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Opinion

EU takes advantage of perfect market conditions to set order book record

It was vital that the first deal in a €850 billion programme went well, but tougher tests lie ahead.

Peter Lee capital markets 1920px.jpg

Few deals in the history of the debt capital markets have been as keenly awaited as this week’s €17 billion debut offering by the EU to fund the support to mitigate unemployment risk in an emergency (Sure) programme.

Split into €10 billion 10-year and €7 billion 20-year tranches, the deal attracted the largest order book in the history of the capital markets at €233 billion.

Investors had been setting aside cash to invest in it for weeks. Other supranational borrowers had been keen to get out of its way, hurrying through transactions to complete their 2020 funding ahead of this deal.

Markets had cheapened in anticipation of the new supply, by anywhere from 10 basis points to 15bp. The EU had the stage to itself. And it performed.

Don’t fall into the trap of thinking pricing was too generous

Investing in this transaction was almost a political act, an endorsement of the European project and a signal of support for a new form of joint European bond issuance.

The Sure programme is large at €100 billion and this is the biggest supranational bond deal ever, but it is just a taster for the €750 billion of EU issuance to come to finance EU recovery, for a combined €850 billion, most of which will hit the market between 2021 and 2024.

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