Why corporate bonds are important

Corporate bonds can be an important source of funding for European companies, which can use the proceeds from bond sales to invest in growth and job creation. They offer businesses access to alternative, more diverse sources of funding. They also offer new investment opportunities for European savers. These are key objectives of the Commission's flagship capital markets union project.

Functioning of corporate bond markets

Companies issue new bonds and sell them to investors on primary markets – in other words, markets where bonds are created and initially sold. Bonds bought in the primary market can be traded by investors on the so-called secondary market. Some market participants have raised concerns about the functioning and limited liquidity of secondary markets. Limited liquidity makes it difficult to trade in and out of corporate bonds and could translate into higher costs for issuers and investors.

Issuance of corporate bonds in Europe has increased steadily in recent years, and is today more than twice the level of 2007. This has been driven by low interest rates and ECB's bond purchases. However, questions remain as to how sustainable this trend will be when this economic environment changes.

Improving European corporate bond markets

To help corporate bonds become a larger source of funding for European businesses, the Commission launched a review of the functioning of EU corporate bond markets. An expert group of 17 market practitioners examined the functioning of European corporate bond markets and formulated 22 recommendations to improve their functioning (see below). In addition, a quantitative study on drivers of corporate bond markets' liquidity was conducted. Its findings suggest a deterioration of liquidity on corporate bond markets (see below).