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SURE Bonds – A Success Story for the European Fixed-Income Market

Posted: Thursday, October 29th, 2020

Estimated Reading Time: 3 minutes

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One of the main events of last week, the launch of the SURE bonds in Europe triggered huge interest from the investment community. The 10y and 20y bonds, oversubscribed by almost fourteen times, signals that joint debt issuance by the European Commission was welcomed by the financial markets.

Deemed as social bonds, the SURE bonds stand for Support to Mitigate Unemployment Risks in an Emergency. The European Commission plans to issue up to EUR100 billion as SURE bonds, with this first tranche reaching EUR17 billion.

More precisely, the commission issued EUR10 billion in 10y SURE bonds and another EUR7 billion in 20y bonds. The market interest was so huge that 578 investors bid for the 10-year bond and 514 for the 20-year one.

SURE Bonds

Moreover, only 10% of the newly issued bonds were placed with non-European investors. The Euro area investors took 60% of the issue, while 30% went to other European countries.

Furthermore, the success story of the bond issuance shows something that economists suspected for a long time – a huge private sector savings surplus. For the first time in history, the European Commission managed to attract interest from the private sector, an interest that would have been invested abroad otherwise.

SURE Bonds Future Issuances

One may say that the European Commission tested the waters with the first round of SURE bonds. Indeed, a huge demand for Euro-denominated safe assets exists. Such demand also reflects increased confidence in the European project, much needed in times of uncertainty.

Designed to finance partial unemployment, the SURE program is nothing but an instrument to protect jobs during a crisis. A pandemic, in this case. It supports short-term work schemes, helping countries to mitigate the risk of self-employed and employees’ loss of income and unemployment.

European Fixed-Income

The first EUR17 billion raised by the SURE program were already disbursed. Italy received EUR10 billion, Spain EUR6 billion, while Poland received EUR1 billion from the recent issue. To be sure, these are not grants, but loans granted in favorable terms.

Social Bonds That Made History

Joint debt issuance by Europe has long been viewed as the next step in European integration. Now that a precedent exists, it is exceedingly difficult to reverse to the previous stance.

The strong signal sent by the investment community shows the trust in the European project. Moreover, it hints at the immense privileges of having a reserve currency.

Euro is the de-facto second reserve currency after the U.S. dollar. In the coming months, the European leaders plan a discussion on the international role of the Euro.

If Europe gains a taste of the exorbitant privilege of owning the reserve currency, expect a growing role for the Euro in the international financial markets.

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