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The issuance of European Union bonds to finance NextGenerationEU (NGEU)—the common recovery programme agreed by member states during the summer of 2020—has begun. This represents a small revolution in the supranational bond market.
Before the Covid-19 crisis, the EU had been issuing bonds for decades but it was a relatively minor player in the bond market, only borrowing for small, back-to-back lending programmes. But with the debt issued for NGEU, the EU will become one of the major borrowers in Europe in the coming years—up to around €800 billion, depending on the amount of loans member states take out. It will already issue €80 billion this year and could issue up to €150 billion per year in the next five years, putting it on a par with major European sovereign issuers, such as Germany, France and Italy.
As documented in our recent paper, the first issuances since June have evinced strong interest from investors all over the world. This was to be expected, given the current high demand for safe, well-rated assets, as well as for ‘green’ bonds.
The European Commission has quickly assembled a qualified debt-management team and adopted a diversified borrowing strategy, similar to that of other major issuers, to raise money reliably and cost-effectively. This represents a significant change in the way the EU interacts with financial markets...
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