Intercontinental Exchange rejects EU debt inclusion in sovereign indexes

The bloc is treated as a supranational issuer, which the EU cites as a key reason why its borrowing costs are higher than those of European governments with similar ratings

Reclassifying the EU is thorny, with the bloc politically divided on many traditional hallmarks of sovereignty, including joint debt issuance itself.

Intercontinental Exchange rejected a proposal to include debt issued by the European Union in its government bond benchmarks, the latest blow to the bloc’s quest to attract a larger pool of investors.

The index provider and owner of the New York Stock Exchange said it wouldn’t alter its definition of a sovereign issuer, which would have allowed for the change. The decision follows a similar move by American finance firm MSCI in June.

It’s a setback for the EU, which has been lobbying to reclassify its bonds since the end of last year. The bloc is currently treated as a supranational issuer, which the EU cites as a key reason why its borrowing costs are higher than those of European governments with similar ratings.

“There were many views for and against this proposal, but nothing close to a consensus,” Intercontinental Exchange said in a statement.

 We will continue to monitor investor views on this topic and would consider future consultations if consensus builds in support of a change

Reclassifying the EU is thorny, with the bloc politically divided on many traditional hallmarks of sovereignty, including joint debt issuance itself. Yet several investors have publicly backed including EU securities in government indexes.

The rejection further undermines speculation that the bloc would swiftly be added to the most widely-followed government benchmarks.

An EU survey of investors last year found index inclusion was “the single-most important remaining step in order for EU bonds to trade and price similarly to European government bonds”.

Bloomberg LP, the parent company of Bloomberg News, also offers index products for various asset classes through Bloomberg Index Services Ltd.

Major sovereign

At the heart of the debate is the fact the bloc has grown into one of the largest issuers in the region since it started ramping up sales in 2020. That has made its sales programme look more like that of a major sovereign than its previous status as a minor supranational issuer.

Yet, at a conceptual level, the EU still lacks many of the tenets of sovereignty. That was reflected in Intercontinental Exchange’s proposal, which would have seen a line tacked onto the end of the index-provider’s definition for sovereigns to include the EU.

Respondents to the consultation said that changing the definition to include the EU “raises questions about other similar issuers,” such as the Council of Europe Development Bank, the European Stability Mechanism, and the European Financial Stability Facility.

• Bloomberg