EU social bonds demand hits 233bn euros

The EU first social bond issues have seen an order book for two tranches with maturities of ten and twenty years exceeding 233 billion euros.

A report by Christian Kopf, Head of Fixed-Income Fund Management at Union Investment, says that today’s financing exercise also marks the arrival of a new, large-scale issuer with a top-notch rating in the European government bond market, which is a milestone in the history of capital markets. He expects the European Commission to become a major player on the capital market in the years to come, with an aggregate issuance volume of up to 850 billion euros by 2026.

He comments, “The new issues have a Triple-A rating from all major rating agencies and will likely offer a yield pick-up over securities issued by the European Stability Mechanism or the European Investment Bank, as well as a higher yield than government bonds issued by the EU member states with comparable ratings. Funds raised via EU social bonds are strictly earmarked for their stated purposes. Investors’ money will flow into specific projects, under the supervision of the European Commission. The EU’s social bonds are therefore an important addition to the market for sustainable bonds, which is has so far been dominated by green bonds.”

“This is the first time the European Union has accessed the capital market since agreement on the Next Generation EU recovery effort was reached at the EU crisis summit in July. Issuance proceeds will be lent on to member states of the European Union to fund their efforts in overcoming the Coronavirus crisis. Today’s bond issues will be used for the EU’s SURE programme, which aims to safeguard jobs and prevent unemployment in EU member states”.