Spain launches first ever green bond, euro zone yields rise to July highs

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Spain was set to launch its first ever green bond on Tuesday, leading a flurry of such issuances expected in September.

The 20-year bond sale will raise 5 billion euros, according to IFR, in line with expectations laid out by the Spanish Treasury in an investor meeting in July.

The deal received 60 billion euros of demand and will price to offer a spread of 6 basis points over an outstanding Spanish bond due in October 2040, IFR said, down from around 9 bps when the sale started.

Spain joins a growing club of European states which have issued green debt this year to finance environmentally beneficial expenditure, as demand for such assets continues to boom.

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The European Union on Tuesday said it planned to issue its first green bond backing its recovery fund in October via syndication, while announcing its auctions to back its bills program will start on Sept. 15. Germany will sell its fourth green bond in an auction on Wednesday, while Britain will come to market in the week of Sept. 20.

In the broader market, Germany’s 10-year yield rose to the highest since mid-July at -0.326% in early trade and was up 4 bps by 1009 GMT.

Italy’s 10-year yield rose similarly to the same milestone at 0.74%.

“We see some technical levels being broken, there are probably also some supply concerns going on,” Christian Lenk, strategist at DZ Bank, said of the rise in yields on Tuesday.

In addition to Spain’s deal, Austria raised 1.4 billion euros from the re-opening of bonds due 2031 and 2037, while Germany raised 556 million euros from the reopening of inflation-linked bonds due 2030 and 2046.

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The European Central Bank meets on Thursday and investors will focus on the pace of the bank’s pandemic emergency bond purchases (PEPP) during the fourth quarter.

That has grown in focus as a number of hawkish statements from policymakers put pressure on bond prices last week.

“We don’t think expectations about the ECB are affecting the market as we don’t expect any major policy change at next week’s meeting,” DZ Bank’s Lenk said, adding that a slower PEPP pace will be a normalization rather than a significant cutback.

At 1300 GMT, the ECB will release data for its bond buying in August alongside regular weekly data.

Investors also watched data releases on Tuesday. Euro zone economic growth for the second quarter was revised upwards to 2.2%, above expectations.

The ZEW economic sentiment survey showed that investor morale in Germany deteriorated more than a Reuters poll expected, declining for a fourth straight month in September, as investors expect raw material scarcity and chip shortages to slow recovery.

(Reporting by Yoruk Bahceli; additional reporting by Stefano Rebaudo Editing by Gareth Jones and Bernadette Baum)

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