Hype over EU social bond sale grows after bumper demand at debut

London

THE European Union is likely to capitalise 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 this week. Jens Peter Sorensen, chief analyst at Danske Bank A/S, expects the EU will raise 13 billion euros (S$20.8 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 specialising 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.

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"The cheap levels might have been an important factor driving demand," said Saumesh Dutta, a rates strategist at Citigroup Inc, who favours 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.

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. BLOOMBERG