By Yoruk Bahceli
AMSTERDAM (Reuters) – The European Union drew the highest demand for any bond sale ever on Tuesday as it kicked off financing of its SURE unemployment scheme, bankers said, attracting orders nearly 14 times the 17 billion euros ($20 billion) it aims to raise.
The sale of 10 and 20-year social bonds attracted over 233 billion euros in demand, a memo from lead managers seen by Reuters showed.
The shorter bond, which will raise 10 billion euros, attracted over 145 billion euros of final demand on its own, lead managers said, the highest level ever seen for the sale of a single bond in Europe.
Tuesday’s sale is the first stage of the EU’s ambitious plan to increase its debt pile 15-fold in less than a decade to fund its two coronavirus support programmes for member states, which brings it closer to debt mutualisation than ever before.
The plan will in time make the EU, currently a tiny borrower on a par with Slovakia, one of Europe’s biggest borrowers.
With Tuesday’s sale it has already funded over half of the 30 billion euros it plans to sell this year.
“This is sending a strong signal that they can upsize their issuance without much difficulties,” said Antoine Bouvet, senior rates strategist at ING.
The bonds are attractive to investors as they offer a yield pick-up over safe-haven German bonds with very similar credit ratings, while offering similar yields to France, which is rated lower, analysts say.
The EU is rated Triple A – the top credit rating – by two of the three main ratings agencies.
The European Central Bank, which currently underbuys bonds from supranational institutions relative to its rules, should be able to hoover up a good deal of the debt in the secondary market, another reason for the scale of demand, analysts said.
Another appeal is the social bond format, a type of sustainable debt. Up to 100 billion euros of issuance for the SURE scheme planned by the end of next year will triple the outstanding social bond universe, according to ING.
Investors are watching the pricing closely to see how much it might cost the EU to ramp up its borrowing at such speed.
The 10-year bond will price at 3 basis points over the mid-swap level and the 20-year at 14 basis points over, according to lead managers, offering a negative yield on the shorter bond and a positive yield on the longer, according to Reuters calculations.
The 20-year bond, which will raise 7 billion euros, received over 88 billion euros of demand, lead managers said.
After SURE the EU will start financing its larger programme, an 800 billion euro recovery fund next year, although it has yet to be ratified by member states which are divided over tying disbursements to a rule of law scheme.