EU Hires Banks for Debut Social Bonds Under Pandemic Program

(Bloomberg) -- The European Union has mandated banks for the sale of its first social bonds, aimed at helping boost employment amid the coronavirus crisis.

It hired Barclays Plc, BNP Paribas SA, Deutsche Bank AG, Nomura and UniCredit SpA as joint lead managers of the offering, according to a person familiar with the matter. The bloc plans to issue 10- and 20-year securities as part of a 100-billion-euro ($118 billion) program to finance a regional job support program known as SURE.

“Given that this issuance has been so well flagged and discussed in markets, it will fly off the shelves,” said Piet Christiansen, chief strategist at Danske Bank A/S. “The EU needs to issue massively in coming months and years, so it makes sense to come with a strong start.”

The move aims to tap demand in the fastest-moving corner of the sustainable debt market. In addition, the bloc is due to begin selling 750 billion euros of joint debt under its pandemic recovery fund next year, 30% of which will be tied to environmentally-friendly projects.

Under the two programs, the EU is set to become a dominant player in global sustainable debt, boasting a triple-A credit rating from two of the three main agencies, and unleashing as many green bonds as the world issued last year. Investor demand for top-rated paper is likely to be strong given that German bonds have rallied to send 10-year yields plunging well below 0%.

Sales of debt for projects aimed at helping society are at least $72 billion this year, four times the total in 2019, and taking cumulative total issuance to $117 billion. For Nordea Bank Abp, the EU is selling two bonds at the same time to help build out a yield curve quickly and create a liquid market.

“A double tranche makes sense as they have quite a lot of financing to do,” said Jan von Gerich, chief strategist at Nordea Bank Abp. “It also adds to flexibility, as they can divide between the two tranches based on demand.”

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