Brussels, 14 February 2023
The European Commission has today issued €7 billion of EU-Bonds in its second syndicated transaction for 2023. The transaction consisted of two tranches, a €3 billion tap of the EU’s 7-year bond due on 4 December 2029 and a €4 billion tap of its 20-year bond due 4 November 2042.
Investors demonstrated strong interest in the EU-Bonds, with each of the two tranches oversubscribed – 14 times for the 7-year tap and over 12 times for the 20-year tap.
Today’s syndicated transaction was the second under the unified funding approach that the Commission introduced as its main funding method as of January 2023. Under this approach, the Commission – on behalf of the EU – is issuing single branded “EU-Bonds” rather than separately labelled bonds for individual programmes.
With today’s transaction, the Commission has already raised €20 billion out of its €80 billion funding target for the first half of 2023 for supporting the NextGenerationEU recovery programme and the Macro-Financial Assistance + programme for Ukraine. This includes two bond auctions for a total of €8.2 billion executed in January as well as €5 billion in the first syndicated transaction of the year. Out of the €80 billion funding target, some €70 billion will be directed to NextGenerationEU, and around €10 billion to Ukraine.
A detailed overview of the planned transactions under the unified funding approach for the first half of 2023 is available in the EU funding plan.
Background
The European Commission is borrowing on international capital markets on behalf of the European Union and disbursing the funds to Member States and third countries under various borrowing programmes.
Its largest programme is NextGenerationEU, which seeks to support Europe’s recovery from the coronavirus pandemic with up to around €800 billion in investments in sustainability, digital solutions and resilience. To date around €144 billion has already been disbursed to EU countries under the Recovery and Resilience Facility. Further support has been provided to other EU programmes benefitting from NextGenerationEU funding.
The Macro-Financial Assistance + programme of €18 billion is providing stable and predictable support to Ukraine throughout 2023. The European Commission – on behalf of the EU – already disbursed the first €3 billion under the programme on 17 January 2023. This programme follows the disbursement of €7.2 billion by the Commission in emergency MFA loans to Ukraine in 2022. Prior to that, the EU had provided over €5 billion to Ukraine through five MFA programmes since 2014.
The unified funding approach to borrowing allows the instruments developed for NextGenerationEU to be used in the same way for other lending programmes. On that basis, EU programmes financed via borrowing can be funded in a flexible manner, relying on the proceeds of a single scheme of EU-Bills and EU-Bonds transactions. This approach is also expected to make EU securities more fungible and liquid.
To further boost the liquidity of EU-Bonds, the Commission is preparing a framework for providing investors with pricing quotes on EU securities, and is starting to build a repo facility to support market participants in trading its bonds, which will be implemented by early 2024.
| Today’s bond syndication
7-year tap The 7-year tap carries a coupon of 1.625% and came at a re-offer yield of 2.92% equivalent to a price of 92.130. The spread to mid-swap is -2 bps, which is equivalent to +54.7 bps over the 7-year Bund, 23.6bps over the 7-year OAT. The final order book was of over €42 billion. 20-year tap The 20-year tap carries a coupon of 3.375% and came at a re-offer yield of 3.260% equivalent to a price of 101.638. The spread to mid-swap is +52 bps, which is equivalent to +85.3 bps over the 20-year Bund, +15.8bps over the 20-year OAT. The final order book was of over €51 billion. The joint lead managers of this transaction were Barclays, BofA Securities Europe, Citigroup Global Markets Europe, Credit Agricole Corporate and Investment Bank and Deutsche Bank. |
Tap of a 7-year EU-Bond:
| Investor Type | |
| Bank Treasuries | 49.40% |
| Central Banks / Official Institutions | 22.50% |
| Fund Managers | 19.80% |
| Insurance and Pension Funds | 4.60% |
| Banks | 2.60% |
| Hedge Funds | 1.10% |
| TOTAL | 100% |
| Geography | |
| Italy | 11.80% |
| UK | 11.50% |
| France | 11.10% |
| Iberia | 11.00% |
| Other EU | 10.50% |
| Nordics | 9.50% |
| Germany | 9.20% |
| BENELUX | 8.50% |
| Asia-Pacific | 7.10% |
| Middle East and Africa | 6.10% |
| Other Europe non-EU | 2.60% |
| Americas | 1.10% |
| TOTAL | 100% |
Tap of a 20-year EU-Bond:
| Investor Type | |
| Bank Treasuries | 35.10% |
| Fund Managers | 34.70% |
| Central Banks / Official Institutions | 15.50% |
| Insurance and Pension Funds | 11.50% |
| Banks | 1.90% |
| Hedge Funds | 1.30% |
| TOTAL | 100% |
| Geography | |
| UK | 16.80% |
| Germany | 14.80% |
| France | 14.30% |
| Other EU | 11.60% |
| Iberia | 10.10% |
| Italy | 9.80% |
| BENELUX | 7.40% |
| Nordics | 7.10% |
| Middle East and Africa | 4.60% |
| Other Europe non-EU | 2.40% |
| Asia-Pacific | 1.10% |
| TOTAL | 100% |