This article is brought to you in association with the European Commission.
The European Commission has today raised €8 billion of EU-Bonds in its 4th syndicated transaction for 2024.
The dual-tranche transaction concerned a new €4 billion bond due on 6 December 2027, and a €4 billion tap of the EU 4% maturing on 4 April 2044. The new long 3-year bond came at a re-offer yield of 2.951%, equivalent to a price of 99.754%, while the 20-year tap was priced 108.323%, with a re-offer yield of 3.417%. Bids received amounted to €43 billion on the 3-year bond and €71 billion on the 20-year bond. This equals oversubscription rates of approximately 11-times and 18-times, respectively.
The proceeds of the transaction will be used to finance EU policy programmes.
| Today’s bond syndication3-year lineDue on 6 December 2027, this bond carries a coupon of 2.875% and came at a re-offer yield of 2.951%, equivalent to a price of 99.754%. The spread to mid-swap is -6 bps, which is equivalent to 34 bps over the Bund due on 15 October 2027 and 5 bps over the OAT due on 24 September 2027.The final order book was of over €43 billion.20-year tapThe increase of the EU 4% due on 4 April 2044 came at a re-offer yield of 3.417%, equivalent to a price of 108.323%. The spread to mid-swap is +66 bps, which is equivalent to 73 bps over the Bund due on 4 July 2044 and 5 bps over the OAT due on 25 May 2043.The final order book was of over €71 billion.The joint lead managers of this transaction were BNP Paribas, Bank of America, Citibank, Landesbank Baden-Württemberg, and Natixis. |
The Commission has now issued approximately €48 billion of its €75 billion funding target for the first half of 2024. A full overview of all EU transactions executed to date is available online. A detailed overview of the EU’s planned transactions for the first half of 2024 is also available in the EU funding plan. The next transaction in the EU’s indicative issuance calendar is an EU-Bond auction on 29 April 2024.
Background
The European Commission is empowered by the EU Treaties to borrow from the international capital markets on behalf of the European Union. It is a well-established name in debt securities markets, with a track record of bond issuances over the past 40 years. All issuances executed by the European Commission are denominated exclusively in euro. EU borrowing is guaranteed by the EU budget, and contributions to the EU budget are an unconditional legal obligation of all Member States under the EU Treaties.
The European Commission uses the proceeds of its bond issuances to finance select EU policy programmes. A landmark policy programme currently funded by EU borrowing is the NextGenerationEU recovery programme. The EU is also using bond issuance to finance up to €33 billion in loans to Ukraine under the Ukraine Facility between 2024 and 2027. The Ukraine Facility provides stable financial support for Ukraine’s recovery, reconstruction and reforms on its EU accession track.
In January 2023, the EU launched the unified funding approach, extending the diversified funding strategy first established for NextGenerationEU to all other policy programmes funded by EU borrowing. Following the introduction of this approach, the EU funds its different policy programmes by issuing single-branded EU-Bonds rather than separately labelled bonds for individual programmes.
With today’s transaction, the EU has now issued over €333 billion in EU-Bonds under the unified funding approach. Of the proceeds raised, almost €228 billion has been disbursed to Member States under the Recovery and Resilience Facility. A further €54 billion has been allocated to other EU programmes benefitting from NextGenerationEU funding. In addition, over €4 billion has been disbursed to Ukraine under Ukraine Facility in 2024, complementing the €18 billion disbursed to Ukraine under the Macro-financial Assistance+ policy in 2023. Because the Commission engages in short-term liquidity management operations to smooth upcoming funding needs, amounts raised will not necessarily be equal to amounts disbursed. The EU’s total debt outstanding now stands at approximately €509 billion.
To finance EU policies as efficiently and effectively as possible, the Commission’s issuances are structured by semi-annual funding plans and pre-announced issuance windows. To support the secondary market liquidity of EU-Bonds, the Commission introduced a framework incentivising EU Primary Dealers to provide quotes on EU securities on electronic platforms in November 2023. In addition, the Commission will support the use of EU-Bonds in repurchase agreements by introducing a repurchase facility later in 2024.
Information on the allocation on the investors in this transaction is available in the transactions section of the EU as a borrower website. More information on EU’s issuance activities is available here: The EU as a borrower – investor relations – European Commission (europa.eu)
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