EU's First Joint Bond Issuance... Major US Banks like JP Morgan and BOA Excluded

Issued 10-Year Bonds at 0.086% Interest Rate Raising 20 Billion Euros
Raising a Total of 800 Billion Euros Over the Next 5 Years to Support EU Economic Recovery

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Byunghee Park] On the 15th (local time), the European Union (EU) issued EU joint bonds for the first time in history.

On that day, 20 billion euros worth of 10-year maturity EU bonds were issued at an interest rate of 0.086%. The EU plans to issue bonds over the next five years to raise about 800 billion euros. The funds raised will be used to help the EU economy recover after COVID-19. EU bonds are also expected to become a strong competing product to US Treasury bonds as another safe asset.

In the issuance of EU bonds on that day, major US commercial banks such as JP Morgan Chase, Bank of America (BOA), and Citigroup were all excluded from the list of primary dealers (main banks) who could exclusively participate in the bidding. Besides these, the EU also excluded 10 major banks including Barclays from the UK, UniCredit from Italy, Cr?dit Agricole from France, and Nomura Holdings from Japan from the primary dealers. This was because these banks had previously been sanctioned for violating the EU's fair competition laws.

In March, the EU fined Nomura and UniCredit 130 million euros and 69 million euros respectively for collusion in trading EU member state government bonds. Earlier in April, BOA was fined 12.6 million euros and Cr?dit Agricole 4 million euros for price collusion. JP Morgan, Citigroup, and Barclays were fined 10.7 billion euros in 2019 for foreign exchange market manipulation. The EU pointed out that these banks disturbed the foreign exchange market by sharing trading information through chat rooms.

EU joint bonds are expected to be a historic milestone bringing the EU one step closer to integration. Peter Schafrik, an investment strategist at RBC Capital Markets, predicted that "the political risk of the EU will further decrease." He also expected that as the EU moves closer to integration, the interest rate gap between German government bonds, a safe asset, and bonds of other countries will also narrow.