In addition, there are few opportunities for investors to hedge their risk through futures and options contracts — in contrast to national government bond markets such as German Bunds and French OATs.
The Commission’s top budget official, Stéphanie Riso, has made no secret that she’d like joint European bonds to be better-established financial products. In a podcast appearance earlier this year, Riso said that in the past, investors have treated EU joint borrowing more like debt issued by government-backed agencies, such as the International Monetary Fund or the European Investment Bank, rather than normal government debt.
“The situation has changed,” Riso said. “This is what we are trying to explain to the market.”
But times are getting tough for borrowers around the world already under pressure from a flood of new government debt — not just in Europe, but from the U.S. to China. Joint debt would almost certainly be cheaper for some individual countries than its national equivalent; however, a larger supply of bonds will ultimately push borrowing costs higher, whoever the issuer.
“Bonds were well-received by financial markets in the last couple of years when debt levels went up a lot,” pointed out Stefan Hofrichter, head of global economics and strategy at Allianz Global Investors. “But of course, I think the price will be that you will have to pay more, all else equal.”
For others, though, there’s still plenty of capacity to take whatever comes.
“It’s been the financial crisis. It’s been a pandemic. It’s war — and still the money is flowing and the market is working,” said Alecta’s Persson. “I’m pretty impressed by the marketplace, actually. It can take a lot.”
