The European Commission, which issues EU-Bonds on behalf of the EU, has today successfully completed its 7th syndicated transaction since the beginning of the year, raising a total of €7 billion. Of the total amount, €3 billion were raised as a tap of the 7-year bond due on 4 December 2029 and €4 billion, as a tap of the 20-year bond due on 4 November 2042.
The transaction was yet another confirmation of the investor interest towards EU bonds, with combined orderbooks at almost €76 billion across the two tranches: €31.2 billion for the first tranche and €44.7 billion for the second tranche. This equals oversubscription rates of over 10 and 11 times, respectively.
The proceeds of this transaction will be used for the NextGenerationEU recovery programme and the Macro-Financial Assistance+ programme for Ukraine, in line with the Commission’s approach of issuing single branded “EU-Bonds” rather than separately labelled bonds for individual programmes. The use of single-branded EU-bonds is one of the European Commission’s steps to boost secondary market liquidity of its securities, and a survey to market participants to help identify further ways to increase liquidity and boost the attractiveness of EU bonds will be launched tomorrow.
With today’s transaction, the Commission has completed 88% of its €80 billion funding target for the first half of 2023. EU-Bonds auctions are planned for 12 and 26 June 2023. A full overview of all transactions executed to date is available online.
A detailed overview of the EU’s planned transactions for the first half of 2023 is available in the EU funding plan, with the funding plan for the second half of 2023 due to be announced later this month.
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. EU borrowing is guaranteed by the EU budget, with contributions to the EU budget being an unconditional legal obligation of all Member States under the Treaties.
Since January 2023, the European Commission is issuing single branded EU-Bonds rather than separately labelled bonds for individual programmes. The proceeds are then allocated to relevant programmes according to the procedures set out in the applicable agreements.
On the basis of EU-Bonds raised since mid-2021, the Commission has so far disbursed €153.36 billion in grants and loans to the EU Member States under the Recovery and Resilience Facility, on top of further support to other EU programmes benefitting from NextGenerationEU funding.
The Commission has also disbursed €7.5 billion to Ukraine under the Macro-Financial Assistance + programme, with further disbursements of €1.5 billion scheduled for June 2023. This programme – of €18 billion for the full 2023 – 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.
Under the Macro-Financial Assistance (MFA) programme, the EU provides medium/long-term loans or grants, or a combination of these, to partner countries experiencing a balance of payments crisis. MFA beneficiaries include Albania, Bosnia-Herzegovina, Georgia, Jordan, Kosovo, Moldova, Montenegro, North Macedonia, Tunisia, Ukraine.
To further boost secondary market liquidity of EU-Bonds, the Commission is preparing a framework for providing investors with pricing quotes on electronic platforms for EU securities, and is starting to build a facility to support the use of EU bonds as an instrument for repurchase agreements, to be implemented by early 2024.
| Today’s bond syndication
7-year tap Due on 4 December 2029, this bond carries a coupon of 1.625% and came at a re-offer yield of 2.939% equivalent to a price of 92.346%. The spread to mid-swap is -3 bps, which is equivalent to +63.5 bps over the Bund due in November 2029 and +27.6 bps over the OAT due in November 2029. The final order book was of over €31.2 billion. 20-year tap Due on 4 November 2042, this bond carries a coupon of 3.375% and came at a re-offer yield of 3.424% equivalent to a price of 99.298%. The spread to mid-swap is +52 bps, which is equivalent to +85.7 bps over the Bund due in July 2042 and +18.6 bps over the OAT due in April 2041. The final order book was of over €44.7 billion. The joint lead managers of this transaction were Danske, Deutsche Bank, Goldman Sachs, JP Morgan and Societe Generale. |
Information about the allocation of investors is being made available in the transactions section of the EU as a borrower website.
Quotes
Two years after the start of large-scale borrowing via a sovereign-style funding strategy, today’s transaction shows the continuous strong support by our investors. We will launch an investor survey swiftly which will help us to serve our investors even better and to improve our funding strategy and market approach further.