The € 12 billion European Green Bond – the largest green bond ever to be issued – has generated a lot of interest from various European pension investors as the issue, which is part of the NextGenerationEU fund (NGEU) by 250 billion euros, was oversubscribed more than 11 times with a total demand of 135 billion euros.

APG and PGGM, the two largest pension investors in the Netherlands, have invested € 195 million and € 52 million respectively in Europe’s first-ever green bond.

Varma, one of Finland’s two largest pension insurance mutuals, was another of the investors in the inaugural EU green bond issue on Tuesday, along with ATP, Denmark’s statutory pension fund and the fourth most large pension fund in Europe.

Lars Dreier Kristensen, Head of Sustainable Bonds at ATP, said: “The NGEU Green Bond issuance is an important step in funding a more sustainable, green and resilient Europe. With up to € 250 billion in issuance in the coming years, NGEU Green Bonds provide a liquid and highly rated green alternative for bond investors.

The size of Varma and ATP’s investment was not disclosed.

Outi Nissinen, senior portfolio manager at Varma, the pension provider linked to the € 55 billion earnings, told IPE: “Yes, we participated in the EU’s first green bond syndication. Our liquid portfolio of government bonds may hold supranational issuers for, for example, diversification purposes.

Nissinen said: “Overall, in our opinion, the achievement of NGEU last year has been essential to safeguard the EU’s solidarity in a situation where the coronavirus has hit different Member States differently.”

She said the EU would be one of the largest issuers of green bonds in the world, if not the largest.

“There was strong demand for the inaugural green bond and the syndication was heavily oversubscribed – this was also reflected in the bond’s price as it tightened a few basis points from the forecast. initial prices, ”she said.

According to Oscar Jansen, who manages APG’s euro bond portfolio, the green bond issue underlines “Europe’s leading role in sustainable finance”.

It is not yet clear how the proceeds from the inaugural green bond sale will be used. The European Commission pays the money to the Member States, which have to draw up green spending plans themselves.

Jansen does not see this as a problem. On the contrary, he said: “As the proceeds of the sale can be used in many ways, we will invest in a wide range of green investments. “

Last year, APG and PGGM both invested in the European social bond program SURE, which was launched to mitigate the economic consequences of the pandemic.

Give a miss

Cardano, which manages the counterpart portfolios of a number of smaller Dutch pension funds, also participated in the SURE issue, but not the EU Green Bond issue.

“We did not participate in this issue because demand exceeded supply by an exceptionally large margin. As a result, the yield offered was not sufficient for investors, ”explained Rik Klerx, Head of Portfolio and Treasury Management at Cardano.

The metals industry fund PMT, the Netherlands’ third-largest pension fund, also accepted the issue, deeming the 0.4% yield on a 15-year bond too low.

“The yield offered was not attractive enough to include the bond in our off-benchmark allocation for this type of bond,” a spokesperson told IPE.

NGEU is a temporary stimulus instrument worth more than 800 billion euros to support Europe’s recovery from the coronavirus pandemic “and help build a greener, more digital and more resilient Europe”, according to the Commission.

The Commission is raising capital on the markets by the end of 2026 to finance it.

Green bonds demand to remain robust despite inflation

Alexander Schubert, senior portfolio manager at Union Investment in Frankfurt, hailed the EU’s first green bond issue as “a great success for the EU”, noting that the market has had time to prepare for it. since its announcement in September.

Union Investment has placed orders for the EU issue of “nearly three million dollars,” Schubert said, adding that the company will continue to invest in future EU green bond issues.

“We will invest in green bonds but also in NGEU bonds which are not purely green. We want to support the EU as an issuer because we regularly maintain a close dialogue with the one-one EU, ”he said.

Union Investment’s strategy is to allocate safe investments like EU green bonds to replace the more expensive German Bunds, Schubert said.

The yield on EU bonds at the time of pricing the new bond was 45 basis points, 0.45%, compared to almost zero on the Bundesanleihe. “This is also why we like very much to invest in EU green bonds,” he said.

As with other issues, there’s greenium – the spread of a green bond over the issuer’s non-green curve. EU conventional bonds have a 0.2% coupon with a maturity until 2036, traded in mid-swaps – 8.4bp, Schubert said.

New EU green bonds are trading at intermediate rates of -10.3bp, resulting in a 2bp lower yield, or greenium, added Schubert. The new issue was valued at -8bps mid-swaps, after being announced at -5bps mid-swaps.

“This means that the EU has valued the EU green bonds in line with the trajectory of the EU bond curve and it has given the market the opportunity to find a greenium now of 2 basis points. I think a 2-3 basis point greenium is fair, ”he said.

“The greenium of EU green bonds is expected to be slightly lower than the greenium of German green bonds, which is 4.5-6.4bp, but next year the greenium between German bonds and green bonds of the EU could shrink. That’s my expectation and it’s positive, ”said Schubert.

Strong demand for green bonds is also not expected to be massively affected by future higher bond yields resulting from inflation, Schubert added.

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