(Reuters) – The European Union received over 107 billion euros ($130 billion) of demand on Tuesday for the first bond backing its recovery fund, a lead manager said, an issue that marks a key step in establishing the EU as a major borrower.
The 10-year bond is the first of up to 800 billion euros of issuance by the EU to finance the fund, which will make grants and loans to member states until 2026 to help their economies recover from the COVID-19 pandemic.
France’s junior minister for European affairs recently said the bond sale would raise 10 billion euros.
The EU has already issued 90 billion euros of debt since last October to back its employment support programme SURE.
But the scale of the new programme, which the 27-country EU is managing similarly to a government borrower, has the potential to transform it into the world’s biggest supranational debt issuer.
Tuesday’s deal shows continued interest from investors keen to buy scarce triple-A rated debt whilst gaining a yield pick-up over Europe’s benchmark issuer Germany.
Demand, while much smaller than the record 145 billion euros the EU saw for the first 10-year bond backing SURE, was higher than that seen for recent SURE deals.
“The message that we had from Madame Lagarde essentially put a floor under any concerns that the market may have had in terms of the total amount of issuance … that’s going to be coming from the EU,” said Matt Cairns, head of credit strategy at Rabobank, referring to last week’s European Central Bank decision to keep its accelerated bond purchases in place.
The new EU bond, due July 4, 2031, will price 2 basis points below the mid-swap rate, according to the lead manager. That is equivalent to a yield of around 0.06%, according to Reuters calculations, down from around one basis point over the mid-swap level when the sale started on Monday.
Following Tuesday’s syndicated deal, where the EU hired banks to sell the debt directly to end investors, the EU will sell two more syndicated bonds by end July.
It will add short-dated bills to its funding programme from September, to be placed at auction, the more common way governments raise debt.
While all the debt backing SURE was issued as “social” bonds — a type of ESG debt aimed at bringing designated “social” benefits — Tuesday’s sale is a conventional bond.
But some 30% of the recovery fund will be funded by green bonds – which finance environmentally friendly expenditure – once the bloc publishes its green bond framework, expected by September.
($1 = 0.8237 euros)
Reporting by Yoruk Bahceli; Editing by Rachel Armstrong and Catherine Evans