Record demand for EU bonds; €233bn bids for €17bn

By Mark McSherry

There was record demand on Tuesday for the European Union’s first coronavirus-related bonds.

The sale of €17 billion of 10-year and 20-year bonds drew €233 billion of investor demand.

The €145 billion of demand for the 10-year bond alone was the highest ever for any euro zone debt sale.

Tuesday’s sale is the first stage of the EU’s plan to become one of Europe’s biggest borrowers in the bond market to fund its two coronavirus support programmes for member states.

Banks working on Tuesday’s debt sale included BNP Paribas, Deutsche Bank, Barclays, Nomura and UniCredit.

Antoine Bouvet, senior rates strategist at ING, said: “This is sending a strong signal that they can upsize their issuance without much difficulties …”

Bouvet said the sale “shows strong demand for core bonds and core duration, probably as investors shun riskier assets, and price greater likelihood of more ECB easing by year-end.”

The new debt securities offer a more attractive yield than German government bonds, which have similar credit ratings, and French government bonds, which are rated lower than the EU securities.

James Athey, investment director at Aberdeen Standard Investments, told Bloomberg TV: “It’s another grab for yield.

“You look at where it trades relative to Germany and you look at where it trades relative even to France, you would suggest this is high-quality paper with a yield pick-up against similarly-rated issuers in the region.”

Reuters reported the 10-year bond was due to price for a yield of around minus 0.25% and the 20-year at around 0.12%.

Despite the negative yield on the 10-year bond, that “return” would still be substantially higher than the yield of minus 0.62% from 10-year German bonds.