Money for nothing


IT IS not just America’s Treasury that is benefiting from ultra-low borrowing costs. On July 30th Unilever, an Anglo-Dutch consumer-goods group, borrowed $1 billion in the bond markets, in two tranches: 0.45% for three-year money and 0.85% over five years, both record lows for corporate debt. A week earlier IBM had raised ten-year money at a rate of just 1.875%. The Spanish and Italian governments can only dream of funding at such a low cost.

Multinational companies have some advantages over governments. Although they can be subject to punitive taxation, they have the potential to move their operations to more welcoming jurisdictions. Their revenues are not dependent on the fortunes of an individual economy. And large companies have been able to strengthen their balance-sheets over the past five years, whereas governments have been forced deep into deficit to prop up their economies.

Nevertheless, it is unusual for such a gap to emerge between the borrowing costs of big companies and rich-world governments. But the low yield achieved by Unilever and IBM is part of two further trends: the increased use of the bond markets by European companies and a new-found enthusiasm of investors for corporate debt.

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