EU’s Debut Bond to Raise 20 Billion Euros to Fund Covid Recovery

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The European Union’s debut bonds are set to raise 20 billion euros ($24 billion) to fund the region’s recovery, with a near-record orderbook showing investors are clamoring for the highly-rated securities.

The size of the 10-year bond sale was double that expected by Danske Bank A/S and ABN Amro Bank NV, as the bloc kicks off a program of issuance that could top 80 billion euros this year. The debut pulled in over 142 billion euros of orders, just short of a record set last year for a similar-dated EU social bond.

“It is just flying,” said Jens Peter Sorensen, chief analyst at Danske Bank. “They have done the safe choice of doing a 10-year bond and giving a decent new issue premium.”

The sale is one of the most highly-anticipated in recent times, given the huge amount of debt that the EU plans to issue over the next few years. Before the pandemic, pooling European debt would have been a near-impossible feat and faced stiff resistance from the region’s richer countries.

Ten-year EU social bond yields have climbed but remain below 0%

The bloc’s social-bond program in the past year proved a big hit with investors, though demand slowed for later sales. The prospect of the NextGenerationEU program has itself been a boon for borrowing costs across the region, narrowing the premium faced by riskier debt issuers like Greece and Italy.

Two more sales are set to come by the end of July, and the first green bonds may start as early as autumn. The EU also plans to issue bonds via auction, as well as sell short-dated bills as part of its plans to become a fully-fledged debt issuer.

A Rival to Treasuries? EU Bond Binge Raises Prospect: QuickTake

Europe is emerging from the pandemic as the speed of vaccine distribution ramps up. That’s seen bets mount for a rapid economic recovery this year, but also inflation, a scourge for bond investors. The European Central Bank is expected to announce a winding down of its pandemic purchase program in September, having held off from making the decision last week.

“International investors are very happy with these bonds coming out of Europe,” Klaus Regling, managing director at the European Stability Mechanism told Bloomberg TV. “People are happy with how Europe has reacted to the crisis and how the euro area is developing.”

The banks highlighted the relative cheapness of the bond when the EU opened orderbooks on Monday, which is often used as a way for issuers to entice investors into buying up a new security. The pricing was set at two basis points below midswaps, a tightening from the initial price thoughts Monday.

Europe

Eight issuers have brought eight tranches to market so far today, giving a minimum volume of 23 billion euros including the EU sale.

  • In sovereigns, Germany sold 4.068 billion euros of bonds due Jun 16, 2023 in an auction, with order books covered 1.19 times
  • Public sector issuer AfDB is also marketing a GBP benchmark 5Y, while a flurry of financials -- including Canadian Imperial Bank of Commerce and La Banque Postale -- are readying fresh deals
  • Elsewhere, Deutsche Bank is set to rake in $1 billion on trader Mark Spehn’s shipping bet

    • The distressed-debt trader wagered under $100 million on bonds and bank loans of Zim Integrated Shipping Services that were trading at a heavy discount; those investments have now surged and could effectively hand Deutsche Bank a win that would be equal to about a quarter of its 2020 investment banking profit
    • Read more: Deutsche Bank Set to Reap $1 Billion on Trader’s Freight Bet (1)

Asia

Two Australian banks and a Chinese real estate firm kept activity in Asia’s primary dollar bond market ticking ahead of this week’s Fed meeting.

  • Macquarie Group starts building books for its three-part bond Tuesday, while ANZ Banking Group’s unit in New Zealand looks to price a dollar offering. High-yield property issuer China Aoyuan Group also starts marketing its note
  • Separately, Chinese high-yield dollar bonds fell Tuesday, led by property developers

U.S.

Apollo Global Management’s real estate debt arm is slated to price a $400 million note sale on Tuesday, while three other issuers are on deck to wrap up offerings later this week.

  • Madison IAQ continues to roadshow its acquisition-backing deal through Wednesday, API Group is set to sell its debut high-yield bond that same day and Icon is expected to price its M&A-supporting transaction on Thursday
  • Five borrowers stepped into the primary market Monday to capitalize on issuance conditions that remain especially conducive for debt refinancing

— With assistance by James Hirai, Alexander Weber, Carolynn Look, and Adeola Eribake

( Adds order size, global primary market news.)