Stability Bonds would promote efficiency in the euro-area sovereign bond market and in the broader euro-area financial system. Stability Bond issuance would offer the possibility of a large and highly liquid market, with a single benchmark yield in contrast to the current situation of many country-specific benchmarks. The liquidity and high credit quality of the Stability Bond market would deliver low benchmark yields, reflecting correspondingly low credit risk and liquidity premiums (see Box 1). A single set of “risk free” Stability Bond benchmark yields across the maturity spectrum would help to develop the bond market more broadly, stimulating issuance.
