The European Union Should Burnish Its Bonds for Prime Time
The bloc has an opportunity to secure much-needed funds at a lower cost by getting its debt classified as sovereign issuance.
Time for the EU to burnish its bonds.
Photographer: Carl Court/Getty Images EuropeNow that the European Union has sold €513 billion ($550 billion) of debt, a stockpile poised to reach at least €800 billion by 2026, the bloc should accelerate plans to qualify as a fully fledged government bond market. Building a proper primary dealer network, augmented by repurchase facilities and and futures contracts, would enhance liquidity, broaden demand from both euro zone and global investors and reduce borrowing costs for the bloc.
MSCI Inc. and Intercontinental Exchange Inc. have issued consultation papers seeking views on the viability of reclassifying EU Commission issues as sovereign debt rather than supranational bonds. That matters because the latter trade at wider dealing spreads akin to corporate debt, while the former have a broader worldwide investor audience. And while MSCI and ICE are second-tier providers of the fixed-income benchmarks against which portfolio managers gauge performance, such a move would set a precedent that more established index compilers including Citigroup Inc., Bank of America Corp. and Bloomberg LP would likely follow.