The European Commission has proposed a plan to make Europe independent from Russian fossil fuels. REPowerEU will seek to diversify natural gas supplies, speed up the roll-out of renewable gases, and replace gas in heating and power generation. This can reduce EU demand for Russian gas by two thirds before the end of the year.

Under the EU’s current energy market design, electricity prices are tied to gas prices, which meant the squeeze on gas supplies also pushed up electricity costs. Germany and the Netherlands opposed changes. EU countries will, instead, support: long-term “power purchase agreements”, cuts to consumption at peak times, and electricity storage.

Junior debt issued by banks is risky. It only gets paid back after other bonds. But due to short duration, the losses are modest, when the interest rates rise, and they offer higher return. European banks’ junior debt, known as contingent convertibles, is up 2.8% this year, as analysts for now don't see major risks in the European banking sector.

The trend this year is towards longer-dated new European corporate bond deals, where yields are lower than on shorter-dated debt, but issuers need to offer yield premium over their existing debt, 30 basis points or more. Euro investment-grade corporate issuance in the first two months of this year was €68 billion, with the average maturity of 9 years.

This is the verdict of the MLIV Pulse survey. The reasons are continued rate hikes and fear of a potential bear market. Short-term Treasury bills beat the classic 60/40 portfolio and even high-yield savings accounts pay savers close to 4%. Most investors also believe that passive funds tracking the S&P 500 will beat active equity funds, after fees, in 2023.

Companies issue bonds with the option to buy them back after one year, if interest rates drop, and they enter into an interest-rate swap with a bank, which the bank can cancel after one year. Both are interest-rate options, but that option is more expensive in the derivatives market than in the bond market. The benefit are lower coupons of such bonds.

New rules could sharply reduce the volume of bonds that qualify for a green label. So far, dirty industries could raise cash to fund a small part of their activities. To be labelled “green” under the new rules, 85% of the funds raised by the issuance must be allocated to activities that align with the EU’s taxonomy, which defines sustainable investments.

As the global loan market doubled to $20 trillion in the past 3 years, and compliance rules got tougher, the pressure for digitization has grown. Platforms can be used to conduct the entire syndication process. They are secure and audited, helping banks with compliance. They offer quicker turnaround times for secondary loan sales, freeing up bank's money.

Bond ETFs have grown from $10 bln in 2009 to $1.2 tln. They significantly deviate from the original ETF principle. In effect they are derivative products, reliant on complex structures that may be open to abuse. Also, corporate bonds are less liquid, but tougher bank capital rules have made capital-intensive activities, like market making, unattractive.

Belgium plans to lure mom-and-pop investors with a 10-year bond that pays a 3% coupon, more than the 1.74% offered by Belgian banks. This could pave the way for a green retail bond. European countries hope that investors will buy more government bonds as central banks exit the market. Fitch estimates that around €650 billion will be needed in 2023.

Last year was the worst for bond markets in more than a century. Global bonds lost 31%. Between 1982 and 2021, the world bond index had 6.3% annual real return, while global equities returned 7.4%. Equities and bonds sold off sharply in 2022. Even if bonds regain their role as a cushion against stock market losses, equity-like returns will not come back.

In 2030, demand for electricity in Germany will be around a third higher than today. A fleet of new power stations running on imported natural gas should generate electricity when wind and sun aren’t available and they might be converted to run on hydrogen later on. The government is struggling to find investors willing to take on such costly projects.