The European Union will soon reach out to bond index providers to argue that its debt should be included in major benchmarks for sovereign nations, as the bloc looks to improve its cost of borrowing.
(Bloomberg) — The European Union will soon reach out to bond index providers to argue that its debt should be included in major benchmarks for sovereign nations, as the bloc looks to improve its cost of borrowing.
Staff will get in touch with firms compiling the gauges by the end of the year, according to European Commission officials, who asked not to be named because the information isn’t public. Any decision to include EU bonds in government bond indexes rather than those for supranational institutions would depend on the approach taken by individual index companies and may take some time, the officials said.
The push to include its bonds in sovereign benchmarks marks the latest effort by the EU to improve the liquidity and pricing of the debt it issues. In December, the bloc announced a new brand — EU-Bonds — for its offerings, and is working on a repo facility to support trading for them in the secondary market.
EU bonds yield more than half a percentage point more than comparable German debt. Officials have complained in the past that investors tend to treat the bloc’s debt as if it’s sold by an international agency rather than a sovereign government.
Inclusion of EU debt in government bond indexes is “the single-most important remaining step in order for EU-Bonds to trade and price similarly to European government bonds,” according to a survey of investors published by the bloc last week. Around two thirds of participants said they would increase their holdings of the securities if they were added, it found.
The European Commission said in June it planned to issue up to €40 billion in EU-Bonds between July and the end of the year. There is currently more than €420 billion of bonds from the bloc outstanding, according to data compiled by Bloomberg.
A new quoting system for dealers of EU debt will go live in November while the repo facility is scheduled for mid-2024, the officials said.
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