Chapter 25. The Euro Government Bond Market
ANTONIO VILLARROYA, MD
Global Head of Rates Derivatives Strategy, Merrill Lynch
Abstract: The European Monetary Union and the introduction of the euro currency went a long way toward making the Eurozone government market the largest bond market in the world. What's more, this status is unlikely to be challenged in the coming years, with the new member countries of the European Union expected to join the single currency over time. Yet despite being integrated in many aspects, it should not be forgotten that the market comprises many issuers, with different credit ratings and issuing techniques, so is not completely homogeneous. These differences in credit status, together with the varying liquidity of their issues, their eligibility for the futures market and other micro factors, are the main drivers of intra-euro rate differentials.
Keywords: European Monetary Union (EMU), Pfandbrief, Maastricht, universal mobile telecommunications system (UMTS) licenses, French OAT, Italian BTP, German OBL, Spanish bonos, U.S. Treasuries, cheapest to deliver (CTD), swap spreads, strips, trading platforms, EuroMTS, tracking error, repo, primary dealers, syndication, Stability and Growth Pact (SGP), Euribor panel
Despite the appearance of many new fixed-income assets, the government bond market continues to be, by far, the largest market in the Eurozone. In this chapter, we analyze the recent trends in this market, its primary and secondary markets, and the ...