Issuing European safe assets: how to get the most out of Eurobonds?

Kevin Pallara (), Marcello Pericoli () and Pietro Tommasino ()
Additional contact information
Kevin Pallara: Bank of Italy
Marcello Pericoli: Bank of Italy
Pietro Tommasino: Bank of Italy

No 937, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This study examines the market for euro-denominated bonds issued by the European Commission on behalf of the European Union (commonly referred to as Eurobonds). We find that the yields on currently outstanding Eurobonds exceed their theoretically appropriate levels. The yield on the model-implied Eurobonds benefiting from joint guarantees is actually around 40 basis points lower than that on the Eurobonds currently in circulation. There is therefore an untapped margin for reaping aggregate savings in terms of reduced interest expenditures. Based on an examination of the main characteristics of Eurobond issuances and of their investor base, we suggest that the wedge is due to a combination of insufficient liquidity and an inconvenience premium, as well as to the uncertainty about future jointly guaranteed issuance. However, we also highlight that the model-based yield on the 10-year Eurobond is about 20 basis points above that of a Bund with the same maturity, so countries like Germany and the Netherlands might have no incentive to promote joint emissions in the future. A successful strategy for the development of the Eurobond market would require two key elements: firstly, a steady flow of Eurobond emissions, which could be granted by common investment programmes; and secondly, some form of redistribution for the aggregate gains.

Keywords: European safe asset; Eurobonds; joint liability; sovereign credit risk; term structure of interest rates (search for similar items in EconPapers)
JEL-codes: E43 F34 G12 H63 H81 (search for similar items in EconPapers)
Date: 2025-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bancaditalia.it/pubblicazioni/qef/2025-0937/QEF_937_25.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_937_25

Access Statistics for this paper

More papers in Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().