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EU Commissioner confirms plans to boost social bond market threefold

Investors call Europe’s debut issuance a “milestone” for capital markets

The EU will triple the volume of social bonds on a global scale, said Johannes Hahn, EU Commissioner for Budget and Administration, in a press conference this morning as he celebrated the record-breaking success of the EU’s first social bond issue.

Union Investment, one of Europe’s largest sovereign bond investors, described yesterday’s deal as a “milestone in the history of capital markets”.

The European Commission’s inaugural €17bn social bond was 13-times oversubscribed, with the orderbook hitting €233bn. “It is a sign of the great market interest and trust toward the Union as an issuer,” Hahn said, “and in the social bond market”.

“This deal becomes the largest social transaction ever printed and approximately 63% of the two tranches have been allocated to ESG investors….578 investors participated in the 10-year tranche and 514 investors in the 20-year tranche.” 

The EU has big plans for social bond issuance over the coming years as part of its EU Sure programme through which member states can borrow money to help protect jobs and keep people working through the COVID-19 crisis. 

Hahn said that the EU expected to issue €30bn in social bonds this year alone. In total, he said there were plans for €900bn of Eurobonds by 2026 – €800bn in green bonds and €100bn in social bonds.

“This is the highest amount ever in the history of the Union. The successful launch is a vote of confidence in the European Union as a borrower and issuer. And it will definitely strengthen the international role of the euro,” he said. 

Union Investment’s Head of Fixed Income, Christian Kopf, said the deal “marks the arrival of a new, large-scale issuer with a top-notch rating in the European government bond market, which is a milestone in the history of capital markets”. 

“We expect the European Commission to become a major player on the capital market in the years to come,” he continued. 

Kopf added that social bonds issued by the EU presented an interesting opportunity for sustainability-minded investors. “The new issues have a Triple-A rating from all major rating agencies and will likely offer a yield pick-up over securities issued by the European Stability Mechanism or the European Investment Bank, as well as a higher yield than government bonds issued by the EU member states with comparable ratings…..The EU’s social bonds are therefore an important addition to the market for sustainable bonds, which has so far been dominated by green bonds.”

Social bonds, which took off in 2015//16 have thus far been eclipsed by the longer-established green bond market, started in 2007. 

Hahn said the EU’s plan would triple the volume of social bonds on a global scale to €150bn from €50bn currently.