EU bond yields rose after the decision to grant Ukraine a loan of 90 billion euros

The yield on 30-year European Union bonds jumped nine basis points to 4.14% on Friday. This was reported by Bloomberg. This comes after the bloc's leaders agreed to provide Ukraine with a 90 billion euro loan over the next two years. Investors are preparing for an increase in the EU's debt supply in the markets.

The jump in yield was the largest among all eurozone issuers. This ended a period when EU bonds had been outperforming German debt – the premium has fallen from 85 basis points at the start of the year to 60 now.

It is not yet clear how exactly the EU will raise the additional money. EU officials have told investors that they could use a variety of instruments – from short-term bills to bonds maturing in a decade.

"EU bonds will be tested by a larger supply. We expect any additional funding needs to be covered initially by issuing more bills," explained Christoph Rieger of Commerzbank.

The EU plan is a departure from the initial idea of using frozen Russian assets. Under the new scheme, Ukraine will not repay the loan until Moscow pays reparations to Kyiv. Meanwhile, the Russian money will remain blocked in the EU.

This week, Brussels announced it would sell 90 billion euros in bonds in the first half of 2026. The indicative target for the entire year is 160 billion euros. But legal documents allow for up to 200 billion euros in bonds to be issued during the year, compared to 170 billion euros this year. The limit for bills has been raised from 60 billion euros to 100 billion euros.

The impact of a larger supply on the market is difficult to predict. The EU only recently became a major bond issuer – sales increased in 2020 to finance the fight against the pandemic.

"On the one hand, the increased supply puts pressure on EU bonds and could lead to their depreciation. On the other hand, unlike most issuers, EU bonds could benefit from increased issuance activity, as increased issuance activity makes EU bonds more liquid and therefore more similar to European government bonds," Unicredit analysts noted.

• The EU summit began on December 18. Two possible financial support mechanisms were on the agenda: raising 90 billion euros through the EU budget or providing a so-called reparation loan using Russian assets. Von der Leyen stated, that the negotiations will continue until the EU leaders make a decision on funding.
• On December 19, the leaders of the European Union member states approved at the summit decision to support Ukraine in the amount of 90 billion euros for 2026-2027.