The European Commission, which issues EU-Bonds on behalf of the EU, has today issued a further €7 billion of EU-Bonds in its 10th syndicated transaction for 2023. The dual tranche transaction consisted of €4 billion in a new long 20-year bond due on 4 April 2044 and €3 billion in a tap of the EU 2.75% due on 5 October 2026.
Investors’ interest to buy the safe and liquid EU bonds in a market with increased uncertainties was strong. They placed bids close to €86 billion, making for an oversubscription rate of over 12 times.
The proceeds of this transaction will be used to support both 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.
With today’s transaction, the Commission has completed approximately €21.7 billion of its funding programme for the second half of 2023. 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 2023 is also available in the EU funding plan.
Background
The European Commission borrows on international capital markets on behalf of the European Union and disburses the funds to Member States and third countries under various borrowing programmes. 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.
Since January 2023, the European Commission has been issuing single branded EU-Bonds rather than separately labelled bonds for individual programmes. The proceeds of these single-branded bonds are 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 €174.7 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 €13.5 billion to Ukraine under the Macro-Financial Assistance + programme, with a further disbursement of €1.5 billion scheduled for later this month. This programme – which will deliver €18 billion to Ukraine over the whole of 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.
To further boost the secondary market liquidity of EU-Bonds, the Commission has introduced a framework to provide investors with pricing quotes for EU securities on electronic platforms. EU Primary Dealers will start quoting prices for EU Bonds as from November 2023. The Commission is also working on a facility to support the use of EU-Bonds as an instrument for repurchase agreements (to be implemented by mid-2024).
| Today’s bond syndication
20-year bond Due on 4 April 2044, this bond carries a coupon of 4.000% and came at a re-offer yield of 4.017% equivalent to a reoffer price of 99.785%. The spread to mid-swap is +67 bps, which is equivalent to +96.7 bps over the Bund due on 4 July 2044 and +15.6 bps over the OAT due on 25 May 2043. The final order book was over €48.7 billion. Tap of the EU 2.75% due in October 2026 The EU bond due on 5 October 2026 has been issued initially with a (long) 3 year maturity in May this year and is being tapped for the second time, with total outstanding of €9.1 billion, after today’s €3 billion tranche. Today’s tap came at a re-offer yield of 3.364% equivalent to a reoffer price of 98.292%. The spread to mid-swap is -11 bps, which is equivalent to +54.9 bps over the Bund due on 9 October 2026 and +21.4 bps over the OAT due on 24 September 2026. The final order book was over €37 billion. The joint lead managers of this transaction were Commerzbank, Deutsche Bank, Goldman Sachs, JP Morgan and Société Générale. |
Information on the allocation to different investors is available in the transactions section of the EU as a borrower website.
Quotes
In a volatile and uncertain market investors used the opportunity to invest in safe and liquid EU-bonds. Thanks to investors’ ongoing interest, the EU funding programme continues to finance policy priorities within the EU and our neighbourhood. As we continue to implement the remainder of our funding programme for 2023, we stay closely attune to the evolving market conditions and the disbursement needs of beneficiary countries.