EU €15bn debt sale attracts €150bn of orders

The European Commission said on Tuesday it sold a further €10 billion of bonds to support Europe’s recovery from the coronavirus crisis in a third “NextGenerationEU” bond sale since the start of the programme in mid-June.

The Commission issued a 20-year bond due on July 4, 2041, which attracted very strong interest with order books close to €100 billion.

This achieved a new record for the largest ever order book for a new 20-year bond.

“Thanks to the almost 10-fold oversubscription – a demonstration of the ongoing strong interest by investors – the Commission has obtained very favourable pricing conditions, in line with the strong performance of the NextGenerationEU programme so far,” said the Commission.

“This was a dual-tranche transaction, and the Commission raised further €5.25 billion in 10-year back-to-back loan due 22 April 2031 for its European Financial Stabilisation Mechanism (EFSM) and Macro-Financial Assistance (MFA) programmes …

“Today’s transaction … raised €5 billion which will be used to extend financial assistance provided to Portugal and Ireland in the wake of the financial and sovereign-debt crisis.

“A further €250 million has been raised to finance a loan to Jordan under the Macro Financial Assistance programme.

“By the end of 2021, the Commission expects to raise some €80 billion in bonds, to be complemented by short-term EU-Bills, as per the funding plan published in June 2021.

“The exact amount of both EU-Bonds and EU-Bills will depend on the precise funding needs, and the Commission will revise its initial assessment in the autumn.

“In this way, the Commission will be able to fund, over the second half of the year, all planned grants and loans to Member States under the Recovery and Resilience Facility, as well as cover the needs of the EU policies that receive NextGenerationEU funding.”

To finance the NextGenerationEU plan, the Commission – on behalf of the EU – will raise up to around €800 billion from the capital markets between now and end-2026.

€421.1 billion will be available mostly for grants and €385.8 billion for loans.

This will translate into Commission borrowing volumes of an average of roughly €150 billion per year.

Commissioner in charge of budget and administration, Johannes Hahn, said:”The third NextGenerationEU bond takes the total raised for NextGenerationEU to €45 billion in four weeks.

“This represents a very encouraging start to the NextGenerationEU funding programme.

“It means that the Commission is well-placed to support all planned NextGenerationEU payments to Member States over the summer, thereby supporting the economic and social recovery.”

The 20-year bond carries a coupon of 0.45% and came at a re-offer yield of 0.471% providing a spread of +7 bps to mid-swaps, which is equivalent to +53.1 bps over the 20-year Bund due in July 2040.

The 10-year bond carries a coupon of 0% and came at a re-offer yield of -0.043% providing a spread of -6 bps to mid-swaps, which is equivalent to 30.1 bps over the 10 year Bund due in February 2031.

The final order book was over €51 billion, which meant that this bond has also been nearly 10 times oversubscribed.

The joint lead managers of the transactions were Barclays, BNP Paribas, BofA Securities, Citi and Commerzbank.