Sun. Jul 14th, 2024

Brussels, 9 July 2024

The European Commission has today raised €9 billion of EU-Bonds in its 7th syndicated transaction for 2024.

The dual-tranche transaction concerned a new €5 billion bond due on 5 October 2029, and a €4 billion tap of the EU-Bond maturing on 5 October 2054. The 5-year bond came at a re-offer yield of 2.952%, equivalent to a price of 99.640%, while the 30-year bond was priced 96.418%, with a re-offer yield of 3.751%. Bids received were in excess of €66 billion on the 5-year bond and in excess of €80 billion on the 30-year bond. This equals oversubscription rates of approximately 13-times and 20-times, respectively.

The proceeds of the transaction will be used to finance EU policy programmes (most notably in the context of NextGenerationEU and support to Ukraine).

Today’s bond syndication
5-year line

Due on 5 October 2029, this bond carries a coupon of 2.875% and came at a re-offer yield of 2.952%, equivalent to a price of 99.640%. The spread to mid-swap is 11 bps, which is equivalent to 43 bps over the Bund due on 15 November 2029 and 1 bps through the OAT due on 25 November 2029.

The final order book was of over €66 billion.

30-year tap

Due on 5 October 2054, this bond carries a coupon of 3.375% and came at a re-offer yield of 3.751%, equivalent to a price of 96.418%. The spread to mid-swap is 103 bps, which is equivalent to 85 bps over the Bund due on 15 August 2054 and 8 bps through the OAT due on 25 May 2054.

The final order book was of over €80 billion. The joint lead managers of this transaction were Bank of America, BNP Paribas, DZ Bank,  Morgan Stanley and Nomura.

The Commission has now issued approximately €9 billion of its €65 billion funding target for the second half of 2024. A full overview of all EU transactions executed to date is available online. A detailed overview of the EU’s planned transactions for the second half of 2024 is also available in the EU funding plan. The next transaction in the EU’s indicative issuance calendar is an EU-Bond auction on 15 July 2024.

Background

The European Commission is empowered by the EU Treaties to borrow from the international capital markets on behalf of the European Union. It is a well-established name in debt securities markets, with a track record of bond issuances over the past 40 years. All issuances executed by the European Commission are denominated exclusively in euro. EU borrowing is guaranteed by the EU budget, and contributions to the EU budget are an unconditional legal obligation of all Member States under the EU Treaties.

The Commission uses the proceeds of its bond issuances to finance select EU policy programmes. A landmark policy programme currently funded by EU borrowing is the NextGenerationEU recovery programme. The EU is also using bond issuance to finance up to €33 billion in loans to Ukraine under the Ukraine Facility between 2024 and 2027. The Ukraine Facility provides stable financial support for Ukraine’s recovery, reconstruction and reforms on its EU accession track.

In January 2023, the EU launched the unified funding approach, extending the diversified funding strategy first established for NextGenerationEU to all other policy programmes funded by EU borrowing. Following the introduction of this approach, the EU funds its different policy programmes by issuing single-branded EU-Bonds rather than separately labelled bonds for individual programmes.

With today’s transaction, the EU has now issued €375 billion in EU-Bonds under the unified funding approach. Of the proceeds raised, almost €235 billion has been disbursed to Member States under the Recovery and Resilience Facility. A further €59 billion has been allocated to other EU programmes benefitting from NextGenerationEU funding. In addition, over €8 billion has been disbursed to Ukraine under the Ukraine Facility in 2024, complementing the €18 billion disbursed to Ukraine under the Macro-financial Assistance+ policy in 2023. Because the Commission engages in short-term liquidity management operations to smooth upcoming funding needs, amounts raised will not necessarily be equal to amounts disbursed. The EU’s total debt outstanding now stands at €543 billion, of which around €20 billion in the form of EU Bills.

To finance EU policies as efficiently and effectively as possible, the Commission’s issuances are structured by semi-annual funding plans and pre-announced issuance windows. To support the secondary market liquidity of EU-Bonds, the Commission introduced a framework incentivising EU Primary Dealers to provide quotes on EU securities on electronic platforms in November 2023. In addition, the Commission will support the use of EU-Bonds in repurchase agreements by introducing a repurchase facility later in 2024.

Information on the allocation on the investors in this transaction is available in the transactions section of the EU as a borrower website. More information on EU’s issuance activities is available hereThe EU as a borrower – investor relations – European Commission (europa.eu)

Source – EU Commission

 

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