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EU to Lay Out $1 Trillion Debt Plan to Challenge Treasuries

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EU to Lay Out $1 Trillion Debt Plan to Challenge Treasuries

The European Union is set to lay out its blueprint to raise nearly $1 trillion of debt over five years as it seeks to fund its recovery from the coronavirus pandemic.

The bloc is aiming to issue the first debt under its NextGenerationEU stimulus in June and will use a “state of the art” platform to begin selling bonds and bills via a network of primary bank dealers by September, according to a draft of the plan seen by Bloomberg. Almost a third of the 806 billion euros ($962 billion) will be in green bonds, using a framework of rules to be published in early summer.

“The Commission will need to execute financing operations up to EUR 150-200 billion per year over the period to end 2026,” the document stated, with an announcement on it due Wednesday. “By June 2021, the Commission will be ready to begin mobilising the funds.”

The document highlights the ambition of the EU’s first meaningful entry into bond markets, which will see the total of outstanding bonds closing in on that of Spain’s this decade. It also lays the foundation to challenge U.S. Treasuries in coming years as a haven asset, providing a boost to integration in the region and for its common currency.

A One-Day Rival to Treasuries Is Born in Europe’s Pandemic Bonds

Bonds will be issued and regularly sold across a range of maturities from between three and 30 years, while there will also be short-dated bills, according to the document. It highlighted the latter as a quick way to raise money, at least in the initial phase of the program.

Investors are likely to be keen. The bloc began selling social bonds tied to the funding of a jobs program last year, and those sales have broken global demand records. The EU will begin to issue debt via auction for the first time, as well as syndications via banks. The new platform will be provided by a national central bank that is already used by one of the “large sovereign issuers,” according to the document.

The NGEU package includes grants and loans to member states. The loans will have 30-year maturities, with a grace period of 10 years as nations emerge from the crisis.

 

John Ainger, Alberto Nardelli

Πηγή: bloomberg.com

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