The market performance of EU bonds

Since the launch of the NextGenerationEU (NGEU) and SURE programmes in the midst of the 2020-2021 COVID-19 crisis, the amount of bonds issued by the European Union has grown rapidly, and is expected to reach a market footprint comparable to that of a medium-to-large-sized EU sovereign. This section investigates the market performance of EU bonds since October 2020, when the first SURE bond was issued, focusing on their yields, spreads and liquidity measures. An empirical analysis shows that EU bonds trade with a modest, though non-negligible, spread compared to the ‘risk-free’ rate, tracking, to some extent, changes in the spreads of euro area Member States. At the same time, bonds issued under the NGEU and SURE programmes benefit from lower yields when compared with EU bonds issued under previous programmes. This favourable price effect is stronger at shorter maturities and fades away at longer horizons. Empirical analysis likewise suggests that the single EU green bond in the sample benefitted from a favourable ‘green’ label effect as at January 2022, although this result should be interpreted with caution. Finally, EU bonds issued under NGEU and SURE have been somewhat less liquid than benchmark sovereign bonds, but more liquid than EU bonds issued under previous programmes. The liquidity of EU bonds issued under NGEU and SURE is high overall and has also been increasing since mid-2021 as the total amount of EU issuance rapidly expanded and EU bills were introduced.