EU Primes the Pumps for Start of Its Top-Rated Bond Issuance

(Bloomberg) -- The European Union is about to embark on a bond-issuance program that will see it emerge as one of the largest issuers of top-rated debt by the end of next year.

The bloc will begin selling social bonds in the second half of this month to finance a 100-billion-euro ($118 billion) scheme to support employment, according to budget Commissioner Johannes Hahn. Issuance for its 750-billion-euro pandemic fund will then start by the end of the second quarter next year, with an average maturity of 15 years, he said.

“As a starter we will triple the social bond market in the world,” he told Bloomberg Television in an interview. “There is a lot of expectation.”

The economic fallout from the coronavirus has forced the EU to start raising jointly-issued debt in order to finance the recovery, particularly in the region’s highly-indebted southern countries. The bloc has a AAA rating from two of the major credit rating agencies.

European state agencies have already taken a lead in sales of debt for projects aimed at helping society, making social bonds the fastest growing part of sustainable finance with issuance at a record $72 billion this year. The EU will also turn to another rapidly-expanding market, green bonds, for a third of its pandemic fund borrowing.

As things stand, the flood of bonds is still likely to be snapped up by investors, who have been confronted with a scarcity of safe German debt in recent years. The European Central Bank too has bought up much of the euro area’s sovereign debt under its quantitative-easing programs.

Analysts expect the new bonds may have yields similar to those of France, where 10-year securities currently yield around -0.27%. Those on German bonds are around -0.5%.

EU officials had a call last week “with more than 550 interested investors,” Hahn said.

©2020 Bloomberg L.P.