Defence

The Government of the Grand Duchy of Luxembourg has published its Defence Bond Framework, following its formal approval by the Government Council on October 6^th, 2025. This marks a significant milestone in Luxembourg’s commitment to strengthening national and European defence capabilities in response to evolving geopolitical challenges.

Luxembourg becomes the first European country to issue a national defence bond framework, reinforcing its role as a financial innovator. This initiative follows the country’s strategic defence commitments, including its pledge to increase defence spending to 5% of GNI by 2035.

The Defence Bond Framework outlines the principles, eligibility criteria, and governance mechanisms for the issuance of sovereign defence bonds ensuring that proceeds are allocated transparently and responsibly.

Proceeds from the bonds issued under this framework may only be used to finance eligible expenditures. More specifically, this covers investments in key defence and security areas such as infrastructure, aviation and space capabilities as well as industrial innovation.

The Defence Bond Framework also establishes a dedicated Defence Bond Committee to oversee project selection, fund allocation, and reporting.

The Luxembourg State Treasury currently plans to issue a first bond under this new framework during the first quarter of 2026.

On January 15, 2026, the State Treasury opened subscriptions for its first Defence Bond, for a total of €150 million. The bond issued was fully allocated on the retail market in less than a day and will be listed on the Luxembourg Stock Exchange.

The Defence Bond, with a maturity of 3 years, benefits from a competitive fixed interest rate of 2.25% and attractive tax treatment, as the interest will be exempt from income tax for Luxembourg residents. The investment was accessible in tranches of €1,000, up to a maximum of €150,000 per person and per bank.