'Absolute riot' marks huge demand for EU's first green bond sale of €12bn          

The green bonds will finance member states' environmentally beneficial projects as part of the EU's Covid-19 recovery fund

Green bonds will fund 30% of the EU's up-to €800bn Covid-19 recovery scheme, which gives grants and loans to members states until end-2026.

The EU launched its first ever green bond to record demand, taking its first step to potentially becoming the biggest issuer of environmentally-friendly debt with a record-sized deal.

The 15-year green bond, due for repayment in February 2037, which will raise €12bn, received over €135bn of demand, a lead manager said, making it the largest green bond launch and the highest level of demand for a green bond to date in the government debt market.

This exceeds the record £10bn (€11.7bn) Britain raised with a £100bn order book from a green bond sale in September.

Price guidance for the bond will price at 8 basis points below the mid-swaps level later on Tuesday, the lead manager said, equal to a yield of around 0.44%, according to Reuters calculations.

The bond, which will finance member states' environmentally beneficial projects as part of the EU's Covid-19 recovery fund, is the first step for the EU - which aims to be carbon-neutral by 2050 - towards becoming a leading force in the fast-growing green debt market.

Green bonds will fund 30% of the EU's up-to €800bn Covid-19 recovery scheme, which gives grants and loans to members states until end-2026. Up to €250bn of issuance could transform the EU into the world's biggest green bond issuer.

Such is the scale of the issuance that analysts at Bank of America Securities expect the EU will issue €35bn to €45bn in green bonds every year -- equivalent to what all European sovereign and supranational borrowers issued in 2020.

Bram Bos, lead portfolio manager for green bonds at NN Investment Partners, said the scale of issuance from the EU would increase the liquidity of the green bond market significantly.

"I think the possibility and barriers to start 'greenifying' your government (bond) portfolios is getting easier and easier with these kinds of issuances from the European Union, which in terms of size is massive," Mr Bos added.

"For the bigger government portfolios, there is now a possibility to do more and more." 

The jostle for orders was an “absolute riot,” according to Kerr Finlayson, the head of the frequent borrowers group syndicate at NatWest Markets in London. 

The EU also holds the overall debt-market record, with €145bn of orders for a social bond debut last year. The EU hired BofA Securities, Credit Agricole, Deutsche Bank, Nomura and TD Securities to lead the sale.

Reuters and Bloomberg