FX risk is extraordinarily cheap to hedge against, the futures market is really deep.

The cost of hedging forex is at least equal to the interest rate difference between the currencies.

Can someone who knows how that works do the math for us?

It's an arbitrage issue. If you can borrow EUR for 1% and it costs %1 to get a USD/EUR hedge, you can turn around and loan USD for 2% and be guaranteed to not lose money. The market eliminates arbitrage opportunities whenever they appear; so if the cost of borrowing EUR is less than the cost of borrowing USD, you'll have to pay at least the difference in order to get someone to guarantee a rate for converting USD back to EUR later.

There could in theory be other risks in EUR which prevent the arbitrage (legal? liquidity? cost of initial transaction being high?) which is why I'd prefer to see actual numbers bearing that out instead of just a derivation from first principles.

In general the price of a futures contract is that which avoids arbitrage opportunities.

If the interest rate in EUR is 2% and the interest rate in USD is 4% and the cost to maintain a EUR/USD hedge is less than 2% then you can make free risk-free money by borrowing EUR at 2%, exchanging it to USD, and lending it out at 4%.

Such a situation is unstable as more and more capital would pour in to take advantage of it and the cost to hedge would rise or the interest rates would move closer together until the gap disappeared.

A combination of this and EUR credit is just not as liquid as USD.

It looks like the deal is 16bn across 7 tranches. EUR equivalent would be much harder for the market to digest and a lot more difficult to hedge.

Collars in the options market

Futures

or plain old fx swaps solve all of these problems

How much would it cost to hedge the EUR equivalent of USD 16bn of these bonds?

Its different for every product so lets talk about the futures market as it is the most transparent and [likely] deepest:

According to the US government there is currently 57 billion EUR in open futures contracts, which is currently 68 billion USD. A new market participant that needs 23% of this current level of liquidity should be able to attract the interest they need without moving the market.

http://www.cftc.gov/dea/futures/financial_lf.htm

Qualified participants are able to negotiate non-standard sized futures contracts, and wouldn't have to worry about broker commissions.

In the futures, the rolling transactions would have to be maintained.

IDK technically it should be near free, but the other banks are pretty greedy so hard to say. Really shouldn't cut into the free-ness of the yield and bond issuance.

I don't know how you can suggest issuing in EUR if you cannot compare the USD interest expense vs what you think they issue under EUR.

I'm not trying to be rude but I don't think you know what you are talking about if you are suggesting that executing a futures transaction that large won't move the market and that rolling USD 16bn equivalent futures is going to somehow come out near free. Amazon merely announcing an EUR deal that large is going to move the market and that's not even considering actually executing these theoretical trades. You don't want to give people the ability to frontrun you on something that large.

Suggesting non-standard sized future contracts completely negates the liquidity argument and also leaves you at the mercy of either your counterparty or someone else who likely has the ability to move the market in order to screw you over.

I'm pretty sure Amazon along with other issuers who issued multi-billion USD deals this year took a look at issuing in EUR and decided it wasn't in their best interests.

> I don't know how you can suggest issuing in EUR if you cannot compare the USD interest expense vs what you think they issue under EUR.

Okay.

> ... liquidity

Liquidity begets liquidity. Do what you can.

> I'm pretty sure Amazon along with other issuers who issued multi-billion USD deals this year took a look at issuing in EUR and decided it wasn't in their best interests.

You shouldn't make that assumption. There are many market participants that wouldn't consider the world outside of their market. There was a long time where the US was the only liquid market, and still eclipses the single currency bloc for liquidity. When favorable inefficiencies come up it is easy to miss them.

The cost of the transaction should be a factor, but the foreseeable costs are not that big of a factor. The company can issue 10 - 40 year bonds (or whatever else the market can bear) at low, zero, or negative interest rates and not have to worry about it until 10 - 40 years later. And then what? Well they just issue more bonds, in the next low interest rate environment and use a lot of the proceeds to pay off the remaining bit.