EU Plants Flag With Social Bonds in Defining Year of Debt Sales

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The European Union, set to become one of the largest issuers of green and sustainable bonds, will sell debt for the first time in 2021 off the back of record-breaking demand last year.

The bloc will likely issue 14 billion euros ($17 billion) of seven-year and 30-year social bonds for a job support program in the coming week. That’s just a taster for investors for the main supply once it starts funding a landmark pandemic recovery program in the middle of this year.

By the time of completion, the EU will have sold around 800 billion euros of bonds -- a third of which will be green -- putting it firmly in the ranks of the world’s largest issuers. If recent euro-area deals are anything to go by, the EU’s offerings should be a success, and could even cannibalize demand for debt from member states.

France racked up record orders for a 50-year debt sale this month, while Italy’s 10-year syndication saw demand just shy of its all-time high. Last year the EU received the biggest orderbook ever, garnering 233 billion euros of bids for a two-part social bond deal in October.

“Demand is unlikely to match the numbers seen in the first issues, but should be ample,” said Jan von Gerich, chief strategist at Nordea Bank Abp. “There are plenty of other investors out there than just the European Central Bank.”

EU Plants Flag With Social Bonds in Defining Year of Debt Sales

The sale comes after the ECB on Thursday maintained the size of its 1.85-trillion-euro pandemic bond-buying program, which has boosted the price of debt across the region. That’s left investors grappling with a shortage of high-quality investment grade securities -- something the EU with its AAA rating is set to provide.

Week Ahead

Other than the EU’s debt issuance, conventional government bond sales are expected to slow next week, with Commerzbank AG estimating about 16 billion euros will come to market from Germany, Italy and the Netherlands. The U.K. will sell 2.5 billion pounds of 2035 bonds and 1.75 billion pounds of 2050 bonds on Tuesday, followed by a sale of inflation-linked bonds Wednesday.

The Federal Reserve’s first interest-rate decision of the year Wednesday marks the major event of the week, with bets building in markets that the institution could be an early mover among major central banks to begin tapering its asset-purchase program. In Europe, the focus will also be on the pace of the ECB’s purchases, with Italian politics still choppy amid continued speculation of fresh elections in the country.

  • Portugal has an election with President Marcelo Rebelo de Sousa leading two surveys of voters’ intentions; volatility in the nation’s bond markets is expected to be limited
    • World Economic Forum also takes place
  • Money market traders will focus on ICE’s consultation round on discontinuing Libor closing Monday
  • Germany kicks off euro-area data with its IFO release Monday, while CPI data from Saxony and Brandenburg Thursday presage the figures for the wider euro area the following week
    • No top-tier data for the U.K. scheduled
  • Busy week for ECB speakers, with President Lagarde speaking Monday, and Panetta, Lane, Elderson, Weidmann, Centeno, Villeroy and Schnabel all making appearences
  • BOE Governor Bailey speaks at World Economic Forum 5pm Monday

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