EU set to tap buoyant demand for social bonds

LONDON: The European Union (EU) is gearing up for its third sale of social bonds, capitalising on huge investor interest in securities designed to finance the bloc’s economic recovery.

The 15-year debt offering is expected to launch soon, following sales earlier this year that attracted some of the largest orderbooks on record.

The EU is issuing the bonds – where proceeds go to projects that help society – as part of its €100bil (US$119bil) SURE jobs programme.

The sale will be a boost to a small but fast-growing market for social securities, and help meet demand from funds desperate to satisfy their ethical investment mandates.

According to data compiled by Bloomberg, over US$100bil of social debt was sold this year as of the end of October, compared with just US$18.5bil in 2019.

“The new issue premium on offer will likely make for another very healthy book, although the bond may not come quite as cheap as previous SURE issuance, ” said Peter McCallum, a rates strategist at Mizuho International Plc, who estimates the bond will price nine basis points below the mid swap.

Citigroup Inc, JPMorgan Chase & Co, HSBC Holdings Plc, Landesbank Baden-Wurttemberg, and Societe Generale SA have been hired to manage the sale.

Offerings through banks are more expensive than auctions, because borrowers pay a premium to ensure that the bonds are sold.

But the method has proved a popular way to sell large amounts of debt this year.

Still, interest in the securities could wane somewhat, according to Dankse Bank. “Demand will be strong, but not as much as the first transaction, ” said Jens Peter Sorensen, the bank’s chief analyst.

“The expected performance may not be as high as we saw the last two times – the 15-year is a bit odd in the European government bond market.”

European debt offices traditionally go for two-, five-, 10- and 30-year benchmarks, Sorensen said, leaving a 15-year social bond outside of the normal range. But positive net cash flow in the European government bond market should add to the social bonds’ appeal, he said. — Bloomberg

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