The massive issuance of debt securities generally puts pressure on the markets. An increased supply of bonds generally results in higher premiums demanded by investors. But since 2021, the European Union You encounter an anomaly: your joint debt becomes less expensive as you grow.
The phenomenon has been analyzed by the Official Monetary and Financial Institutions Forum (OMFIF), a think tank specializing in central banks and capital markets, which identifies a key factor behind this dynamic: liquidity.
The birth of Eurobonds and the change of scale
Common European debt debuted in 2021 with the launch of the program New Generation EUintended to finance the recovery after the pandemic. For the first time, the European Commission entered the market as a large supranational issuer, with a total volume of up to €750 billion.
Since then, the pace of broadcasts has been maintained. From 2023, and with particular intensity from 2025, the Union has become one of the largest debt issuers on the continent, ranking among the top five.
This increase in volume had an unexpected effect: the gap between the ten-year European bond and the German bond – the Bund, the risk-free benchmark in Europe – was reduced considerably. It went from around 65 basis points to around 40.
Why investors accept less interest
To understand this evolution, it is necessary to analyze how the price of a bond is formed. According to OMFIF, the gap between European and German debts is made up of three premiums.
Regulatory risk
From a regulatory point of view, Eurobonds and German Bunds benefit from virtually identical treatment within European financial regulation. This factor has not changed since 2021 and does not explain the drop in the differential.
Credit risk
Germany continues to be considered the safest sovereign issuer in the eurozone. It is for this reason that the common debt of the Union always yields something more. But this perception has not changed since the launch of Eurobonds either.
Liquidity risk
The key is liquidity. The easier it is to buy and sell a bond without changing its price, the lower the return required by investors. And this is where European debt made a qualitative leap.
Liquidity as a driver of falling prices
A young market needs time and volume to mature. In the case of Eurobonds, increased issuance has attracted more institutional investors, funds and central banks, thereby increasing the daily trading volume.
This reduces the risk of getting stuck in a position, a common fear in small markets. With more participants and more trades, the perception of security increases and the illiquidity premium reduces.
In addition, the scale achieved has made investment in market infrastructure profitable. Platforms and market makers have developed specific products for European debt.
The role of the European Commission and the markets
THE European Commissionas an issuer, actively promoted this development. In 2024, he joins Eurex Repointegrating Eurobonds into a short-term centralized financing environment.
Subsequently, as reported by elEconomista, the major derivatives markets took a further step. EUREX launched physical futures contracts on Eurobonds in 2025, following the movement initiated by ICE end of 2024.
These instruments make it possible to hedge risks, improve price formation and attract new participants, essential elements to consolidate liquidity.
The risk of stopping broadcasts
However, OMFIF warns of a critical point. The current surge is linked to the timing of the Next Generation EU program, the net volume of emissions of which begins to decline from 2026.
Planned new programs, such as those related to European security and defense, are not yet large enough to guarantee a stable flow of long-term debt.
If the volume issued decreases significantly from 2027, liquidity could suffer and part of the financial advantage disappear.
A strategic decision for the European future
The debate is already open in Brussels. Maintaining a deep Eurobond market not only makes financing cheaper, but also strengthens financial integration and the international role of the euro.
The Capital Markets Union, the Banking Union and a liquid common debt form a mutually reinforcing triangle. The current paradox shows that, under certain conditions, emitting more can mean paying less.
The big unknown is whether European Union You will know how to take advantage of this window before the market starts to close.
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