EU Bond Market to Continue Growing Despite Sovereign Status Rejection.

The European Union expects its bond market to continue developing despite failing to secure sovereign status in debt indexes. The EU is the fifth largest issuer in European markets with over €657 billion in bonds outstanding. While its push for sovereign status was rejected by Intercontinental Exchange, the EU believes its bond market will continue to grow with new programs such as Security Action for Europe and expects outstanding volumes to reach almost €1 trillion by end-2026.

The European Union (EU) expects its bond market to continue developing despite failing to secure sovereign status in debt indexes. The EU is the fifth largest issuer in European markets with over €657 billion in bonds outstanding. While its push for sovereign status was rejected by Intercontinental Exchange (ICE), the EU believes its bond market will continue to grow with new programs such as Security Action for Europe (SAFE) and expects outstanding volumes to reach almost €1 trillion by end-2026 [1].

The EU’s bonds are currently treated as a supranational entity by major index compilers, leading to higher borrowing costs compared to European governments with similar credit ratings. The bloc’s executive noted that the decision by ICE not to add its notes to sovereign indexes was not motivated by concerns about the volumes, structure, or liquidity of the EU-Bond programme. Instead, the EU’s bonds are described as a "deep and resilient market, which continues to develop and grow in the upcoming years" [1].

In addition to the ongoing bond market development, the EU’s joint bond sales have been used to support Europe’s recovery from the Covid pandemic. The bloc’s executive expects new programs such as SAFE, which aims to fund defense spending, to demonstrate the potential for further issuance. The EU’s bonds are seen as a vital tool for economic stability and growth, even without sovereign status [1].

Meanwhile, European bond yields have remained stable ahead of Federal Reserve Chair Jerome Powell’s address, with traders closely watching for potential rate cuts. The German 10-year bond yield, a benchmark for the euro zone bloc, held steady at 2.75%. The market is closely watching for potential rate cuts by the Federal Reserve in September, as changes in U.S. rate expectations often impact global bond markets [2].

The EU’s bond market development is part of a broader trend in the global bond market. Long-dated bond yields have been rising despite rate cuts in the developed world, leading to underperformance in this area of the bond market. Factors contributing to this trend include reduced demand from traditional buyers, quantitative tightening by central banks, and concerns about fiscal deficits [3].

In conclusion, the EU’s bond market is expected to continue developing despite setbacks in securing sovereign status. The EU’s bonds are seen as a resilient and growing market, with new programs and issuance programs expected to contribute to its growth. The stability of European bond yields ahead of the Federal Reserve’s address highlights the continued importance of the EU’s bond market in the global financial landscape.

References:
[1] https://www.bloomberg.com/news/articles/2025-08-22/eu-sees-its-bond-market-developing-even-without-sovereign-status
[2] https://m.economictimes.com/markets/bonds/euro-zone-bond-yields-little-changed-ahead-of-feds-powell-speech/articleshow/123449170.cms
[3] https://www.janushenderson.com/en-us/institutional/article/falling-short-why-are-long-dated-bonds-struggling-in-2025/