EFSF holds successful auction


The European Financial Stability Facility (EFSF) today sold €1.5 billion of securities a day after the bailout fund lost its top credit rating

The successful auction comes hours after the head of the fund Klaus Regling said Standard & Poor's downgrade would have little impact on operations and expressed confidence that investors around the world will keep buying its bonds.

"As long as it is only one rating agency there is no need to do anything really,"  Mr Regling told reporters during a trip to Singapore to meet investors. "You had the same situation when S&P downgraded the US. The others did not follow. There was no market impact."

S&P yesterday cut its credit rating of the EFSF by one notch to AA+, three days after it cut the ratings of France and Austria by the same margin. The other two major ratings agencies, Fitch and Moody's, have not downgraded the EFSF and still rate France as AAA.

The EFSF successfully sold €1.5 billion of new six months bills in an auction earlier today which drew total bids worth €4.66 billion.

The Japanese government bought €120 million of the bills, its finance ministry confirmed.

Germany's Bundesbank, whose systems were used to conduct the sale, said the weighted average yield was 0.2664 per cent.

The yield on the EFSF bond due in 2016 rose seven basis points to 2.14 per cent following today's auction.

Mr Regling said he met investors in Thailand and Singapore on this trip and planned to go to Japan soon. He said it was "no big secret" which investors he met, although he declined to identify any of them when pressed on whether Singapore's large sovereign wealth funds were on his agenda.

"I don't go at the last minute when I need the money," Mr Regling said, adding that his aim was to keep in constant contact with potential investors to ensure that bond sales continue to go smoothly.

He said the EFSF has had no difficulty finding buyers, although Asian investors were somewhat more reticent in the most recent offering, earlier in January. Asian investors took up about 25 per cent of that issuance, down from about 40 per cent in previous rounds, Mr Regling said.

"We have to see whether it was an outlier or a new trend," he said, referring to the slackening demand from Asia.

Asia accounts for the overwhelming majority of the world's foreign exchange reserves, so it is important for the EFSF to continue to draw strong demand from the region.

He expressed confidence that the European Stability Mechanism, which is designed to replace the temporary EFSF, would be operational in July despite disagreements over some of the finer points. All 17 euro zone members must approve the ESM.

"The probability that everything will be in place by July is very high," Mr Regling said.

The EFSF was set up by the 17 euro zone governments in May 2010 and has so far been used to provide emergency loans to Ireland and Portugal. It is also expected to contribute to a second bailout of Greece.

The fund has an effective lending capacity of €440 billion, which depends on guarantees, mainly from the euro zone's AAA countries, only four of which now remain: Germany, Luxembourg, Finland and the Netherlands.

Mr Regling said repeatedly that investors were underestimating both the euro zone's growth prospects and the firepower amassed among the various rescue programmes in place or in progress. He dismissed the possibility of a euro zone breakup.

"No country will be forced to leave the euro area," he said. "We are family, and no family member is forced out as a policy objective."