07.03.2025
I will always associate the beginning of the pandemic in March 2020 with something that might seem odd at first glance – joint sovereign bonds. During the first days of the lockdown, I was constantly selling international bonds from pension funds – day after day. Both the Western European and North American economies had been forced to a halt. The real estate market was frozen. The stock market was sinking like a stone. But how were bond markets performing at the same time? Well, in those weeks, we sold more than 200 million euros of international bonds from LHV pension funds and used the proceeds to buy stocks that had plunged.
Eurobonds emerged in the 1960s through collaboration between bankers and lawyers in England, Netherlands, Luxembourg and Italy. The name may be misleading, because strictly speaking they don’t involve the euro as a currency (which didn’t exist in the 1960s) but the euro prefix signifies that they are supranational. Today it’s part of a system that is a conduit for truly large sums of money. The Eurobond market is growing and developing because it fulfils an important function for issuers and investors alike. While the value of the world’s biggest companies may run into the trillions of dollars, this reflects the trading of existing shares. The significance of international bonds stems from the fact that they have the opposite function – they are one of the main ways of attracting new capital for new projects. It’s possible that Eurobonds provided the funding for the power for the LEDs for the screen you’re reading these sentences on, considering that the Finnish company Teollisuuden Voima funded 3.5 billion euros of the construction of a new nuclear power plant launched in 2023 by issuing Eurobonds.
Nuclear power is popular in 2025. Yet what was sentiment like five years ago during the pandemic, when electricity was cheap? Or 10 years ago after the Fukushima nuclear accident? Many banks would have been reluctant to lend money for new nuclear plants. Finland is a wealthy country but could not have come up with that many billions for the investment from the local economy. The draw of Eurobonds is the fact that it allows investors on the market today to find money even for large, sophisticated and long-term projects.
And there are many investors on the market. Since the 1960s, a whole system has been established – an international bond agreement framework, credit ratings, a dispute resolution mechanism, investor protection measures, and the technical infrastructure for transferring funds to companies and back to investors. All that is left for bond issuers is to persuade investors of the merits of their business plan. As a result, Eurobonds are now one of the main ways of attracting capital, whether for a Finnish nuclear plant, German insurance company, Dublin Airport, or a Swiss commodity broker. Eurobonds have also been used by major banks from the US to Japan and energy companies from British and Arab oil giants to renewable energy in Portugal. Over the last two decades, funds from LHV clients have been invested in all of the above.
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