There's never been a better time to be a corporate treasurer inEurope as cash-rich investors line up to buy bonds at the lowestrates ever.

“Treasurers are in pole position,” said Henner Boettcher,funding chief at HeidelbergCement AG, which raised 300 millioneuros ($400 million) from bond markets on March 2. “If you're acompany needing cash, right now is the time to get it.”

Company notes have become a haven for fund managers wary ofplacing their cash with the most indebted European governments.Investors consider corporate bond yields to be generous comparedwith benchmarks and view companies as well placed to benefit fromthe easing of Europe's credit crisis in the wake of Greece'sbailout.

Treasurers are exploiting the investor demand, which has drivencorporate bond yields to a record low of 2.59 percent, Bank ofAmerica Merrill Lynch's EMU Corporates Non-Financial Index shows.Investors put 12.5 billion euros into European bond funds inFebruary, the biggest inflow since August 2010, data compiled byMorningstar Inc. show.

Bond sales surged in March as carmaker Daimler AG in Stuttgart,Germany raised 750 million euros after boosting an offering from500 million euros, Fiat SpA issued its first benchmark deal sinceJuly and commodities trader Glencore Plc sold $2.1 billion ofsecurities. Offerings totaled 83 billion euros this year, thebusiest quarter since the second quarter of 2009, according to datacompiled by Bloomberg.

“There's a lot of investor demand out there and it's reflectedin spread developments over the last month,” said Hans Tschuden,chief financial officer at Telekom Austria AG in Vienna, whichraised 750 million euros from 10-year bonds on March 26. “Now mightbe a good time to tap the markets rather than wait and take what'soffered later.”

The yield premium on corporate bonds to benchmark Germangovernment debt has narrowed 56 basis points this year to 145 basispoints, or 1.45 percentage points, just above the 7 1/2-month lowof 139 reached on March 16, Bank of America Merrill Lynch datashow. The absolute yield fell 74 basis points since the start ofthe year.

“Spreads still look relatively attractive across large swathesof the corporate sector, but it's the all-in cost of funding that'sdriving treasurers to pull the trigger now,” said DuncanWarwick-Champion, an analyst at European Credit Management Ltd.,the London-based investment firm owned by Wells Fargo & Co.

Treasurers also are turning to bond markets on concern thatstricter capital rules designed to prevent future financial criseswill curb lending from banks. That may stifle companies' fundingoptions as lenders segment clients by profitability and creditratings, analysts at Greenwich Associates in Greenwich, Connecticutwrote in a March 28 report.

“One of the mantras we use is 'fund early, fund long,'” saidMartin O'Donovan, deputy policy and technical director at theAssociation of Corporate Treasurers in London, which represents4,500 company finance officials. “Companies selling bonds areclearly changing the structure of their balance sheet towards debtcapital from bank funding, which is understandable given everythingwhich has gone on with banks.”

ECB Cash

Treasurers are also benefiting from the European Central Bank'sprogram of injecting banks with more than $1 trillion of cheaploans and a successful Greek debt-swap that led to a secondbailout, easing concern that the region's sovereign debt strainswill trigger corporate defaults.

Bond buyers pulled back last year on concern European leaderscouldn't contain the credit crisis, which forced an increase inborrowing costs that also sidelined issuers. The sales slowdownmeant investors accumulated cash as companies redeemed 60 billioneuros of securities in the second half, and issued about 40 billioneuros, according to Societe Generale SA.

Corporate debt's status as a haven is allowing it to ride outthe worst of the euro area's woes.

European officials meeting in Copenhagen last week agreed to capnew rescue lending at 500 billion euros, adding to the 300 billioneuros already committed to Greece, Ireland and Portugal since 2010.The Organization for Economic Cooperation and Development saidMarch 29 that the situation in the euro area is “expected to remainfragile.”

This year's surge in the government bonds of Italy and Spain isstarting to fade as austerity budgets spur strikes and stifleeconomic growth. Investors demand a yield premium of 3.43percentage points to hold Spain's 10-year government debt ratherthan Germany's while Italian debt has a spread of 3.19 percentagepoints.

Corporate bond issuance is showing signs of slowing with salesdropping to 6 billion euros last week, down 36 percent from theweek before.

“The lessons of last year are that you can't automaticallyassume that the market will be there for you in the size andcapacity that you want it,” said Jane Pilcher, treasurer at AnglianWater Services Plc in Huntingdon, England, which sold 250 millionpounds ($400 million) of notes on March 20.

Even if the euro-region crisis flares up again, there are signsthat corporate treasurers will keep accessing the debt market.Companies need to redeem about 126 billion euros of bonds in thecommon currency this year, according to estimates from ING GroepNV.

From investors' point of view, company notes represent goodvalue relative to benchmark government debt. German bund yields areapproaching record lows with the 10-year rate at 1.79 percent, 12basis points off the 1.67 percent reached in September.

“There's a huge amount of liquidity out there that needs to beinvested and everyone's hunting for yield,” said Nicolo Bocchin, aportfolio manager at Aletti Gestielle SGR SpA in Milan. “So we havea nice marriage from investors who need to put money at work andcompanies that can take the chance to refinance.”

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