EFSF Attracts €4.5B in Orders for New 3-Year Bonds
The euro zone’s temporary rescue fund received a decent level of demand for its inaugural three-year bond on Thursday, but the costs reflect the increasing wariness of investors concerned about the future of the rescue fund and the state of the sovereign debt crisis.
The European Financial Stability Facility attracted nearly 4.5 billion euros in orders for three-year bonds, enough to cover the 3 billion euros of notes sold, but only after offering investors a yield spread almost seven times what it paid to sell 5 billion euros of securities last January.
Demand for the EFSF’s debut 10-year bond in January 2011 was nine times what was being offered, compared to demand of just 50 percent more than was being offered for the three-year bond, and that’s after the bailout fund priced the new bond at 40 basis points over the midswap rate, a benchmark for bond pricing — a stark contrast to the six basis points over midswaps it paid for the 10-year bond a year ago.
However, today’s figure is an improvement on a bond sold last November, which after being postponed received just enough orders to cover the total amount on offer. With a shorter maturity than any of the four bonds the EFSF sold last year, the relative success of today’s offering came as little surprise to market observers.
Proceeds from the bond will help fund the bailouts of Portugal and Ireland, for which the EFSF must raise 24 billion euros this year. The EFSF “is funding the financing programs for Ireland and Portugal and — in the near future — for Greece,” said Michele Cortese, managing director of debt capital markets at Societe Generale. “This transaction further complements the EFSF’s strategy of diversifying its funding tools,” he added.
Nearly half of all the debt sold today was bought by banks, thanks to the European Central Bank’s first-ever three-year refinancing operation in December, which left banks with an excess of liquidity, allowing them to invest. The EFSF’s new three-year bond perfectly complements the ECB’s three-year loans.
Still, the EFSF is faced with higher funding costs across the region, and in addition to uncertainty surrounding its role in future bailouts, two of the three major rating companies have warned that the EFSF could soon lose its coveted AAA rating.
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