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The
European Union raised 20 billion euros ($24 billion) from a
10-year bond on Tuesday in the largest-ever single-tranche
institutional debt sale that saw near-record demand of 142
billion euros, taking a big step towards establishing itself as
a major debt issuer..
The bond rallied sharply in the secondary market in further
evidence of strong demand, with its yield - 0.086% at pricing -
down 5 basis points to around 0.04% on Wednesday.
The rally was similar to that following the EU's first issuance
last October backing the SURE unemployment scheme, a smaller
support programme.
With demand far above the deal size, much investor appetite was
left unsatisfied, bankers involved with the deal said.
"Given the particularly low (investor) allocations compared to
normal, you're going to get more follow-on demand than you would
typically see," one of the bankers said.
It attracted such large demand at issuance even though the EU
capped orders it considered from hedge funds, which, inflating
their demand to secure better allocations, have been a major
driver of large bond sale order books.
Investors were keen to buy the first issuance of what will
become a much more liquid funding programme than SURE, the
bankers said.
The European Central Bank upholding accelerated bond purchases
for the third quarter has also given investors confidence to buy
into sizable debt sales.
In the broader market, bond yields dipped as the focus was on
the conclusion of the U.S. Federal Reserve meeting.
Germany's 10-year yield, the euro area benchmark, was down one
basis point to -0.24%, along with most other 10-year yields.
Fed officials are expected to at least flag the pending start of
talks on tapering its bond purchases, while attention will also
be on new interest rate and economic projections to show how
much policymakers' views have changed since March.
In recent weeks, bond yields, which have fallen on both sides of
the Atlantic - closely correlated - have shrugged off a spike in
U.S. inflation.
"U.S. yields will probably be the main driver of direction of
European yields over the coming three months and I think the Fed
rhetoric on tapering and where their inflation targets are will
be of interest," said Nick Sanders, portfolio manager at
AllianceBernstein.
In the primary market, Germany raised 4.085 billion euros from
the auction of a new 10-year bond.
($1 = 0.8252 euros)
(Reporting by Yoruk BahceliEditing by Barbara Lewis and Mark
Potter)
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