Tuesday, May 24, 2011

Strong demand for EU bail-out bond sale

The European Union enjoyed strong demand for its third bond to raise money for the rescues of Portugal and Ireland, in a sign of investors’ confidence that the eurozone can survive the debt crisis.

Despite rising concern over contagion, and the single currency coming under pressure this week, banks, pension funds, insurers and other investors from Europe and Asia, including some big sovereign wealth funds, bought the debt.

The EU sold €4.75bn ($6.69bn) of 10-year bonds in the triple A rated paper at a coupon of 3.50 per cent, or 43 basis points over equivalent benchmark German Bunds.

One syndicate banker said: “It shows that Europe as an entity is much in demand. There might be problems on the periphery but some of the biggest investors and banks are willing to buy into Europe, if not the periphery.”

Banks that managed the deal included BNP Paribas, Crédit Agricole, Credit Suisse, DZ Bank and JPMorgan. Order books were open for only one and half hours on Tuesday morning, with the strong demand enabling the banks to price the bond more tightly than expected.

Bankers said the success of the bond should help ease tensions in the eurozone amid worries about the possibility of Greek restructuring and fears that Italy and Spain are becoming drawn into the crisis.

The EU’s first bond in January for the rescue of Ireland saw overwhelming demand. A second bond in March was also a success.

The EU issued the debt under the auspices of the European financial stabilisation mechanism, the body run by the European Commission, which is responsible for €60bn of Europe’s rescue funds. It plans to sell another five-year bond next week.

The bond is the first to be launched since Portugal’s €78bn bail-out was agreed.

The European financial stability facility is expected to follow with two bonds in early June. The EFSF made its debut sale in January.

The EFSF is responsible for €440bn of the rescue package, with the International Monetary Fund making up the rest of the €250bn for a total of €750bn in rescue loans.

Subject to market conditions and the needs of those countries being bailed out, the EFSF plans a total of seven bond sales in 2011, compared with three under the original calendar announced in December.

The EFSM plans a total of six debt sales this year, instead of four to five under the original schedule.

Source: www.ft.com

No comments: