This year's near-collapse in US companies' euro and sterling-based borrowing is being linked to Trump administration tax changes that are raising the appeal of bringing home cash held offshore to invest instead of tapping bond markets.
The "reverse Yankee", as offshore fundraising by US firms is dubbed, has been around for years. But sales blossomed notably after 2015 as the European Central Bank's unprecedented bond-buying stimulus programme made it cheap to borrow in euros and swap them back into dollars.
They also found ready buyers among European investors who were scrabbling for even a few basis points of extra yield over government debt, while the Federal Reserve's October 2014 move to end its own bond-buying programme added even more impetus.
As a result, US borrowers raised over half a trillion dollars in euro and sterling-denominated debt from 2014 through 2017, Thomson Reuters data shows.
But the pendulum has swung back and signs are issuance may not recover this year.
Bond sales globally are being dampened by Fed rate rises and trade tensions. But reverse Yankees' decline eclipses other debt categories - just $50 billion was raised in January-June 2018, around half of year-ago volumes, according to TR data.
Reverse Yankees comprised 7 percent of corporate euro fund-raising in the first six months of 2018, versus around a quarter a year ago, according to Srikanth Sankaran, head of European credit strategy at Morgan Stanley.
"US issuers in the euro market have been very quiet this year. Part of the explanation lies with US tax reforms encouraging a reassessment of how much new funding would be needed by companies," Sankaran said.
He was referring to new US regulation whereby companies are taxed on profits accumulated abroad, irrespective of where the cash is held. It reversed prior arrangements allowing them to "defer" US tax on worldwide profits unless they repatriated the money.
Because the tax is applied at a lower rate and over an eight-year period, there is less incentive for companies to keep savings offshore, and repatriation of some of the $3 trillion-plus estimated to be held overseas has already begun.
Balance of payments data shows US firms "repatriated" over $300 billion of earnings in the first quarter, Goldman Sachs said, predicting flows will escalate in coming months.
Analysts note that the tech and pharma sectors, which have large amounts of cash to bank outside the United States, benefit most from the tax reform but were also heavy reverse Yankee issuers.
Apple, Johnson & Johnson, Pfizer, Allergan and Verizon have all raised significant amounts of reverse Yankee funding in the past two years. But healthcare firms have sold less than $2 billion this year - under a fifth of year-ago levels, TR data shows.
Tech firms, including telecoms and entertainment, have issued around $3.6 billion versus $21 billion in the first six months of 2017.
"The one-off overseas cash repatriation has allowed (tech firms) to pay shareholders out of their vast foreign cash reserves instead of using the proceeds of new debt placements," J.P. Morgan analysts told clients.
So could issuance rise again? Most reckon it's unlikely. Aside from the fact companies can dip into their own cash reserves, euro-borrowing has become less appealing because the cost of swapping back to dollars has risen since end-2017, outstripping cost savings from lower euro yields.
With US interest rates likely to rise two more times this year, once the cost of swapping back to dollars is taken into account issuing in euros offer no advantage; since late-2017, hedging costs are outstripping cost savings from lower yields. And companies that didn't hedge euro exposure were caught out by the single currency's 10 percent rise last year versus the dollar.
"We expect issuance to pick up depending on hedging costs but to keep things in context, we may not see the kind of volumes that we have seen in the market in recent years," said Barnaby Martin, European credit strategist at Bank of America Merrrill Lynch. Indeed, the drop in issuance is also showing up cross-currency basis swap markets, which companies often use as an indirect route to raise dollars.
Since the start of the year, spreads on five-year cross-currency basis swaps have tightened by more than half to 17 basis points indicating declining demand by companies. Many companies may have also hit debt issuance limits stipulated by US accounting rules which allow borrowers to issue a certain proportion of the overall value of their overseas business in debt. Most companies, notably tech firms, have already used that up, BAML's Martin said. "A lot of US companies have issued euro-denominated debt in the past in keeping in line with their net investment position. But their capacity to do this may now be more limited," Martin added.