Central banks ramp up buying at euro zone bond sales

In a striking shift within the euro zone’s fixed-income landscape, central banks are significantly increasing their participation in sovereign bond sales, signaling a renewed appetite for safe-haven assets amid ongoing economic uncertainty. The trend comes as the region navigates slowing growth, sticky inflation, and divergent monetary policy expectations.

Surging Demand from Central Banks

Recent data and auction results reveal a noticeable uptick in bond purchases by central banks and official institutions. According to Euro Debt Management Office (EDMO) officials, the past quarter saw a 15–20% increase in participation by central banks across benchmark debt sales compared to the same period last year.

This resurgence in buying comes at a time when yields on German Bunds and other core euro zone debt have started to stabilize, after spiking through much of 2024 due to aggressive rate hikes by the European Central Bank (ECB).

“Central banks are rebalancing their portfolios toward safer euro zone assets, partly as a hedge against volatility in global markets,” said Marco Weil, Head of Fixed Income Strategy at Allianz Global Investors. “The return of yield on core government debt is a key incentive.”

Auctions See Higher Cover Ratios

Bond auction cover ratios—a measure of demand relative to the amount of debt issued—have also been strengthening across euro zone nations. Germany’s 10-year Bund auction last week achieved a cover ratio of 2.1x, a significant rise from 1.5x in March. France and the Netherlands have reported similar surges in demand, with central banks accounting for up to 30% of total bids in some recent sales.

Analysts note that much of the demand is coming from institutions in the Middle East, Asia, and Eastern Europe, who view euro zone debt as increasingly attractive amid elevated geopolitical risks and dollar volatility.

ECB’s Role and Policy Signals

While the ECB itself is no longer actively buying government bonds under its pandemic emergency purchase programme (PEPP) or the older asset purchase programme (APP), its influence still looms large.

“Foreign central banks often take their cues from the ECB’s tone,” said Marie Delacroix, a senior economist at Société Générale. “While the ECB has paused rate hikes for now, the overall message has been one of policy flexibility. That creates room for others to enter euro zone debt markets with a degree of confidence.”

Indeed, in its latest statement, the ECB emphasized it will maintain “favorable liquidity conditions” and continue reinvestments under PEPP until at least mid-2025.

Market Context: Safe-Haven Appeal Returns

After a turbulent 2024 marked by inflation spikes, energy shocks, and rate volatility, euro zone bonds are regaining their luster. Germany’s 10-year yield has dropped from highs of 3.4% in late 2024 to around 2.8% in mid-July 2025. Meanwhile, spreads between peripheral and core bonds have narrowed, suggesting investor confidence in euro zone cohesion is improving.

“The stabilization of yields makes euro bonds a more predictable component in diversified reserves,” said Natalia Petrova, head of reserve management at the Bank of Kazakhstan, which recently increased its euro bond holdings by 8%.

The safe-haven narrative is also being reinforced by rising uncertainties in the U.S. and Asia. The upcoming U.S. presidential election, coupled with tensions in the South China Sea, is prompting global reserve managers to recalibrate portfolios toward European debt.

Implications for Euro Zone Governments

For euro zone treasuries, central bank buying provides a welcome buffer. As many nations face rising debt servicing costs, strong auction results help lower borrowing rates and reduce market pressure.

“The increased demand from central banks is a tailwind for fiscal planning,” noted Anja Müller, debt strategist at DZ Bank. “Governments can lock in funding at lower rates, while private investors benefit from tighter spreads and reduced volatility.”

However, there are warnings too. Analysts caution that if central bank buying proves transitory or politically driven, the stability could be short-lived.

“While the current trend is positive, it’s crucial to assess whether this is strategic positioning or a temporary shelter,” said Weil.

Investor Outlook: Strategic Opportunities Amid Shifting Winds

Looking ahead, market participants expect euro zone bonds to remain well-supported, especially if the ECB holds rates steady and inflation continues to trend lower.

“Investment-grade euro government bonds are becoming a core allocation again,” said Delacroix. “The combination of political stability, a clear monetary policy outlook, and decent real yields makes them attractive.”

Private fund managers and pension funds are also increasing allocations, especially in the 5–10 year maturity range. ESG-compliant sovereign bonds, such as green Bunds and OATs, have seen notable inflows, aided by strong interest from Scandinavian and Gulf central banks.

Final Takeaway

Central banks ramping up their buying of euro zone bonds highlights a shift in the global reserve management playbook. Amid global volatility and a cautiously dovish ECB, sovereign euro debt is once again in favor. While questions remain about the sustainability of this trend, for now, the euro zone's bond market is enjoying a rare moment of calm—and credibility.