Hype Over EU Social Bond Sale Grows After Bumper Demand at Debut

(Bloomberg) -- The European Union is likely to capitalize on the buzz created by its record-smashing debut social bond sale with another sought-after offering.

While the bloc hasn’t announced any deal yet, bankers are laying the groundwork for issues as early as next week. Jens Peter Sorensen, chief analyst at Danske Bank A/S, expects the EU will raise 13 billion euros ($15.4 billion) in five- and 30-year sales, noting that orders could be more than 10 times that. Commerzbank AG is holding out for a 30-year security alongside a shorter-maturity bond.

While the product is niche -- the bonds are targeted at ESG investors and others specializing in sustainable debt -- demand promises to be strong if the first sale was any guide. The EU’s two-part social bond last month was nearly 14 times subscribed, with more than 233 billion euros of orders. The EU plans to raise 30 billion euros through the securities this year alone.

The apparent overhang from the sales in October “should keep the EU underpinned for now and bodes well for the upcoming transactions,” Rainer Guntermann, a rates strategist at Commerzbank AG, wrote in a note to clients.

Still, pricing has tightened since then, erasing a discount of more than 10 basis points against equivalent 10-year swaps.

“The cheap levels might have been an important factor driving demand,” said Saumesh Dutta, a rates strategist at Citigroup Inc., who favors buying the EU’s 10-year social bond and selling its Belgian counterpart, given the additional yield and higher rating. “The next supply, possibly next week, might be a test of demand,” he said.

Italy, ECB Forum

Over in Italy, the finance ministry will hold its second-ever sale of bonds linked to economic growth to retail investors. According Commerzbank AG, the offering is expected to raise 6 billion euros, a similar amount to the offering in July, which garnered orders of 6.1 billion euros, around half bank estimates.

Investors will also be looking to the European Central Bank’s online forum next week for clues on monetary policy. President Christine Lagarde is headlining an event that includes a panel discussion with BOE governor Andrew Bailey and Federal Reserve Chairman Jerome Powell on Thursday.

Debt Sales

Bond auctions from Germany, Italy and Ireland are expected to total over 14 billion euros, according to Commerzbank AG. Those include Italy’s retail bond offering.

• There are no redemptions until France pays 20 billion euros on Nov. 25, while Italy is due to pay small coupons next week
• The U.K. holds two regular gilt auctions including a new 10-year security, and sells one inflation-linked note, seeking to raise a total of just over 5 billion pounds. The Bank of England will buy back 4.4 billion pounds of debt in three operations
• Investors will be looking at German ZEW investor confidence figures for November on Tuesday for clues on sentiment in the region’s largest economy
  • A busy week of U.K. data lies ahead, including preliminary 3Q growth numbers on Thursday which will be of interest to investors seeking confirmation of the struggling economy after the BOE increased its bond buying program last week
• Fitch Ratings reviews France and Austria; Moody’s Investors Service also reviews Austria, while S&P Global Ratings reviews the Netherlands on Friday

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