D.he European Union (EU) set new standards on Tuesday with its first two bonds to combat corona damage: The titles totaling 17 billion euros were in demand by investors with 233 billion euros. This oversubscription represents a record for a bond issue in the euro area. With this, the EU has set the course to become the new reference on the euro bond market alongside the German state. The high response from investors can also be seen as a positive signal for the financing of the EU reconstruction fund, which is to be endowed with 750 billion euros in the coming years to support the EU member states in combating the corona pandemic.
The titles issued on Tuesday serve for the EU short-time working allowance (Sure), which was also issued during the Corona crisis and is said to amount to 100 billion euros. The EU will therefore finance a total of 850 billion euros in the bond market in the coming years in order to overcome the corona crisis. The European Commission is responsible for the emissions. The EU has already issued bonds, but the volume of around 50 billion euros is low compared to future needs.
Designed as social bonds
On Tuesday a title with a ten-year term for 10 billion euros and a paper with a 20-year term for 7 billion euros were issued. The ten-year title was in demand with 145 billion euros, the 20-year term with 88 billion euros. Both titles are designed as social bonds that have gained in importance in the pandemic and the proceeds of which are intended to serve social purposes. For the reconstruction fund, 30 percent of the bonds are to be issued as green, sustainable securities, making the EU the leading issuer of green bonds.
The EU bonds have higher interest rates than corresponding federal bonds, the yields of which are negative in all maturities. This will also be the case for the ten-year EU bond, while the return on the 20-year bond should be just above the zero line. The EU is currently rated as a bond issuer by the rating agencies: “Aaa” from Moody’s, “AAA” from Fitch and “AA” from S&P.