Europe bailout fund to issue bonds


EFSF BONDS:EUROPE’S BAILOUT fund will issue € 5 billion-€ 8 billion of bonds next month, in what will be the first ever debt offering by the euro zone as a single entity.

The European Financial Stability Facility (EFSF) will use the triple-A rated debt to help fund its part of the € 85 billion Irish rescue.

Klaus Regling, the head of the facility, said in Singapore yesterday most investors would come from Europe, but there had been strong interest from Asia and the Middle East, where the offering would be a “new way to diversify for investors who are looking for high-quality triple-A assets”.

The bond is likely to be priced at a higher interest rate than similarly rated debt from Germany and France. The news came as prospects of the European Central Bank increasing its purchases of bonds led to market interest rates falling for the so-called peripheral euro zone countries such as Spain, Italy and Ireland.

Traders said the ECB had further stepped up its buying yesterday. Some bankers and investors fret that the EFSF bond could hurt the ability of other European governments to raise debt.

Elisabeth Afseth, fixed income strategist at Evolution Securities, said: “There is a risk of crowding out as the EFSF bonds may prove more attractive to investors than other debt, including German Bunds.

A banker who held investor roadshows with the facility said: “Investors love this stuff. But if you buy an EFSF bond, why on earth would you buy Spain? The risk is just too great.”

The facility will raise € 17.7 billion over three years as part of Ireland’s bailout package.

Mr Regling stressed the € 440 billion the EFSF had at its disposal was enough to shore up the euro zone markets.

Finland’s parliament debated the Irish bailout yesterday, with Finnish finance minister Jyrki Katainen saying no one can guarantee that the European debt crisis won’t spread. Still, the Irish bailout will “soften the blow” on the European economy, he said.

Finland’s parliament will vote this afternoon on the country’s participation in guarantees to the Irish loans. Finland’s biggest opposition party, the Social Democrats will vote against the guarantees.

– Copyright The Financial Times Limited 2010 / Bloomberg