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EU should consider regular bond calendar

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By Jon Hay
02 Dec 2020

The newest recruit to the ranks of large supranational issuers is also the bulkiest. Responding to Covid-19, the EU has created the €100bn SURE fund, active already, and a €750bn Next Gen EU programme, coming next year. Both are bond-financed, requiring a huge increase in the EU’s until now modest issuance, especially in the next two or three years.

The sheer scale of this funding has meant all public sector borrowers — and even covered bond issuers — must plan their deals around when they think the EU is likely to issue, for fear of being ignored if they come too close to it, or having to deal with volatile pricing.

In January, this strain could rise, as all issuers will be eager to get on with the year’s funding. SURE has so far committed €90bn and issued €40bn. Next Gen issuance may take a while, as countries have not finished submitting funding proposals to the EU. Approvals may not come till the summer.

So far, the EU has syndicated its bonds, which allows borrowers flexibility over size, maturity and issuance date.

But as its programme grows, there is a case for the EU to consider creating a regular issuance calendar, as governments do. It will issue more than most — Spain’s requirement this year was €130bn, Germany’s €200bn. This would make it easier for investors and other issuers to plan.

It would not be easy, since Next Gen’s funding timetable is not clear yet. But Europe holds plentiful relevant expertise.

Cementing EU bonds with a solid issuance calendar would be the next step to making them the eurozone’s foundational safe asset. That could win the idea supporters — and enemies.

By Jon Hay
02 Dec 2020