Stockholm (NordSIP) – After much wrangling and late-night negotiations, the EU reached a deal on providing COVID-19 related economic relief across the union at the end of 2020 via the Support to mitigate Unemployment Risk in an Emergency (SURE) programme. On January 27th the European Commission issued a €14 billion dual-tranche social bond split between seven and thirty-year lines. Conducted under the auspices of the SURE programme, the transaction was the first of its kind in 2021.
The dual-tranche SURE bond was the first such transaction of 2021 and the fourth such transaction since the format was launched at the end of October. The bonds are recognised under the Social Bond Label. Proceeds from this transaction will fund loans to EU member states to help them cover the financing gaps of national short-time work schemes and similar measures deployed to respond to the pandemic.
The Commission borrowed €10 billion through a new line due in June 2028, which was priced at a negative yield of -0.497%, at 16 basis points (bps) below mid-swaps, which is equivalent to 20bps over the 0.5% Bund due 15-Feb-2028 and 1bp below the 0.75% OAT due 25-May-2028. Bank treasuries, fund managers and central banks/official institutions purchased over 90% of the securities. Geographically, UK-domiciled investors purchased over a third of all securities, followed by Germans (14%), Italians (9%), Benelux (8.a8%) and France (8.4%).
The EC issued the remaining €4 billion through a tap of the outstanding November 2050 line launched on November 10th. The 30-year bond was priced on the slightly positive territory, at 0.134% 5 basis points over mid-swaps, equivalent to 25.2 basis points over the 0.000% Bund due 15-Aug-2050 and 23.1 basis points below the 1.500% OAT due 25-May-2050. Fund managers (46.2%) and bank treasuries (30%) were once again dominant. Insurance and pension funds purchased all of 11% of the bonds. German (33.4%) and UK-domiciled (16.4%) investors dominated this transaction too. Barclays, Commerzbank, Deutsche Bank, Goldman Sachs and LBBW acted as bookrunners for both tranches.
“Today’s issuance of SURE bonds is the continuation of a remarkable success story,” says Commissioner Johannes Hahn (Pictured) in charge of Budget and Human Resources. “This issuance has shown again the market’s great interest in EU bonds. This is great news for the EU as an issuer. It gives us confidence that we will successfully complete the SURE issuance and launch the NextGenerationEU borrowing and lending programme.”
The Council has approved a total of €90.3 billion in financial support to 18 Member States under SURE. Later this year, the Commission is due to also start conducting bond issuance under NextGenerationEU, a recovery instrument worth €750 billion (in 2018 prices) to help build a greener, more digital and more resilient Europe.
Image courtesy of the European Commission