EU’s Record Bond Issuance
The EU made the history of the market with a record demand for its “social” bonds
The European Union makes a historic debut in bond markets in its quest to find new opportunities to finance the region’s recovery from the coronavirus crisis.
On Tuesday, the European bloc was set to sell 17 billion euros ($ 20.15 billion) on the bond market to fund its coronavirus-related unemployment project known as SURE. However, investor demand was much higher than this amount, reaching 233 billion euros ($ 276 billion), which became a record order book and the largest supranational transaction ever taken place in history..
«With this operation, the European Commission took the first step towards entering the major league in the world debt capital markets. This is the highest amount ever borrowed in the history of the EU», – said in his announcement, responsible for the sale of bonds, European Commissioner Johannes Khan (Johannes Hahn).
This event is very important for the European Union as it prepares to become one of the largest borrowers in the region along with selected countries such as France and Italy.
After the pandemic, the European political bloc agreed to use the markets to finance investment and economic revival projects.
17 billion euros were divided into 10 billion euros maturing in 10 years and 7 billion euros maturing in 20 years. Demand for 10-year bonds reached 145 billion euros, and for 20-year bonds – more than 88 billion euros.
The yield on 10-year bonds closed at -0.238%, and on 20-year bonds – 0.131%. Profitability moves inversely with prices.
Both categories represent higher yields compared to German sovereign bundles, which traders regard as benchmarks in Europe..
«Strong investor interest and favorable conditions on which they were placed bonds are further evidence of the newfound interest in EU bonds», – said Khan.
He added that «social» the nature of the bond sale has helped to attract increased demand as more investors seek to invest their money in areas considered more resilient.
ESG (Environmental, Social and Corporate Governance) is a growing trend in financial markets where investors are looking to channel their funds to companies and borrowers that serve one or more of these purposes.