(Reuters) – Futures contracts on bonds issued by the European Union (EU) are likely to be launched next year, by which time the bloc’s outstanding debt will be sufficient, an official said. EU official on Thursday, a development that would significantly encourage trading in these securities.
The EU has become one of the world’s largest bond issuers in less than three years, after deciding to raise up to €800 billion in joint debt by 2026 to finance a recovery fund post-COVID.
The EU has stepped up efforts this year to improve the profile of its securities so that markets view them as government bonds.
The outstanding debt from which the development of a futures contract is justified is 500 billion euros, explained the European official.
“We will reach this figure in 2024, which means this condition will be met next year,” he said.
Futures contracts are derivative products through which investors can buy or sell underlying securities at a future date, allowing them to hedge their positions.
The largest bond markets in the world, including that of American Treasuries and German Bunds, are backed by futures contracts, which increase the depth and liquidity of these markets.
Eurex, Deutsche Boerse’s derivatives exchange, has been working on launching EU bond futures since 2021.
Asked about the launch schedule, a spokesperson for Deutsche Boerse explains that the Stock Exchange has moved “from ‘if’ to ‘when’: we are working closely with all stakeholders to determine the appropriate time to launch EU bond futures.
Separately, the European Commission’s financing team will contact bond index providers by the end of the year, the EU official said, to argue for the inclusion of its debt in the main sovereign bond indices.
This would attract stable demand from more global investors, and therefore reduce borrowing costs.
An investor survey over the summer showed that including European debt in these indices would “significantly” increase demand for EU debt, according to almost 50% of respondents.
(Report by Yoruk Bahceli, by Corentin Chappron, edited by Blandine Hénault)
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