The European Financial Stability Facility, the 440 billion euro ($600 billion) fund being used to bail out Ireland, launched its debut bond issue on Tuesday with demand dwarfing the 5 billion euros on offer. The EFSF, set up in May last year to help any eurozone 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 euros it is expected to issue in 2011.
A source at the EFSF said it closed the order book with demand at 43 billion euros, nearly nine times the 5 billion euros of paper on offer - hailed as a sign of confidence in the facility and by extension the 17-country eurozone as it seeks to get on top of its near year-long debt crisis. Full results of the syndicated placement are expected to be announced at around 1500 GMT, an EFSF spokesman said.
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 euros, which eurozone government have guaranteed. Together with the 60 billion euro European Financial Stability Mechanism and 250 billion euros from the International Monetary Fund, the EU has in theory a total of 750 billion euros 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 euros, which restricts how many bailouts it could handle. Ireland received an 85 billion euro 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.