EFSF says take-up of €3bn bond sale 'solid'

THE EUROPEAN Financial Stability Facility yesterday revived the €3 billion bond sale it cancelled last week, but investor interest in the bond offer, which will be used to help finance Ireland’s bailout, was more muted than in previous sales.

Orders for the debt issued by Europe’s rescue fund exceeded €2 billion in the first hour and exceeded €3 billion by the end of the day, with the facility describing demand as “solid”.

The Luxembourg-based bailout fund had postponed the bond sale last week due to market turmoil.

“I am pleased that the EFSF has again attracted investors from all over the world with a satisfactory overall amount, despite a difficult market environment,” said EFSF chief executive Klaus Regling.

The interest in the bonds, which were attractively priced at more than one percentage point above the benchmark swap rate, compares with an order book of more than €8 billion for the EFSF’s €5 billion bond offer last June, and orders of €44.5 billion for its €5 billion offer in January.

The National Treasury Management Agency declined to comment on the EFSF’s decision to go ahead with the bond sale. If the sale had not gone ahead, the NTMA, which manages Irish debt, would have had to use its own resources to redeem a €4.4 billion bond due later this month.

The postponement of the bond sale last week raised concerns that the EFSF is finding it difficult to raise money from investors at a time when European leaders are hoping to boost its firepower to €1 trillion. German chancellor Angela Merkel yesterday ruled out using German gold and currency reserves or International Monetary Fund special drawing rights to boost the bailout fund.

Meanwhile, the European Central Bank confirmed that it stepped up its activity in the bond market last week, settling €9.5 billion worth of bond purchases, up from €4 billion the previous week.

The central bank’s new president, Mario Draghi, indicated last Thursday that its bond purchases could not go on forever.

An ongoing escalation in Italy’s bond yields has led to fears that its borrowing costs are unsustainable. Italy’s 10-year bond yield climbed higher again yesterday, reaching a euro-era record of 6.68 per cent – close to the level that forced Greece, Ireland and Portugal to accept bailouts.

Equity markets rallied during the day as rumours circulated that Silvio Berlusconi was to announce his resignation. However, the embattled Italian prime minister’s move to describe such rumours as “baseless” in a status update on Facebook effectively ended the ascent, and shares slipped back.

Stock markets in London, Frankfurt and Paris all closed down less than 1 per cent, while the Iseq was little changed.

Ireland’s nine-year bond yield rose from 8.18 per cent to 8.24 per cent.

A Dublin-based equities dealer said market fragility was likely to continue unless the second day of the Ecofin meeting of finance ministers in Brussels today produces the longed-for “big bazooka” moment.

“They need a more convincing message to get people outside Europe to invest in the EFSF,” he said. “Yes, the resources are there, but do the people with the resources want to pay?” – (Additional reporting: Bloomberg.)