Corporate borrowers are stepping up sales of ultra-long euro bonds as investors seek an escape from anaemic government yields. US tractor maker Deere & Co joined the trend last week, offering a 20-year euro bond, its longest-ever in the common currency, based on data compiled by Bloomberg. It’s the fifth offering of a senior 20-year euro note by a non-financial corporate in about two weeks. That’s after just two such offerings in the preceding part of the year.
Unilever NV and Vodafone Group Plc were also among the recent rush of 20-year euro bonds, as investors turn to long-dated investment-grade corporate debt – or riskier borrowers – amid a struggle to hit yield targets. About 30% of bonds in Europe have negative yields, while 10-year German bunds offer guaranteed losses if held to maturity due to low-rate expectations and economic concerns.
“Insurers in particular feel like they are being forced further and further out the curve,’’ said Tim Winstone, a credit portfolio manager at Janus Henderson, which oversees $357.3bn. With government rates so low, “it’s one of the only ways” they can meet yield goals, he said.
Deere’s John Deere Cash Management unit is offering the 2039 notes at an initial price target of about 110 basis points above mid-swaps, according to a person familiar with the matter, who asked not to be identified because they’re not authorised to speak about it. Moline, Illinois-based Deere didn’t respond to requests for comments about the bond offering.
Long-dated euro borrowing costs are near the lowest since 2016, with average yields on notes maturing in 10 years or more hovering near 1.53%, based on a Bloomberg Barclays index.
Still, for investors that compares favourably with yields of -0.22% on 10-year German government bonds, and just 0.18% on 20-year bunds. It’s one reason why high-grade funds have recorded 13 straight weeks of inflows, according to EPFR data cited in a Bank of America Merrill Lynch note.
Investor demand for longer-dated euro corporate notes – and price sensitivity to changes in rates expectations – also helped decade-plus notes buck a wider slump in corporate debt last month. 
Euro corporate bonds maturing in more than 10 years have posted total returns of 9.03% this year, versus 4.68% for five-to-seven-year paper and 0.85% for one-to-three year bonds.
Longer notes will quickly suffer if interest-rate expectations start to turn. Still, that may be some way off. Federal Reserve chairman Jerome Powell signalled an openness to cutting interest rates if necessary and softening euro-area inflation is piling pressure on the European Central Bank to provide stimulus.
“We are comfortable with the search for quality yield persisting as rates continuously test new lows,’’ ING Bank NV credit strategist Jeroen van den Broek wrote in a note. “Yield without substantial credit risk grows in appeal.”