EU Sees Bond Market Developing Despite Lack of Sovereign Status

The European Union expects its bond market to continue expanding with new issuance programs and futures contracts, even though its push to be included in sovereign debt indices has so far failed, Bloomberg’s Lyubov Pronina reported.

Officials stressed ICE’s reasoning was not a reflection on the quality of EU assets. (Photo: New York Stock Exchange Facebook)

The EU, already the fifth-largest issuer in European markets with more than €657 billion ($770 billion) of bonds outstanding, suffered a setback this week when Intercontinental Exchange Inc. (ICE) decided not to add its notes to sovereign indices.

That follows a series of similar rejections from other providers.

Index compilers classify the EU as a supranational entity, which officials say is a key reason why its borrowing costs are higher than those of EU governments with comparable credit ratings.

The bloc’s campaign for sovereign status has included steps to improve bond liquidity, but officials stressed ICE’s reasoning was not a reflection on the quality of EU assets.

“The decision is not motivated by concerns linked to the volumes, structure or liquidity of the EU-Bond program,” the European Commission told Bloomberg.

The EU’s bonds, it said, form “a deep and resilient market, which continues to develop and grow in the upcoming years.”

While joint EU bond sales initially supported Europe’s recovery from the COVID-19 pandemic, new programs such as Security Action for Europe (SAFE) — aimed at funding defense spending — highlight potential for further issuance. Outstanding volumes are expected to reach nearly €1 trillion by the end of 2026.