For The First Time, Two European Non-Financial Companies Will Be Paid To Issue Debt

Tyler Durden's picture

Today was another historic day in the monetary twilight zone that is Europe, when two large European, non-financial companies were the first in history to be paid by investors to borrow, courtesy of the ECB's corporate debt monetization program, which has unleashed an unprecedented scramble for frontrunning the central bank's purchases of corporate debt and a historic collapse in bond spreads.

As the WSJ reported earlier, German multinational Henkel AG and French drugmaker Sanofi SA are set to pay, pardon collect, a yield of minus 0.05% on new issues of short-dated bonds on Tuesday. The German household products is set to sell €500 million of two-year bonds that yield negative 0.05 percent, while Sanofi will be paid to issue three-year debt.

As the WSJ conveniently adds, in case someone was still unaware, "the fund raising is another sign of how unprecedented monetary policy has turned conventional investment theory on its head."

Roughly €717 billion of eurozone investment-grade bonds traded at a negative yield as of the end of August, or over 30% of the entire market. The ECB had bought over €20 billion of corporate bonds as of Sep. 2, after launching its program in early June, with most of its purchases coming in secondary markets. The result is shown in the charts below:

In a note by Bank of America's Barnaby Martin yesterday, the strategist said he was starting to "think the unthinkable", namely what happens when double-BB names slides into the negative yielding category.

"such has been Draghi's influence across the whole credit market that we are close to seeing our first negative yielding BB-rated bond. But if debt costs for speculative grade companies become "inverted", then the economics of LBOs will be transformed, and the quality of the assets they are buying will become secondary. We see a growing risk that another private equity cycle emerges in Europe now, and the severe rating deterioration that LBOs pose would become the greatest challenge to central banks' credit buying."

It's only a matter of time before the ECB also makes the unthinkable all too real.  The central bank meets on Thursday and will decide if it should expand its current bond-buying program; as Reuters and the WSJ hinted previously, the ECB will soon be "forced" to buy equities, further distorting the market.

The new debt sales mark a burst of issuance following the traditional summer lull in local capital markets. According to the WSJ, Glencore - which last year was locked out of debt markets - is also raising cash on Tuesday in one of its first forays into capital markets since its shares and bonds were sold off last fall amid concerns over debt levels and falling commodity prices. To be sure, while the fundamentals facing the company are still as dire as ever, the fact that the ECB provides a guaranteed backstop assures that anything the Swiss commodity has to sell will be promptly soaked up by the yield-starved market.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
SomethingSomethingDarkSide's picture

That trash will be dumped as soon as rates pop back above water.. what a slow motion train wreck!

VD's picture

like watching a bad sci-fi movie that makes no sense, yet it's playing out for real, in real time......

HopefulCynic's picture

I love it, it is so predictable, let's make money!!! 

The dirtier, and stupider you can think the better for this market.

Seriously, how can you not see the definate positive in this? It is like free money, no?

Manthong's picture

Hey Mario…

I have zero assets but I am willing to issue €10 Billion in new 10 year Thong Bonds.

As the quality of the issue does not matter as long as you have a balance sheet asset, just contact me here.

I assume negative interest accrues and I pledge to deliver approximately €9.5 billion upon maturity.


Go long, go thong, go long in the thong.

And I promise to add the proceeds to the local economies... hookers and blow count for GDP in the UK.. a lot of good stuff in windows in Amsterdam... lots of wine in Italy (your home digs) and I will even invest in waffles in Belgium.


BandGap's picture

Seriously, why would anyone think that "normal" would be an operative word as we spiral out of control?

Forget "since Lehman" and think "unprecedented" or "for the first time ever" when looking at these headlines. Even those are getting worn out.

Here's why - we are in financial straights that we, and the rest of the world, have not experienced in several lifetimes (there! I added to the cliches). The powers that be, and people playing along at home, are making up their own rules regardless of past practices.

The only thing to expect is the unexpected.

HopefulCynic's picture

You see you get it!! 

Let's make money and burn everything down in the process, except the money of course. 

HopefulCynic's picture

I thought we were on ZH to make money, or is there something I am not getting?

Kaiser Sousa's picture

sociopaths + desperation = Insanity

jamesmmu's picture

VIX crash again! God!

SomethingSomethingDarkSide's picture

VIX is comprimised, invest elsewhere.  You have been warned.

SomethingSomethingDarkSide's picture

Incorrect.  Gold will have free market tendencies for about 4-8 weeks, that is when Jaw Boning over a rate hike will probably start to make waves again, and of course after the election.  Shanghai is calling the Physical Leasing Bluff and ripping spot prices higher, NY and London can't futures smash it down without risking gold shipments to Asia via arbitrage spreads.

Since this shipment of physical bullion out of banks 100% cannot be allowed, The Fed will look the other way on Gold and let the money run.

This leaves the Precious Metals Miners and Precious Metal Fund Options.

GDX would be a safer bet, or NUGT if you are feeling crazy.  Want supreme safety?  You won't find it, but XAU and others claim 'exchangability', and surely this would be a 'first come first serve' kind of option I would believe.

There is always stacking physical, but chances are you would have better odds of rehypothecation or getting straight up robbed than making a killing.  Most people just aren't that safe or wealthy, myself included.

KnuckleDragger-X's picture

Awesome, just frigging awesome. Insanity on a massive scale backed by the full faith and credit of the Draghi powered ECB.....

ANestIOS's picture

the lunatics have taken over the asylum

adonisdemilo's picture

How can they make things any worse?

I can't imagine what they'll do next to screw up, but I'm sure they will think of something.

Bryan's picture

Nobody except us will care, unless EBT cards are shut off or the internet is taxed.  Sad but true.

E.F. Mutton's picture

Me: "I'd like a Grape Slushee, a Slim Jim and gimme $10 on Powerball"

Mr. Patel: "Certainly sir, and how about a nice 2-year Bond to go with that?"

Coming soon....

SimpleJackBlack's picture
SimpleJackBlack (not verified) Sep 6, 2016 2:39 PM

Negative interest payday loans coming to an Amscot near you.

VarenneRiver's picture

Every time I read a story like this I'm amazed I can still go to the grocery store and walk out with tangible food in exchange for FRNs. 

bamawatson's picture

you are correct sir; if one actually obtains any tangible item of value in exchange for FRN, one walks away bemused, almost feels like stealing

Fuku Ben's picture

What could go wrong when corporations enter the organized criminally racketeered world of global fraudulent finance. Maybe the fraudulently operating governments (corporations) can let corporations become banks like they're doing in China. These things would be amusing if they weren't 100% criminal and enacted by criminals who pretend they're legitimate law abiding good citizens of fraudulently operating non-existence governments (corporations). No matter how many layers of criminality you create it doesn't make it either legal or lawful.

dhemaius's picture

What a racket! Cronyism at its best! That is Grand Theft of wealth plain and simple.

sudzee's picture

Next up will be shareholders paying dividends to the corporation.

dhemaius's picture

And they said government debt monetization is bad and we're talking about sovereign money here. No good for government, but good enough for corporation. it goes to tell how much sovereign debt in sovereign currency is a racket too!

Ancientkarma's picture

If you are not prepared by now!well it's your own fault!

jewish_master's picture

Who is buying? i donr get it. cant be all ECB

MoonSun's picture

Nestlé also achieved negative yield on their bonds. That was on February 2015. It is however a Swiss company, not a EU company.

So yes, Henkel and Sanofi are the first for EU.

Father ¢hristmas's picture

Imagine if European citizens had guns like us cowboys here lol.

That's why Super Mario walks around smiling like a Eurotrash Harvey Levin.  He knows it would have to be a multilayered conspiracy for someone to pop a cap in his ass.

UnschooledAustrianEconomist's picture

Don't you worry, cowboy.

We got guns and know how to use them. There will be the time.

nathan1234's picture

Jacob Rotheschild calls it the Greatest Ever Financial Experiment.

Let me coin a new term. "The Greatest Ever Ponziment"

Citizens of this planet need to wake up, understand reality and obliterate these 'Ponzimenters"

wwxx's picture

I still don't 'get it', so there are primarily two reasons to purchase a negative bond, is for new investors such as the CB, the 'safety of the money' locked up by the bond contract, over time, for a fee [negative rate is a fee, just as positive rates are a fee]...and therefore paying to the bond issuer [negative interest] for the privilege & safety to do so. The other primary reason is for nearly all established investors having existing bonds from times past, be put to bed, those that have a positive interest rate, to cash in for a decent difference/profit.The negative interest is deducted from your bond investment, by contract, so there is no option to not pay, whatever the negative rate actually has determined. Any early bond redemption will still require a fee.


So really Nestle, German multinational Henkel AG, and French drugmaker Sanofi SA don't really 'need' to issue bonds, except to become immediately awash in [CB cash buying negative bonds] cash as participants in the CB printing press game, large investors also buy these bonds [for safety], and the bond issuer shall remain afloat for the next few years, as they have for the past several years. And the reason these negative rate bond issuers can go in this direction is only because the CB discount window has established it in this direction, and has nothing to do with what the market would actually demand, and absolutely endorsed by government rules that intentionally support it.


I really don't have a problem with NIRP [not that they would ask me anyway], except the rising inflation has been noticed down here at the non-investment basement level.


Is that about right, as I have stated it?



hartinvest's picture

The hunt for profit will probably lead a lot of money out of the bond market into the stock markets, and since the bond market is much bigger than the stock market, the bubble in the stock market will inflate further. Want to see dates when we think markets are likely to turn? visit