EU draws record demand of 233 bln euros for first SURE bond sale -lead managers

Credit: REUTERS/Christian Hartmann

The European Union's first sale of bonds to finance its SURE unemployment scheme drew record demand of over 233 billion euros ($176.7 billion), lead managers said, kicking off EU fundraising plans that will in time make it one of Europe's biggest borrowers.

By Yoruk Bahceli

AMSTERDAM, Oct 20 (Reuters) - The European Union's first sale of bonds to finance its SURE unemployment scheme drew record demand of over 233 billion euros ($176.7 billion), lead managers said, kicking off EU fundraising plans that will in time make it one of Europe's biggest borrowers.

The EU will raise 17 billion euros from 10 and 20-year "social" bonds, a type of sustainable debt.

The shorter bond, which will raise 10 billion euros, attracted over 145 billion euros of final demand on its own, lead managers said, the highest level ever seen for a euro zone bond sale.

Tuesday's sale is the first stage of the EU's plan to increase its debt pile 15-fold in less than a decade to fund its two coronavirus support programmes for member states, which brings it closer to debt mutualisation than ever before.

"That is absolutely spectacular," Matthew Cairns, senior SSA strategist at Rabobank, said of the level of demand.

"It shows the market and it shows the EU that there is going to be demand for these bonds."

The bonds are attractive to investors as they offer a yield pick-up over safe-haven German bonds with very similar credit ratings, while offering similar yields to France, which is rated lower, analysts say.

The EU is rated Triple A - the top credit rating - by two of the three main ratings agencies.

The European Central Bank, which currently underbuys bonds from supranational institutions relative to its rules, should be able to hoover up a good deal of the debt in the secondary market, another reason for the scale of demand, analysts said.

Investors are watching the pricing closely to see how much it might cost the EU to ramp up its borrowing at such speed.

The 10-year bond will price at 3 basis points over the mid-swap level and the 20-year at 14 basis points over, according to lead managers, offering a negative yield on the shorter bond and a positive yield on the longer, according to Reuters calculations.

The 20-year bond, which will raise 7 billion euros, received over 88 billion euros of demand, lead managers said.

The bonds, which Barclays, BNP Paribas, Deutsche Bank, Nomura and UniCredit are selling directly to investors via syndication, will price later on Tuesday.

Around 30 billion euros of the up to 100 billion euro SURE scheme will be funded this year, with the rest due next year.

The EU will start financing its larger programme, an 800 billion euro recovery fund next year, although it has yet to be ratified by member states which are divided over tying disbursements to a rule of law scheme.

($1 = 0.8488 euros)

(Reporting by Yoruk Bahceli; Editing by Susan Fenton)

((Yoruk.Bahceli@thomsonreuters.com; +44 20 7542 7571; Reuters Messaging: yoruk.bahceli@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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