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EU launches unemployment bonds into "challenging" market

Tue, 18th May 2021 08:44

* Euro zone periphery govt bond yields

By Yoruk Bahceli

May 18 (Reuters) - The European Union launched bonds on
Tuesday that could complete the bulk of funding for its SURE
unemployment scheme, against a tough market backdrop in which
government bond yields hit multi-month highs a day ago.

The EU started the sale of new eight and 25-year social
bonds on Tuesday, according to Refinitiv capital markets news
service IFR.

The bloc plans to raise 13-15 billion euros out of a total
19 billion euros remaining for the SURE unemployment scheme
during the second quarter, according to its most recent investor
presentation, and analysts expect it to try to largely complete
the funding with Tuesday's sale.

Funds raised under the SURE scheme, which is one of the EU's
coronavirus recovery programmes, are directly linked to
disbursements to member states ringfenced for combating

The sale follows a big sell-off in euro area government
bonds on Monday driven by 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 over
eight months on Monday, while "semi-core" bonds including from
France and supranationals like the EU underperformed benchmark
German ones. Bond yields move inversely with prices.

Christoph Rieger, head of rates and credit research at
Commerzbank, called the backdrop for the SURE bonds

Euro zone bond markets were calmer on Tuesday, with
Germany's 10-year yield, the benchmark for the region, up less
than one basis point at -0.11% at 0711 GMT.

Italian 10-year yields were up similarly at 1.12%, keeping
the closely watched risk premium over German bonds at 122 bps.

Also on Tuesday, Germany will raise 6 billion euros from an
auction of two-year bonds.

On the data front, first-estimate EU gross domestic product
data for the first quarter is due at 0900 GMT, with a Reuters
poll expecting no change from the previous quarter.

(Reporting by Yoruk Bahceli; editing by John Stonestreet)

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