A futures contract for an imaginary curve - EU Bonds edition
On paper, it looked like a breakthrough. In September 2025, Eurex plans to launch a physically deliverable futures contract on European Union (EU) bonds, a long-awaited development in the evolution of Europe’s fragmented capital markets. With over €400 billion in bonds outstanding, the EU has quickly become one of the largest supranational borrowers in the world. Building derivatives infrastructure around its debt seemed like the next logical step.
But now the ground is shifting again.
According to recent reporting by Politico, the European Commission (EC) is preparing to confirm (as soon as tomorrow) what many in Northern Europe have long demanded: there will be no extension of the €650 billion NextGenerationEU recovery fund beyond its current expiration in 2026. No more grants, no more loans and most crucially, no more joint borrowing.
If that holds, it changes everything. The futures contract Eurex plans to roll out may very well become the most sophisticated instrument ever designed for an asset with no guaranteed future. This could be the most European thing ever.
Why does this development matter? In recent weeks on this Substack, I’ve written extensively about the importance of futures contracts and their role in the hedging architecture, both in the United States and in Europe (for example here or here). So why is it a problem to have a futures contract when bond issuance is set to stop in 2026?
At the heart of this dilemma is a temporal mismatch between infrastructure and institutional reality.
Futures contracts are forward-looking by design. They require permanence, predictability, and product continuity. You don't build a hedging tool around an asset class that's vanishing in 12 months. Traders need confidence that the underlying bonds will still be issued in regular maturities, with benchmark liquidity, and under conditions that facilitate delivery and rollover. Also, in order for a future contract to emerge, there should be a long-term issuance programme by the EC after 2026 and this issuance will need to be at the 10-year part of the curve (so it can be included in the delivery basket of the future).
It is also true that EU bonds needed further traction in the secondary market, including in repo (that is why such a facility was created just last year), to support a better physical deliverability. But in order for this contract to be successful, there should be a sizeable bond market behind the contract. At the moment, that is certainly the case in the EU, but going forward it is much less clear.
That’s what makes this launch of a futures contract, planned for September 2025, less than a year before the expiration of EU joint borrowing, so puzzling. Eurex is effectively constructing financial infrastructure in defiance of the policy calendar.
This raises a fundamental question: how do you build a futures contract without a bond curve? The proposed Eurex contract is modeled on classic sovereign benchmarks like the Bund or Obligations assimilables du Trésor (OAT) future. It will target 8–12-year maturities, using a notional 6% coupon to create a deliverable basket (it is also a physically deliverable futures contract, meaning there is a need to deliver an underlying bond at maturity). This design assumed - or perhaps hoped - that there will be a regular supply of 10-year EU bonds to populate that basket. But if issuance stops after 2026, those assumptions collapse. You can’t deliver what doesn’t exist.
Sure, there’s still over €400 billion in outstanding EU bonds, many of which will remain in circulation for years (until 2056). But stock is not flow. Financial derivatives - especially futures - require constant rolling issuance to remain relevant. Their function is to hedge forward risk, not to manage legacy positions.
Without ongoing 10-year issuance, the market for the EU bond future will stagnate. So I’m not saying it’s impossible for a futures contract to be introduced in this situation. But in the absence of consistent issuance, a wide range of problems is likely to arise. No new supply means no replenishment of the deliverable pool. Bonds age out. Liquidity decays. Basis trades become unhedgeable. The cheapest-to-deliver (CTD) dries up. The futures market turns inward and so on…
All of this exposes a deeper structural problem: the EU bond future may be less about the market and more about the message.
The contract’s launch was widely interpreted as a sign of the EU’s growing monetary and fiscal cohesion, a further step toward financial sovereignty to say. But it now looks more like a derivative of institutional wishful thinking. The Commission’s reluctance to commit to new borrowing beyond 2026 and the legal barriers to doing so mean that the product is being introduced into a vacuum.
The irony is acute. The EU speaks often of strategic autonomy - in energy, defense, technology. But autonomy costs money. And in a world of tightening balance sheets and rising geopolitical shocks, shared borrowing capacity is the cornerstone of any credible autonomy strategy.
If the recovery fund expires with no replacement, the EU will have - once again - retreated from sovereignty just as it was being priced into the market. Just this past Friday, we were discussing how EU bonds have started to be seen as effective hedging instruments in Europe. The futures contract, then, becomes a symbol of the gap between ambition and architecture (in my view, Security Action for Europe or SAFE cannot serve as a true replacement, even with the activation of the national escape clause, which provides equal access to SAFE funds without triggering fiscal rule breaches. The instrument remains far too narrow in scope and involves a relatively modest sum of just €150 billion).
As such, Eurex’s EU bond future may well launch in September. It may even attract modest volume from dealers who want exposure to supranational debt or use it as a hedge for peripheral bonds. But without legal certainty on future issuance, it is destined to remain a niche product. And this scenario is plausible. For instance, the EU bond futures contract launched by ICE, based on the 8–13-year index, has averaged just over 1,000 lots traded per day. While it’s true that Eurex remains the core infrastructure for trading the most important European government bonds, the chances of these futures contracts gaining meaningful traction remain low, especially under current conditions.
Anyway, a futures contract, by definition, requires a future. As it stands, the EU bond market has none. And unless that changes - unless Europe can summon the political will to institutionalize common borrowing - the only thing this contract will hedge is the illusion that Europe is becoming a financial sovereign. Yet again.