The European Union (EU) met strong investor demand on its return to the bond market on Tuesday with a seven-year debt sale.
The nation wracked up more than 85 billion euros ($100 billion) of orders for a 9 billion-euro offering of bonds maturing in 2028 via banks, with pricing set at 14 basis points below swaps. Analysts had expected a rush of orders from investors because the bonds are relatively scarce and the central bank is able to buy up to 50% of
the EU’s issuance, providing a guaranteed backstop.
Demand for this security was still slightly less than for a similar offering of five-year notes in June, which attracted 88 billion euros of orders. The sale is the next stage of the bloc’s NextGenerationEU stimulus, and the bloc will also start selling short-dated bills for the first time on Wednesday.
“As the EU comes more regularly to the market, there is less of an incentive to overstate one’s orders,” said Antoine Bouvet, senior rates strategist at ING Groep NV, who had expected 10 billion euros of the social bonds to be sold. “The novelty has worn off now they’re a regular issuer.”
With allocations to foreign central banks in this area of the curve at 31%, this constitutes a large pool of relatively captive demand, to be topped by the ECB’s QE purchases in the secondary market, said Jaime Costero, a rates strategist at Banco Santander SA.
It’s part of a program aiming to raise about $1 trillion of debt over five years to finance grants and loans to member states. Almost a third of the roughly 800 billion euros will be in green bonds, which the bloc will start to sell in October.
The funding plan is unchanged for the rest of the year, making up about 80 billion euros of long-term bonds for 2021, according to EU Budget Commissioner Johannes Hahn. Under its issuance calendar, the Commission will be holding one auction and one syndication per month for its bonds.
Since EU member states have requested only 492 billion euros in grants and loans so far, the full 800 billion euros may not be used by 2026, Danske Bank analysts wrote in a note.
The bookrunners on the
deal are Morgan Stanley, Goldman Sachs Group Inc, LBBW, NatWest Markets Plc and
Societe Generale SA.