Tuesday 20 October 2020 2:43 pm

EU sees record demand for social bonds as it ramps up borrowing

The European Union received a record level of demand for bonds it is selling to support its recovery from coronavirus, in a positive sign for the bloc as it plans to massively ramp up issuance.

The EU attracted bids of more than €233bn (£213bn) for the €17bn it sought to raise to fund its Sure unemployment scheme, according to reports.

It comes as the bloc aims to increase its debt pile by 15 times its current level to fund the huge economic support schemes agreed by EU leaders.

Today’s sale was a very strong first step for the EU, analysts said. Investors were drawn to the ultra-safe AAA credit rating as well as the fact that the securities are classed as “social bonds” – assets that raise money to promote positive social outcomes.

The €10bn of 10-year bonds on offer in today’s sale attracted over €145bn of demand, a memo seen by Reuters showed.

It means the bloc has already funded more than half the €30bn it planned to sell this year to fund Sure.

The Sure scheme plans to help protect jobs across the bloc, by loaning money to EU member states. To pay for it, the EU will have to raise up to €100bn in financial markets.

However, the Sure bond issuance is just a first course for investors looking to buy EU debt. The bloc will next try to raise more than €700bn to cover its coronavirus recovery fund.

The huge jump in issuance will see the bloc go from being a tiny borrower to a massive one. It will be helped in this endeavour by the European Central Bank, which has the potential to buy up swaths of the debt in the secondary market.

Reuters said the pricing would mean the 10-year bond offers a negative yield while the 20-year will give a positive yield. That would mean the longer-dated bond yields well over German 20-year debt.