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Opinion

NextGen EU funding moves to auctions and EU-bills

In September, the EU will issue bills through the auction system operated by the Banque de France for the French Trésor. But they will not immediately be a reference safe asset for European capital markets.

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In September, the EU will launch its first auction of short-dated EU-bills, as part of a NextGenerationEU funding programme scheduled to raise €80 billion in the second half of 2021.

It had already raised $45 billion by the end of July, through three syndicated issues of long-term bonds, including a €20 billion 10 year that was its largest single tranche deal to date, and a €10 billion 20 year that drew a record €100 billion of investor orders.

It will now alternate between syndicated new issues of long-dated bonds and auctions for tapping existing lines through a primary dealer network of 39 institutions. This counts for the first time banks from Spain, Greece, Belgium, Sweden, Finland and Austria as well as 12 subsidiaries of non-EU parented groups, including the big five US banks.

The EU’s latest presentation to investors discusses raising tens of billions in EU-bills, implying auctions of short-term debt might make up the majority of what remains to be done in the next few months. It will set dates for bill auctions in September and target maturities of under one year.

The EU has set a maximum limit of €60 billion of EU-bills, equating to 8% of its €800 billion total funding programme

The EU is now developing a sovereign funding programme and most EU sovereigns fund through auctions of three- and six-month bills as well as 12-month paper.

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