Trader survey: EU bonds are too expensive

DThe European Union (EU) wants to study the bond market to see what improvement is seen in terms of trading and pricing of its bonds. Until now, EU bonds have been sold at a discount to government bonds with the same rating. Brussels is concerned about the higher cost of raising its own debt.

Starting today, Wednesday, market participants will be sent a questionnaire from the EU, which, among other things, deals with ways to increase liquidity. This is stated in an email received by the Bloomberg news agency and sent to traders on Tuesday. The EU has already worked to encourage banks to include their securities in electronic pricing.

“We will promptly conduct an investor survey that will help us serve our investors even better and further improve our financial strategy and our market approach,” EU Budget Commissioner Johannes Hahn said Tuesday during the bond issue. Like Germany, the EU has first-class (“AAA”) ratings. However, their bonds trade at a discount to the Bunds – Brussels pays higher interest rates than Berlin. The July 2034 bond has a yield of 2.4 percent, while the corresponding EU bond is quoted at 3.145 percent.

Germany and France pay less

Conversely, when bond prices rise, yields fall. The low yield also reflects the market’s confidence in the issuer’s solvency. In addition, federal bonds are considered highly liquid because they can be traded at any time. Surveys of large issuers among primary dealers are not uncommon. The questionnaire aims to collect opinions on the most effective ways to trade and value EU bonds. He also asks about the bond indices investors use and how important it is to include EU bonds.

Bank employees who received the email called the questions legitimate and indicated that EU paper has a significant yield premium compared to German and French government bonds. Noting the lower trade in EU bonds, they highlighted the fact that the EU has no bonds outstanding across the entire yield curve. In February, HSBC said the EU was increasingly looking like a state issuer. Brussels issued bonds to financially support the region’s recovery from the coronavirus pandemic.

Source: Frantfurter Allgemeine

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