Maiden 20b euro EU recovery fund bond rallies sharply

Business | 16 Jun 2021 7:56 pm

The first bond backing the EU's coronavirus  recovery fund rallied strongly a day after issuance on Wednesday, while euro area government bond yields dipped as investors awaited the U.S. Federal Reserve's policy decision, Reuters reports.

The European Union raised 20 billion euros (US$24 billion) from a 10-year bond on Tuesday in the largest-ever single-tranche institutional debt sale that saw near-record demand of 142 billion euros, taking a big step towards establishing itself as a major debt issuer..

The bond rallied sharply in the secondary market in further evidence of strong demand, with its yield - 0.086 percent at pricing - down 5 basis points to around 0.04 percent on Wednesday.

The rally was similar to that following the EU's first issuance last October backing the SURE unemployment scheme, a smaller support program.

With demand far above the deal size, much investor appetite was left unsatisfied, bankers involved with the deal said.

"Given the particularly low (investor) allocations compared to normal, you're going to get more follow-on demand than you would typically see," one of the bankers said.

It attracted such large demand at issuance even though the EU capped orders it considered from hedge funds, which, inflating their demand to secure better allocations, have been a major driver of large bond sale order books.

Investors were keen to buy the first issuance of what will become a much more liquid funding programme than SURE, the bankers said.

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