EFSF auction attracts €43bn of orders


The European Financial Stability Facility, the €440 billion fund being used to bail out Ireland, launched its debut bond issue today with demand dwarfing the €5 billion on offer.

The EFSF, set up in May last year to help any euro zone member states unable to raise funding in the market, is AAA-rated and was always expected to attract strong interest for the near €16 billion it is expected to issue in 2011.

A source at the EFSF said it closed the order book with demand at €43 billion, nearly nine times the €5 billion of paper on offer -- hailed as a sign of confidence in the facility and by extension the 17-country euro zone as it seeks to get on top of its near year-long debt crisis.

Investors in Asia are expected to have bid strongly for the bonds, looking to add AAA-rated paper to their portfolios.

German economy minister Rainer Bruederle said the strong demand showed EFSF volume was sufficient and was a reflection of the confidence in Europe's ability to act.

The bond was priced at mid-swaps +6 basis points, a source at one of the lead managers said. An EFSF source said more than 500 participants had submitted bid for the bonds available.

The EFSF was set up last May when EU leaders agreed they needed a multi-billion-euro facility to handle future debt crises after Greece was forced into a bailout because it was unable to finance itself on international markets.

The fund can borrow money on the market using the €440 billion, which euro zone government have guaranteed.

Together with the €60 billion European Financial Stability Mechanism and €250 billion from the International Monetary Fund, the EU has in theory a total of €750 billion available to tackle any future bailouts after Ireland.

However, because of cash buffers and other guarantees built into the EFSF to ensure that it retains a AAA rating, its effective lending capacity is estimated to be only €250 billion, which restricts how many bailouts it could handle.

Ireland received an €85 billion EU/IMF bailout in November, with around €18 billion euros of that due to come from the EFSF and €22.5 billion coming from the EFSM, a fund backed by European Union member states and also AAA rated.

Debt market analysts said the large order book for the EFSF bonds showed just how much appetite there was among investors for top-grade, AAA rated debt.