The European Commission on Tuesday attracted record orders of more than 233 billion euros from more than 500 investors for the inaugural bonds issued under SURE, the EU’s program to safeguard jobs during the crisis. coronaviruses. IPE contacted European pension investors to find out more about their involvement – or not – in the historic transaction.
A natural place to start was the Netherlands and its top pension investors, with PGGM and APG revealing substantial purchases.
PGGM bought 212 million euros worth of SURE bonds on behalf of its client PFZW, the 233 billion euro healthcare scheme, while its counterpart APG got its hands on 170 million euros in bonds, of which 145.5 million euros were purchased for its main client ABP, the largest pension fund in the Netherlands.
Cardano participated in the transaction on behalf of seven smaller Dutch pension funds. It subscribed more than €100 million and was allocated €35 million by the banks in charge of the operation.
“The interest rate on the bonds was higher than the current yield on French government bonds, even though they have a higher credit rating of AAA compared to AA for French bonds,” noted Marco Teunissen, portfolio manager at the fiduciary manager.
However, in France, the compulsory supplementary pension fund for civil servants, ERAFP, was not involved in the operation because the return was too low for its regulatory constraints.
Transmitter : European Union, with the European Commission executing the agreement on its behalf
What: €17 billion dual-tranche social bond, the largest ever euro-denominated bond from a supranational issuer
- €10bn 0% due October 2030, valued 3 basis points above mid-swaps, i.e. 36.7 basis points above the conventional Bund 0.00% due August 15, 2030 and 9.2 basis points above the 0.00% OAT due November 25, 2030
- €7bn 0.1% due October 2040, 14bps above mid-swaps, i.e. 52.1bps above the Bund 4.75% due 4 July 2040 and 3.2bps above OAT 0, 25% due May 25, 2040
Orders: More than 233 billion euros, “the largest ever raised in the history of sovereign, supranational and agency debt capital markets”. €145 billion in orders for the 10-year tranche and more than €88 billion for the 20-year tranche. 578 investors took part in the 10-year tranche, 514 in the 20-year tranche
Ratings: Triple-A from DBRS, Fitch, Moody’s, S&P and SCOPE, “with the full support of all EU Member States”
Co-leaders: Barclays, BNP Paribas, Deutsche Bank, Nomura and UniCredit
Source: EC/Joint Lead Partners
Back in the Netherlands, the mandates of Cardano’s other nine pension fund clients do not allow investing in supranational bonds such as the SURE issue, and some other Dutch pension funds have decided not to participate in the sale of SURE bonds.
Both SME and PMT metallurgical regimes said they “see no reason to reposition our bond portfolio at this time.” However, an SME spokesperson added that the fund expected to participate in future EU bond sales “as the EU will become one of the largest AAA-rated issuers”.
Cardano’s Teunissen said the spread on future SURE bonds would likely be lower than yesterday: “The first issue had to be successful because it was the first, so it had to be offered at an attractive price. And the market will become more liquid once new SURE bonds are issued, so the liquidity premium will also be lower in the future.
In Denmark, Sampension, a DKK 293 billion (€39 billion) labor market pension group, saw reason to place orders for SURE bonds, Lars Peter Lilleøre, its head of fixed income, calling the deal “historic.”
He said Sampension tended to view issues of “E-names” – the European Financial Stabilization Mechanism, the European Investment Bank and others – in relation to swap markets and European government bonds, especially OATs.
“Given the expected magnitude of EU issuance this year and next, we expect a fairly full curve and decent deep liquidity across the board,” he added, while noting that the stated expected maturity of the SURE program – 15 years on average – may prohibit a full curve in the sense that the two-year and five-year points may not be used to a very large extent.
“We’ll see,” he said.
Earlier this month, the European Commission announced that it would issue EU SURE bonds as social bonds, and therefore adopted an independently assessed social bond framework, which aims to give investors the assurance that the funds raised will serve a social purpose.
For at least some pension funds, the social aspect has only added to the appeal.
Sandor Steverink, head of treasury at APG Asset Management, said the investment in SURE bonds was an opportunity for APG to show its “strong commitment to supporting Europe’s sustainable recovery and the affected workers and their families. “.
“And at the same time, it offers a good risk return perspective for the end beneficiaries of our clients.”
Johannes Hahn, EU Commissioner for Budget and Administration, said: “The strong investor interest and the favorable terms on which the bond has been placed are further evidence of renewed interest in EU bonds. EU.
“The issue’s ‘social bond’ character has helped attract investors who want to help EU member states support jobs in these difficult times.”
“It’s a brand new game with potentially different benefits in my opinion”
Luc Vanbriel, CIO of the KBC Pension Fund
Not all European pension funds are created to invest directly and therefore comment on individual transactions. The KBC pension fund in Belgium, for example, invests through mutual funds, which is why CIO Luc Vanbriel said he followed the SURE bond sale but from a distance.
He commented more from a macro perspective.
“The idea is to borrow money on financial markets against the EU budget, so de facto it is a joint responsibility of all member states,” he said. “On the other side of the equation, revenue will flow based on a set of political priorities. It’s a brand new game with, in my opinion, potentially different benefits.
Vanbriel said he viewed the issuance program as “a major step forward in completing the construction of the euro zone and in developing a permanent facility to borrow money and create a curve of the risk-free euro”, another benefit being the strengthening of the public and private sectors. shock absorption capabilities.