In the meantime, nearly €40 billion of the bonds supporting the EU’s emergency unemployment aid have been sold. The December compromise on the EU budget framework freed the way for bond issuance to fund the €750 billion economic recovery plan, while another €60 billion are on tap for SURE.
Trading volumes in EU bonds are now a multiple of what they were, pulling equal to those of France or Italy. The robust market has the potential to create an alternative to U.S. Treasuries if not exactly a rival. Bid-ask spreads on the EU bonds have narrowed significantly with the additional liquidity.
However, outstanding EU bonds are a fraction of Germany’s bunds. The current benchmark bond in Europe has also come roaring back after a drought from Berlin’s balanced-budget policy has given way to a flood of pandemic-induced borrowing from Europe’s largest economy.
Germany’s borrowing in 2020 grew to more than €400 billion, a record and nearly double the original plan for the year.
For 2021, issuance will be close to €500 billion, tilting slightly to short-term money market instruments but with nearly €230 billion in notes and bonds running from two to 30 years in maturity.
The bond boom is also changing the shape of
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