A European Commission adviser says that while the body is doing “whatever it can” to develop liquidity in the secondary market for its EU bonds, dealers could do more to overcome hurdles standing in the way of widespread use of the instruments. Banks, however, argue the market needs more clarity on issuance plans if trading is going to pick up. The supranational issuer is nearing the end of the road on what it can do to help build liquidity in the market, said Siegfried Ruhl, an adviser to the directorate general for budget at the European Commission, so it’s now up to market participants to actively use the bonds like those of sovereign issuers. Market participants have to treat EU bonds like sovereign bonds Siegfried Ruhl, European Commission adviser For instance, Ruhl said dealers could move trading of the bonds away from their supranationals and agencies desks to sit with other government bonds. “Market participants have to treat EU bonds like sovereign bonds. Primary dealers have to trade these bonds on their government bond desks. Investors have to treat our bonds in their investment policies like a sovereign,” he said. Ruhl said banks could also do more work to ensure EU bonds were eligible for collateral agreements, which would require legal work to update the documentation: “It’s the decision of each market participant to include new bonds in collateral agreements, in repo agreements and triparty repo baskets.” Ruhl was speaking on a panel at Eurex’s annual Derivatives Forum in Frankfurt on February 29. Funding roadmap The EU had €450 billion ($489 billion) of bonds outstanding in the past year. It is expected to become the fifth-largest issuer by outstanding bonds in the EU capital market by the end of this year, after the four largest European sovereign issuers. At the beginning of 2023, the European Commission adopted a unified funding approach whereby it would issue EU bonds and allocate the proceeds to a central funding pool from which different policy programmes could be funded. Previously, the EC had issued several different policy-specific instruments, such as Next Generation EU bonds (NGEU), and Support to Mitigate Unemployment Risks in an Emergency bonds. In June last year, the European Central Bank put EU bonds into the same category 1 haircut bracket as government bonds such as German bunds, as part of the ECB’s collateralised credit operation. And in November, the commission introduced a framework to enable dealers to start quoting prices for EU bonds on electronic platforms. Two electronic platforms currently have approval to provide pricing quotes. €450 billion The value of EU bonds outstanding in the past year EU bonds have the capacity to become the benchmark for European bond risk, said Roger Kuntsche, head of euro sovereign, supranational and agency trading at JP Morgan, speaking in a personal capacity on the same panel at the Eurex conference. But he said the EU needs to be clearer about its funding plans after the EC’s NGEU programme comes to an end in 2026. “We need a vision for the EU as an issuer,” said Kuntsche.

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A European Commission adviser says that while the body is doing “whatever it can” to develop liquidity in the secondary market for its EU bonds, dealers could do more to overcome hurdles standing in the way of widespread use of the instruments. Banks, however, argue the market needs more clarity on issuance plans if trading is going to pick up. The supranational issuer is nearing the end of the road on what it can do to help build liquidity in the market, said Siegfried Ruhl, an adviser to the directorate general for budget at the European Commission, so it’s now up to market participants to actively use the bonds like those of sovereign issuers. Market participants have to treat EU bonds like sovereign bonds Siegfried Ruhl, European Commission adviser For instance, Ruhl said dealers could move trading of the bonds away from their supranationals and agencies desks to sit with other government bonds. “Market participants have to treat EU bonds like sovereign bonds. Primary dealers have to trade these bonds on their government bond desks. Investors have to treat our bonds in their investment policies like a sovereign,” he said. Ruhl said banks could also do more work to ensure EU bonds were eligible for collateral agreements, which would require legal work to update the documentation: “It’s the decision of each market participant to include new bonds in collateral agreements, in repo agreements and triparty repo baskets.” Ruhl was speaking on a panel at Eurex’s annual Derivatives Forum in Frankfurt on February 29. Funding roadmap The EU had €450 billion ($489 billion) of bonds outstanding in the past year. It is expected to become the fifth-largest issuer by outstanding bonds in the EU capital market by the end of this year, after the four largest European sovereign issuers. At the beginning of 2023, the European Commission adopted a unified funding approach whereby it would issue EU bonds and allocate the proceeds to a central funding pool from which different policy programmes could be funded. Previously, the EC had issued several different policy-specific instruments, such as Next Generation EU bonds (NGEU), and Support to Mitigate Unemployment Risks in an Emergency bonds. In June last year, the European Central Bank put EU bonds into the same category 1 haircut bracket as government bonds such as German bunds, as part of the ECB’s collateralised credit operation. And in November, the commission introduced a framework to enable dealers to start quoting prices for EU bonds on electronic platforms. Two electronic platforms currently have approval to provide pricing quotes. €450 billion The value of EU bonds outstanding in the past year EU bonds have the capacity to become the benchmark for European bond risk, said Roger Kuntsche, head of euro sovereign, supranational and agency trading at JP Morgan, speaking in a personal capacity on the same panel at the Eurex conference. But he said the EU needs to be clearer about its funding plans after the EC’s NGEU programme comes to an end in 2026. “We need a vision for the EU as an issuer,” said Kuntsche.

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A European Commission adviser says that while the body is doing “whatever it can” to develop liquidity in the secondary market for its EU bonds, dealers could do more to overcome hurdles standing in the way of widespread use of the instruments. Banks, however, argue the market needs more clarity on issuance plans if trading is going to pick up. The supranational issuer is nearing the end of the road on what it can do to help build liquidity in the market, said Siegfried Ruhl, an adviser to the directorate general for budget at the European Commission, so it’s now up to market participants to actively use the bonds like those of sovereign issuers.

Copyright Infopro Digital Limited. All rights reserved.

You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/

If you would like to purchase additional rights please email info@risk.net