Effect of ECB Government Bond Purchases... Active European Government Bond Issuance 'Syndicated Loans at Record High'

[Image source= Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] Major foreign media reported on the 5th (local time) that European countries raised large-scale funds this year through government bond issuance.

In particular, it was confirmed that there were many cases of raising funds by issuing government bonds in the form of syndication in the first quarter of this year. A syndicated loan refers to a form in which two or more banks form a lending group (syndication) and lend funds under common conditions. It allows for negotiating with multiple banks and loan terms at once to raise large-scale funds, and the loan period is usually long.

According to financial information company Refinitiv, European and UK governments raised $150 billion this year by issuing government bonds in the form of syndication. This is the largest scale since Refinitiv began related statistics in 2000.

ING also stated that the amount of funds raised by Eurozone governments through bond issuance, including government bond auctions, reached 373 billion euros this year, a 20% increase compared to the same period last year.

It is interpreted that European countries have embarked on large-scale government bond issuance thanks to the European Central Bank (ECB) steadily purchasing Eurozone government bonds through the Pandemic Emergency Purchase Programme (PEPP).

Thanks to the ECB's steady bond purchases, supply and demand balance is maintained despite the increase in supply. According to BNP Paribas analysis, the average funding rate of Eurozone government bonds issued in syndication form fell from 0.94% in the first quarter of last year to 0.75% at the beginning of this year. Although the beginning of the year is usually the time when governments raise large-scale funds, it is analyzed that the funding movement was particularly active this year due to favorable funding conditions. The ECB plans to purchase 1.85 trillion euros worth of Eurozone government bonds through the PEPP introduced last year until March 2022.

However, as US Treasury yields rose sharply after mid-February, increasing volatility in the European bond market, there are forecasts that government bond issuance will somewhat decrease in the future.

Meanwhile, green bond issuance also increased significantly in the first quarter of this year. Italy issued green bonds worth 8.5 billion euros, the largest scale in European history. France also issued green bonds, and the UK and Spain are proceeding with green bond issuance procedures.

The European Union (EU) announced that it will raise 225 billion euros of the 750 billion euro COVID-19 recovery fund through green bond issuance, so green bond issuance is expected to increase further in the second half of the year.

This content was produced with the assistance of AI translation services.