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EU completes bulk of SURE funding with 14 billion euro bond sale

By Reuters

<p><body> <p>By Yoruk Bahceli</p> <p>(Reuters) -The European Union launched bonds on Tuesday that will complete the bulk of funding for its <span class="caps">SURE</span> unemployment scheme against a tough market backdrop that saw government bond yields hit multi-month highs a day earlier. </p> <p>The EU will raise 14.137 billion euros from new eight and 25-year social bonds on Tuesday on the back of nearly 89 billion euros of demand, according to a lead manager memo seen by Reuters. </p> <p>With less than 5 billion euros of planned issuance remaining to total 94.3 billion euros, the bonds will complete the vast majority of its funding for the <span class="caps">SURE</span> scheme and pave the way for the EU to begin issuance to fund its up to 800 billion euro recovery fund expected to start in the summer. </p> <p>That will mark much more meaningful EU debt issuance that investors hope will create a euro zone safe asset.</p> <p>Antoine Bouvet, senior rates strategist at <span class="caps">ING</span>, said the key takeaway from <span class="caps">SURE</span> going into the recovery fund issuance was that “demand for the name EU is strong, and proportional to the amount of debt they have to sell”.</p> <p>“There was a hype factor that has somewhat faded but this is understandable. Remember that (the recovery fund) will also carry out auctions so, more and more, EU issuance will resemble that of a sovereign treasury with an undramatic issuance process.”</p> <p>The sale follows a big sell-off in euro area government bonds on Monday driven by speculation that the <span class="caps">ECB</span> may slow its pandemic emergency bond buying and concerns over Italy’s economic reform path.</p> <p>That drove Italy’s bond yields to their highest in more than eight months on Monday, while “semi-core” bonds including from France, as well as supranational issuers such as the EU, underperformed benchmark German ones. Bond yields move inversely with prices. </p> <p>Euro zone bond markets were calmer on Tuesday, with Germany’s 10-year yield, the benchmark for the region, unchanged at -0.12% by 1312 <span class="caps">GMT</span>.</p> <p>Italian 10-year yields were down 2 basis points to 1.09%. </p> <p>Demand for the EU bonds was similar to the last <span class="caps">SURE</span> issuance in March, despite the rise in euro area bond yields since.</p> <p>The eight-year bond will price for a yield of around 0.01% and the 25-year around 0.74%, according to Reuters calculations based on the memo. But the EU is having to pay a higher new issue premium on top of its existing bonds compared with what it has usually paid since <span class="caps">SURE</span> issuance started in October, according to Commerzbank strategist Michael Leister. </p> <p>Elsewhere, Finland hired a syndicate of banks for a 3 billion euro, 10-year bond sale, according to two lead managers.</p> <p>Germany’s top court rejected a complaint against the European Central Bank’s conventional public sector bond purchases.</p> <p> (Reporting by Yoruk Bahceli; editing by John Stonestreet and Angus MacSwan and Kirsten Donovan)</p> </body></p>