!

What are they really trying to cover up?

https://www.youtube.com/watch?v=VKBfjdM3AKg

Theonewhoknows's picture
Theonewhoknows (not verified) thesonandheir Apr 25, 2016 11:14 AM

The ECB is the sucker here - they pay for something which is worth nothing money that they believe is worth spending just to spin inflation. Inflation they believe will make everyone spend money and kick-start the economy. This will not happen as everyone is poorer than before 2008 although, every indicator they have is telling them (central bankers) that all of our folks are richer. Problem is that they use methodology they tinker with since 1980's just to be lazy and as a result we see real negative interest rates. This kills everyone's savings and without those, there is only printed credit certified by the central bank. 

This situation is analysed here - with research behind it (technical;CAPE and others) and geopolitically (the global monetary reset)  ttp://independenttrader.org/trader21-lecture-presented-at-fx-cuffs.html

jus_lite_reading's picture

Wow, a worthless bond paying -4.7%. Where do I sign up?

Ghordius's picture

lol, BofA's "For instance, if the ECB buys UK credits then this will exacerbate the lack of Brexit premium in the £ credit market."

so the ECB might help Britons feeling happier and more carefree about a BreXit?

BeaverCream's picture

In a lot of ways Zimbabe, Venezuela, and the rest of the non-white banana republics have it better than we do. Their leaders aren't smart enough to figure out how to disguise money printing and therefore drag out the pain as long. We, unfortunately, have intelligent psychopaths running our nations.

BandGap's picture

At yields of 0.666% who can pass up these devilish deals?

GRDguy's picture

It was 0.0666%; pronounced Oh, 666!  

cowdiddly's picture

Soap bonds that pay nothing for 12 years and lose money in inflation. Where do I sign, PLEASE take my money.

prolly junior subordinated too. lol

Updated Bananas quote- 995.00 US per ton. Long Banana contracts. Ill be rich beyond my wildest dreams with a bad case of the runs.

raki_d's picture

Selling some bonds to remodel my house and it wont be iou bitches coz u owe me !

PT's picture

I just wanna buy some CDSs on my own mortgage.

Then if I don't make a payment, the CDSs pay out and then I can pay off the mortgage ... oh hang on!  But if I do pay off the mortgage then the CDSs won't pay out, in which case I won't be able to pay off the mortgage, in which case the CDSs do pay out ... and that dear Mr Debt Collector is why you can never collect on this debt ...

Restorative_Ally's picture

Plan: Central banks purchase all assets. Central banks combine to form world central bank. World central bank prints global digital fiat currency at will to provide world shadow government complete control over the affairs of the few remaining soverign states. Resistance will be met with hybrid warfare until no resistance remains. World population will be so economically deprived and desperate that they will accept a global government and the guaranteed income it will provide. Global governance and complete ownership achieved, the rulers will begin the depopulation in earnest.

Nothing short a VEI8 eruption or other ELE can stop them at this point. They have too much power.

Budnacho's picture

I can run a list of a couple hundred Dictators overthrown throughout history that might diasagree with you on that statement about "too much power"...

 

My litmus test is Trump and the overall result if they push him out for Cruz....

Restorative_Ally's picture

Dictators are the disposable puppets of the banking families.

I'm genuinely surprised at how many people think Trump isn't part of the plan. Enraged leftists were met with their savior in 2008, and now the enraged right is met with its.

Same tactics as ever. Divide and conquer and false hope until no hope remains.

PT's picture

Yeah, I guess we still have a lot of false hope that needs to be purged out of the system.  Need a bigger pump.

Jayda1850's picture

Only in a world where people are either dumber than a box of rocks or so busy just trying to make ends meet that central banks around the world can buy up the world's assets with money created out of thin air and be able to get away with the argument that it is to help the economy.

Wild Bill Steamcock's picture

Is the ultimate goal of QE to be that the central banks own most of the bond/stock markets? Or is it that this central bank buying is a terminal symptom of kicking the fucking can down the road 'till there's nothing left to kick?

Jayda1850's picture

It's actually both.The symptom isn't terminal, but the disease, fiat monetary system and fractional reserve banking, is. The people in charge know this and know it isn't far off. This is them going full retard and buying whatever isn't nailed down before fiat collapses to its true value, zero.

Turin Turambar's picture

While fiat may collapse to zero, the banks will still own every company on the face of the earth because they bought them all with fraudulent fiat while everybody else treated it as something of value.  Gotta love the return!

PT's picture

The game was always about theft of land and productive assets.  Everything else is smoke and mirrors.  Gotta be amazed by the smoke and mirrors, but also most of the audience is high, got ADHD and cross-eyed.

I am a Man I am Forty's picture

I'll take the stock that pays 3.2%.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) I am a Man I am Forty Apr 25, 2016 11:02 AM

I'm sure both the debt and the equity will be taking 50% haircuts before this is all over

I am a Man I am Forty's picture

over the long run you will make money no matter where the market goes

Captain Willard's picture

Some day, this debt will have to be re-financed or rolled over.