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The European Union on Tuesday raised 20 billion euros with the first sale of bonds backing its recovery fund which is set to turn it into a leading European debt issuer. The EU Commission has completed a quarter of about 80 billion euros of long-term bond issuance planned in 2021 to back the fund fundraising with Tuesday’s syndication, and two more syndications are expected by the end of July.

Eight banks previously excluded from syndicated debt sales backing the European Commission's up to 800-billion-euro ($950.7 billion) COVID-19 recovery fund will be allowed to take part in future issues, the EU executive said on Friday. The EU did not name the banks reinstated but a Commision source said Nomura (8604.T), UniCredit (CRDI.MI), Credit Agricole (CAGR.PA), JPMorgan (JPM.N), Citigroup (C.N), Barclays (BARC.L), Bank of America (BAC.N) and Deutsche Bank (DBKGn.DE) can take part in the next syndicated debt sale. The source said the reinstated banks were included in a request for proposals issued on Friday, a precursor to the next bond syndication for the recovery fund. The EU executive is still assessing the other two banks Natixis and NatWest (NWG.L) banned from the bond sale.

The EU will raise 14.137 billion euros ($17.25 billion) from new eight and 25-year social bonds on Tuesday on the back of nearly 89 billion euros of demand .With less than 5 billion euros of planned issuance remaining to total 94.3 billion euros, the bonds will complete the vast majority of its funding for the SURE scheme and pave the way for the EU to begin issuance to fund its up to 800 billion euro recovery fund expected to start in the summer. That will mark much more meaningful EU debt issuance that investors hope will create a euro zone safe asset.

Speculation that the ECB may slow its pandemic emergency bond buying and concerns over Italy’s economic reform path. That drove Italy’s bond yields to their highest in more than eight months on Monday, while “semi-core” bonds including from France, as well as supranational issuers such as the EU, underperformed benchmark German ones. Bond yields move inversely with prices.

Euro zone bond markets were calmer, with Germany’s 10-year yield, the benchmark for the region, up 0.5 basis points to -0.11% by 1525 GMT. While Italian 10-year yields were down 2 basis points to 1.09%. Demand for the EU bonds was similar to the last SURE issuance in March, despite the rise in euro area bond yields since.

The eight-year bond will price for a yield of around 0.01% and the 25-year around 0.74%, But the EU is having to pay a higher new issue premium on top of its existing bonds compared with what it has usually paid since SURE issuance started in October. Elsewhere, Finland hired a syndicate of banks for a 3 billion euro, 10-year bond sale. Germany’s top court on Tuesday rejected a complaint against the European Central Bank’s conventional public sector bond purchases. ($1 = 0.8193 euros).

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