US Corporations Shift to European Debt for Cheaper Funding Amid Policy Divergence

The global landscape of corporate financing is experiencing a notable recalibration as major U.S. corporations increasingly turn to European debt markets for capital. This strategic pivot is primarily driven by the diverging monetary policies of the European Central Bank (ECB) and the U.S. Federal Reserve, coupled with evolving geopolitical and trade considerations. Companies are leveraging the current interest rate differentials, securing more cost-effective funding across the Atlantic and, in doing so, alleviating some pressure on domestic U.S. credit markets.

• U.S. corporations are increasingly accessing European debt markets for capital.
• This shift is primarily driven by diverging monetary policies between the ECB (rate cuts) and the U.S. Federal Reserve (rates maintained).
• U.S. companies have cumulatively raised €116.3 billion (approximately $134 billion) in Europe this year, nearing a full-year record.
• Geopolitical factors, including U.S. trade tariffs, are influencing foreign investor demand for U.S. corporate bonds.
• The increased euro issuance by U.S. firms contrasts sharply with a significant decline in U.S. dollar borrowing by European companies.

Monetary Policy Disparity Drives Capital Shift

A key factor underpinning this trend is the disparity in central bank approaches to interest rates. While the ECB has initiated rate cuts, the U.S. Federal Reserve has maintained its rates, creating a significant arbitrage opportunity for borrowers. “From an issuer’s point of view, it’s less expensive to borrow in euros,” explains Gordon Shannon, a portfolio manager at TwentyFour Asset Management. Despite recent U.S. labor data prompting discussions about potential Fed easing, U.S. interest rates remain comparatively higher, solidifying Europe’s position as the more attractive borrowing destination, even for companies that hedge currency risk.

Surge in Euro-Denominated Issuance

This strategic shift is evident in the volume of euro-denominated bond issuances by American firms. Corporations such as Verizon Communications Inc., FedEx Corp., and PepsiCo Inc. have recently tapped the European market, with Verizon selling €2 billion in debt and both FedEx and PepsiCo returning for the first time since 2021. Cumulatively, U.S. companies have raised €116.3 billion (approximately $134 billion) in Europe this year, approaching a full-year record with several months remaining in 2025. July alone saw U.S. companies issue $9 billion in euro debt, significantly exceeding the past three-year monthly average of $3 billion.

Geopolitical Tensions Reshape Demand

Beyond monetary policy, geopolitical factors, specifically trade tensions, are also influencing this migration of capital. With President Trump’s administration announcing new tariffs, foreign investors are exhibiting reduced demand for U.S. corporate bonds. Hans Mikkelsen, a U.S. credit strategist at TD Securities, suggests this trend is likely to persist, noting, “There will be less demand for U.S. corporate bonds and more demand for non-U.S. corporate bonds. U.S. companies will have the same issuance needs. So they have to realize that they have to fund themselves more in other currencies.”

Cross-Currency Dynamics and Market Impact

This dynamic is creating a distinct imbalance in cross-currency borrowing. In contrast to the surge in euro issuance by U.S. firms, European companies borrowed just over $2 billion in U.S. dollars in July, a sharp decline from their typical $13 billion monthly average. This imbalance directly contributed to U.S. dollar bond sales falling short of Wall Street forecasts in July, with actual volume reported at approximately $81 billion against an expected $100 billion, according to Bloomberg data. Nevertheless, the reduced supply from both foreign and domestic issuers has positively impacted U.S. bond valuations. High-grade U.S. corporate bond spreads tightened to 0.76 percentage points, their tightest level of 2025, despite broader economic uncertainties. John Servidea, global co-head of investment-grade finance at JPMorgan Chase & Co., summarizes the effect: “If you take this overarching trend of net supply being down, banks issuing less because of regulatory reform expectations… and more U.S. companies are issuing in Europe, all that does is further reinforce the positive technicals in the U.S. market.”

The confluence of favorable European interest rates, evolving global trade dynamics, and a recalibration of net supply in the U.S. market is compelling American corporations to strategically re-evaluate their financing strategies, increasingly looking across the Atlantic for capital. This shift reflects a sophisticated response to macro-economic forces, impacting credit markets on both sides of the Atlantic.