A worker wipes a restaurant table in Toulouse, France
EU’s €100bn SURE programme will provide loans to support member states’ efforts to keep workers in jobs during the pandemic © Balint Porneczi/Bloomberg

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The EU met with huge demand for an issue of new coronavirus-related bonds on Tuesday, with bankers saying the sale had received the largest ever order book in global bond markets.

The deal forms the start of a borrowing binge that will make Brussels one of the region’s biggest debt issuers. Investors placed bids for more than €233bn, far exceeding the €17bn of bonds on offer, according to one of the banks arranging the deal. Buyers were drawn by the relatively high yields on the bonds, which came with 10-year and 20-year maturities, and offered more income for investors than the eurozone’s safest government debt.

The sale is the first under the EU’s €100bn SURE programme, which will provide loans to support member states’ efforts to keep workers in jobs during the pandemic. Brussels will ramp up its debt issuance next year as it funds the larger €750bn coronavirus recovery package agreed in July.

“This is outrageous demand, which they are going to need for the huge wave of supply on the way,” said Peter Goves, a strategist at MFS Investment Management. “This is just an appetiser for what’s coming in 2021.”

The new 10-year bond priced at a yield of minus 0.26 per cent. Despite the negative yield, that is substantially higher than the yield of minus 0.62 per cent offered by a 10-year German bond, which serves as the euro area’s benchmark safe asset. The EU bonds also offer extra yield compared with France, seen by some analysts as a potential reference for the debt.

“It was clearly priced to be attractive,” Mr Goves said. Investors were also encouraged, he added, by the expectation that the European Central Bank would buy EU debt under its asset-purchase programmes, along with Brussels’ triple A credit rating — particularly given the relative scarcity of top-rated debt in the euro area. Of the region’s big bond markets, only Germany enjoys a top rating.

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The EU’s existing bonds have underperformed other eurozone debt since the summer as investors anticipate a deluge of new issuance. Before Tuesday’s sale, Brussels had about €50bn of debt outstanding, but is expected to sell as much as €200bn next year alone.

The deal, which was handled by Barclays, BNP Paribas, Deutsche Bank, Nomura and UniCredit, had been eagerly anticipated as an early test of investors’ willingness to bankroll the extra borrowing.

Richard Burton, chief executive of UniCredit’s corporate and investment banking division, said: “This is the first time that the EU has borrowed on such a large scale and the massive demand shows that investors give it their full backing.” 


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