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I've become a bit confused at the concept of a European(or Eurozone) Bond. I can't seem to understand if this is just a weighted average of all the EuroZone countries government bond yields or if this EuroZone Bond is an actual Bond that is issued separately by the ECB(or some other EU organization) with their own determined rates?

For example, when I search up European 2 Year Bond Yields, sometimes it will tell me "Euro area 2 Year Yield" or "EuroZone Central Govt 2Y Bond Yields" with a certain number( right now it's 3.32%) and other times it will just give me the separate Bond Yields of the different Euro countries like the 2Y German Bond Yield(3.043%) , 2Y French Bond Yield(3.25%), etc...

So what is this singular Bond Yield for the Entire EuroZone area? Is it the average of all EuroZone Govt Yields (Germany,France,Italy,Spain etc...) or not? Thanks

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  • $\begingroup$ ecb.europa.eu/stats/financial_markets_and_interest_rates/… $\endgroup$
    – AKdemy
    Commented Aug 20, 2023 at 11:55
  • $\begingroup$ @AKdemy I read your link, however I'm still quite confused on what this Euro area bond means? On the one hand it says "The ECB estimates zero-coupon yield curves for the euro area and derives forward and par yield curves" on the other hand it says "Only bonds issued in euro by euro area central government (European System of Accounts 2010: sector code 'S.1311') are selected." . For me it logically makes sense that they're using a weighted average of all the Euro govt sovereign bond yields to give a single Euro Area Bond Yield but nowhere is it actually confirmed that that's what they do. $\endgroup$
    – Man Dem
    Commented Aug 20, 2023 at 20:13

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The link in the comment contains all definitions and links and citations: see here.

A quick summary:

  • S.1311 refers to central government bonds; a distinct but sovereign political entity like France and the other member countries (no regional govies like Bavaria etc.).
  • only fixed rate bonds and zero coupon bonds are eligible (no variable rate bonds, no inflation linkers, no perpetuals)
  • residual maturity must fall between 3 months and 30 years
  • each individual bonds yield is computed using ISMA method, which is also called ICMA.
  • daycount follows each specific bond
  • The objective is to minimize the sum of the quadratic difference between the yields that can be computed from the curve and the yields actually measured
  • This is done using the so called Svenson model

In case you have access to Bloomberg, you can get a custom bond search on SRCH that fits the selection criteria. If you save the search, you can load it in CRV and create your own custom curve using Svenson's model, as well as several other methods.

For short, there is no such bond. It is a constructed curve.

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