Eurobonds: Europe Seizes on Trump’s Fiscal MisstepBy Ion Jauregui – Analyst at ActivTrades
The tax bill proposal put forward by the Trump administration — known as the “Big Beautiful Bill” — includes a controversial clause, number 899, which threatens to tax dividends and coupons from U.S. assets received by foreign investors from countries deemed “hostile” or “discriminatory” toward the United States. While designed as a geopolitical pressure tool, this measure could ultimately undermine the U.S. market itself and present a historic window of opportunity for Europe.
For years, Brussels has aimed to boost the appeal of its markets against U.S. dominance. Regulatory measures like MiFID II, the push for strategic autonomy, and the introduction of common debt instruments such as Eurobonds have steadily gained ground. Now, with the prospect of a direct penalty on foreign investment in the U.S., European assets — offering favorable real yields and a strengthening currency — are emerging as a solid alternative.
The European Central Bank has already warned that this is “a window not to be missed.” Christine Lagarde has hinted that the euro could strengthen to the point of becoming a global reserve currency, particularly if new joint debt issuances are used to fund defense spending. Amid growing geopolitical tensions and declining confidence in “American exceptionalism,” the debate over mutualizing European debt is returning with renewed momentum.
Clause 899 effectively acts as a self-imposed competitive disadvantage for the U.S. In a globalized market, such a tax reduces the real returns of American assets and redirects capital flows elsewhere. If Europe accelerates Eurobond issuance and reinforces its fiscal framework, it could turn this American fiscal crisis into an unprecedented geopolitical opportunity.
Building a Eurobond Market
Since the landmark Next Generation EU plan in 2020, the European Union has made steady progress toward creating a joint debt market. By 2025, over €450 billion in debt has been issued, with new rounds under discussion to fund defense, security, and the green transition. This has helped develop a more complete yield curve, improved market liquidity, and strengthened the euro’s role as a reserve currency.
Relative Yields and Monetary Context
Although European bonds offer lower yields than their U.S. counterparts (e.g., the 10-year German Bund yields around 2.5% versus 4.3% for the U.S. Treasury), the ECB’s monetary tightening cycle has moderated. Inflation in the eurozone has fallen below 3%, and interest rates are beginning to decline. This supports the appreciation of long-term European bonds in anticipation of future rate cuts. Additionally, the risk premiums for countries like Italy and Spain have narrowed, reinforcing confidence in European fiscal cohesion.
Rising Foreign Demand
Foreign holdings of U.S. debt have fallen — from 50% in 2014 to about one-third in 2024 — while European debt is gaining traction. According to ECB and BIS data, every €100 billion in foreign purchases reduces yields by roughly 20 basis points, suggesting that continued demand could exert downward pressure on yields in the medium term.
Strong Euro and Yield Curve Management
With the euro on the rise — projected to reach 1.19 USD by 2028 — euro-denominated assets are becoming more attractive to global investors. Moreover, the ECB retains the ability to intervene in secondary markets, preventing excessive yield curve distortions and maintaining financial stability.
10-Year Eurobond Technical Analysis
Between the final quarter of 2024 and March 2025, 10-year Eurobonds staged a steady recovery before stabilizing in a consolidation range between 2.359% and 2.675%, with a current average of 2.512%. The bond’s technical structure signals a bullish trend, supported by a positive moving average crossover, which could push yields toward the upper end of the range.
The RSI currently stands at a neutral level of 52.38, indicating room for further upward movement without entering overbought territory. Additionally, the 2.568% level has proven to be a dynamic support, having rebounded multiple times, reinforcing its significance as a launchpad for further yield increases.
Conclusion
European bonds are experiencing a structural opportunity driven by U.S. fiscal missteps, growing fiscal integration within the eurozone, and a declining interest rate environment. If Europe continues to push joint bond issuances to fund strategic initiatives such as defense, energy transition, and digitalization, Eurobonds could solidify their status as a viable and competitive alternative to U.S. Treasuries.
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