The time has come for EU T-bills
While a bid still remains for duration, the EU could achieve much for member states through more flexible borrowing in short-dated instruments.
In mid-March, amid rising interest rates around the world, the EU brought a single-tranche €9 billion 15-year deal to the capital markets.
This was the fifth transaction under the Support to mitigate Unemployment Risk in an Emergency programme and the second EU capital markets funding operation in 2021.
The EU had been quick out of the blocks as a new joint sovereign issuer towards the end of 2020, attracting large order books for its first deals in a quiet final quarter.
Now it was coming to a primary market more crowded with other highly rated borrowers and with a deal due to mature in 2036 amid a bond market sell-off.
There were some nerves.
But the deal attracted €86 billion of orders within 90 minutes and priced at 2.6 basis points below the 2036 OAT.
Not all DCM bankers thought the EU would be able to borrow below France last October: several expected it to pay a premium. But investors have quickly embraced the single EU issuer and are buying much bigger blocks of its bonds: €100 million lots, instead of €10 million.
As important as this strong demand, EU commissioner Johannes Hahn has disclosed that the EU will indeed be offering short-term bills when it starts funding the much bigger Next Generation recovery programme in the summer.