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In the beginning of July, the European Commission raised another €11 billion of EU-Bonds in its 7th syndicated transaction for 2026. The funds raised are going to be used to support the EU’s political priorities, including a more competitive and resilient Europe, support to Ukraine and crucial investments in European defence. It seems that the EU-budget is not enough for the active further EU-wide integration: the EU is turning to global financial market for borrowing.
Background
The EU’s total outstanding debt now stands at about €827.16 billion, of which €41.5 billion in the form of EU-Bills, and €84.2 billion in the form of NextGenerationEU Green Bonds.
The transaction is part of the Commission’s €80 billion funding target for the second half of 2026. The joint lead managers of this transaction were Deutsche Bank, HSBC, LBBW, Morgan Stanley and SG.
The Commission is empowered by the EU Treaties to borrow from the international capital markets on behalf of the European Union to finance selected EU policy programs. This includes the NextGenerationEU recovery instrument, financial support programs to Ukraine and other neighborhood countries as well as the Security Action for Europe (SAFE) instrument, helping EU Member States carry out urgent defence investments through common procurement.
Some examples:
= Security Action for Europe (SAFE) is a new EU financial instrument to be financed by EU borrowing. The European Commission will issue up to €150 billion of funding until the end of the decade to help EU states increase expenditure on common defence procurement. The EU borrowing for the financing of the new program will enable competitively priced and attractively structured long-duration loans to requesting Member States. The terms of these loans benefit from the EU’s strong credit rating, as well as high market demand for EU issuances and their liquidity. Borrowing operations under the new program will be integrated in the EU’s existing unified funding approach, alongside the sizable rollover operations for the management of EU’s existing debt. Funds will be raised through the issuance of single branded EU-Bonds and EU-Bills – there will be no issuance of “defence labelled” bonds. Actual funding needs arising from the new program will be integrated in the Commission’s overall bi-annual funding planning.
The dual-tranche transaction concerned a €6 billion new 5-year EU-Bond maturing in 2031, and a €5 billion tap of the 20-year EU-Bond maturing in October 2046.
The EU borrowing is guaranteed by the EU budget, with contributions to the EU budget an unconditional legal obligation of all EU member states under the EU Treaties.
= Another example – the SURE social bonds: the Commission started issuing social bonds in October 2020, following the adoption of an independently evaluated Social Bond Framework. The framework is compliant with the Social Bond Principles of the International Capital Market Association (ICMA). The first SURE transaction was record-breaking, attracting an order book of €233 billion, the largest order book for any deal in the history of global bond markets. Between October 2020 and December 2022, the Commission issued a total of €98.4 billion of social bonds in 9 issuances: hence, the program has become as the world’s largest social bond scheme.
Source: https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/sure_en
Present bond syndication
= 5-year new Bond. A €6 billion new EU-Bond due on 13 October 2031: this bond carries a coupon of 2.875% and came at a re-offer yield of 2.947%, equivalent to a price of 99.662%. The spread to the EU-Bond maturing on 14 October 2030 is 10 bps, which is an equivalent spread to mid-swap of 11.9 bps, and 26 bps over the Bund due 16 April 2031 and 9.8 bps below the OAT due 25 May 2031.
The final order book was over €83 billion, with oversubscription rate of approximately 13.8-times.
= 20-year Bond tap. A €5 billion tap of the EU-Bond due on 12 October 2046: this EU-Bond carries a coupon of 4.000% and came at a re-offer yield of 4.018%, equivalent to a price of 99.759%. The spread to the EU-Bond maturing on 12 October 2045 is 6 bps, which is an equivalent spread to mid-swap of 76.7 bps, and 55.5 bps over the Bund due 15 August 2046 and 28.9 bps below the OAT due 25 May 2046.
The final order book was over €94 billion with an oversubscription rate of approximately 18.8 times.
The Commission uses EU-Bonds and EU-Bills as the main funding instruments to raise funds on capital markets. All issuances executed by the Commission are denominated exclusively in euro. Since January 2023, the EU funds its different policy programs by issuing single-branded EU-Bonds rather than bonds for individual programs. The Commission also issues green bonds (under the NextGenerationEU Green Bond label), to finance the green component of the Recovery and Resilience Facility of the NextGenerationEU program.
General source: https://ec.europa.eu/commission/presscorner/detail/en/ip_26_1552
EU funding plans
EU borrowing is executed using multiple instruments, including EU-Bonds, EU-Bills, and NextGenerationEU Green Bonds. The Commission also makes use of different funding techniques, such as syndications and auctions. The Commission communicates its planned funding volumes to the market through bi-annual funding plans covering the next six months of operations.
The Commission aims to fund up to 30% of NextGenerationEU by issuing NextGenerationEU Green Bonds; this is expected to make the Commission the largest green bonds issuer in the world.
More in: https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations_en
= Annual borrowing decision
The annual borrowing decision sets a maximum ceiling on the borrowing operations the Commission can plan over a period of one year.
It also sets a range for maximum issuance amounts of long-term and short-term funding, limits for the repurchase transactions, the maximum average maturity of the EU’s long-term funding and limits on the amount the Commission can issue in a single transaction.
= Semi-annual funding plans
The Commission’s 6-monthly funding plans map its planned borrowing in the coming 6 months, within the limits of the annual borrowing decision. Through its funding plans, the Commission manages market expectations and makes sure it can raise the necessary funds to cover its relevant payment needs.
To ensure predictability, the Commission regularly communicates key elements of the funding plan to market participants. In particular, the Commission publishes on a regular basis:
• The targeted amounts to be financed by EU-Bonds;
• The number and timing of the expected syndicated transactions;
• The target auction dates for EU-Bonds and EU-Bills issuances.
On 23 June 2026, the European Commission released its funding plan for the second half of 2026. The plan sets a funding target of €80 billion of EU-Bond issuance between July and end-December 2026. Together with the funding plan for the first half of the year, this brings the annual EU-Bond issuance target for 2026 to €180 billion.
The present issuances will be executed under the Unified Funding Approach, whereby the Commission issues single-branded EU-Bonds and internally allocates the proceeds according to the needs of the various policy programs funded through bond issuances.
Source and citations from: https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/funding-plans_en#latest-funding-plan
NextGenerationEU
The NextGenerationEU is a groundbreaking temporary instrument to support Europe’s economic recovery from the coronavirus pandemic and build a greener, more digital and more resilient future.
Based on the EU member states’ requests for funding under the Recovery and Resilience Facility and the funding needs of other EU programs supported by NextGenerationEU, the EU expects to raise up to €637 billion by end 2026 (out of a maximum program envelope of €806.9 billion, as set in 2021).
The centrepiece of the NextGenerationEU is the Recovery and Resilience Facility (RRF) – an instrument that offers grants and loans to support reforms and investments in the EU Member States. RRF funds are being provided to Member States in line with their national Recovery and Resilience plans – the roadmaps to reforms and investments aimed to make EU economies greener, digital and more resilient.
The financial envelope under the RRF at the end of January 2026, consist of:
= up to €360 billion of grants, out of which €338 billion will be financed through borrowing operations (Member States will also receive additional RRF grants of €20.0 billion financed under the Emissions Trading System (ETS) and €2 billion under the Brexit Adjustment Reserve (BAR);
= up to €217 billion of loans (out of the initial total available RRF loan envelope of up to of (€385 billion).
In addition, up to €83.1 billion of NextGenerationEU funds are being used to reinforce several existing EU programs, such as the Just Transition Fund, Horizon Europe, InvestEU, RescEU and ReactEU.
Repayment of EU borrowing allocated to NextGenerationEU will start as of 2028 and will take place over a long-time horizon – until 2058.
The loans will be repaid by the borrowing EU member states. The grants will be repaid by the EU budget.
To help repay the grant portion of the borrowing, the Commission has proposed additional own resources (or sources of revenue) to the EU budget in 2021. On 20 June 2023, the Commission completed its proposal for a next generation of own resources. The Commission is working with the European Parliament and with the EU states in the Council towards a swift approval of the new sources of revenue.
Source and citation from: https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/nextgenerationeu_en