- The market value of euro-denominated quasi-government bonds has multiplied in recent years. Amid the rescue measures of governments in response to Covid-19, the importance of this asset class is set to increase further.
- The trend towards a lengthening of new issue duration and the high quality of the issuers make quasi-government bonds attractive for long-term investors eager to earn yield and preserve risk capital.
- Despite a diverse composition – agency, non-euro area government, local government, supranational and government guaranteed securities – spreads are driven by similar factors like sovereign indebtedness and policy uncertainty.
- Quasi-government bond spreads have already receded from the highs marked in spring. Despite concerns about surging supply, ongoing ECB purchases are expected to ensure market stability in the foreseeable future.
- Additionally, the higher spread level is forecast to contribute to an overperformance of quasi-government bonds versus both covered and core government bonds in the long run.