EFSF Debut Bond Rises on 1st Day Amid ‘Blowout’ Investor Demand
The European Financial Stability Facility’s debut 5 billion-euro ($6.9 billion) bond to help pay for Ireland’s bailout rose in the first day of trading after investors bid for nine times the securities on offer.
The 2.75 percent notes due July 2016 climbed 0.24 cent on the euro to 99.54 cents as of 1:15 p.m. in London, according to National Australia Bank Ltd. bid prices on Bloomberg. The yield fell to the midswap rate, from 6 basis points over the benchmark when the notes were issued yesterday.
The top-ranked securities, backed by euro-region government guarantees, attracted 44.5 billion euros of orders, with investors from Asia buying about 38 percent of the deal. The EFSF issue followed a bond for the same amount by another European Union fund three weeks earlier, which has also rallied in secondary market trading.
“The EFSF bond was a blowout,” said Bill Blain, co-head of the special situations group at broker Newedge Group in London. “We understand allocations were cut back close to the square root of zero for most investors,” with China accounting for a “very significant” slice, he said.
The EFSF will give the money to Ireland on Feb. 1, after the country asked for a loan of 3.3 billion euros, with the remaining proceeds retained as a cash buffer to ensure the fund’s AAA rating, according to a statement. Ireland will pay an interest rate of about 6 percent for the money, EFSF Chief Executive Officer Klaus Regling said at a press conference in Frankfurt yesterday.
The European Financial Stabilization Mechanism sold its bonds, to raise money for the European Commission’s contribution to Ireland’s rescue, on Jan. 5, according to data compiled by Bloomberg. The 2.5 percent notes due in December 2015 priced at 12 basis points over swaps, and the spread has now tightened to 5 basis points under the benchmark rate. A basis point is 0.01 percentage point.
The EFSF will raise as much as 26.5 billion euros in the capital markets in 2011 and 2012 for the Irish bailout, according to the statement. That will include another two benchmark bonds of 3 billion euros to 5 billion euros each this year. In addition, the EFSM will raise as much as 17.6 billion euros this year and 4.9 billion euros in 2012.
Central banks, governments and agencies made up 43 percent of yesterday’s EFSF bond sale, according to people familiar with the deal, who declined to be identified because the details are private. Funds took another 31 percent. Japan’s government bought 20 percent, according to the EFSF’s statement.
“We didn’t buy this one because there are plenty more to come,” and the bonds’ performance will suffer over time, said Blain.
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net