THE GOVERNMENT will in the coming days borrow €3.5 billion from the euro zone bailout fund, about €200 million more than it first sought, following the completion of its inaugural bond issue.
Dublin initially asked for a €3.3 billion loan from the European Financial Stability Facility (EFSF). However, EFSF sources say “favourable” terms realised when it sold a €5 billion five-year bond last Tuesday mean it can now lend more than the sum the Government had asked for.
The bond issue was nine times oversubscribed, meaning investors signalled their willingness to put down a total of €44.5 billion.
The issue spread, fixed at mid-swap plus 6 basis points (0.06 percentage points), implied borrowing costs for EFSF of 2.89 per cent.
Ireland will pay interest of some 5.815 per cent for its loan thanks to the 2.925 per cent “surcharge” over the EFSF’s borrowing rate.
The inaugural loan to Ireland from the fund, which is controlled by the 17 euro countries, comes as EU leaders prepare to discuss a radical expansion of its remit at a summit in Brussels next Friday.
EU leaders will discuss the possibility of reducing this rate at the summit, but no final decision is expected until another summit late in March when EU leaders are expected to sign off on a range of EFSF reforms.
The EFSF’s rules means it must borrow more on the back of guarantees from euro zone countries than it lends on to bailout recipients.
This arises because it is obliged to maintain a large cash buffer to secure the triple-A credit rating over all its borrowings which enables it to issue bonds on the capital markets at preferential rates.
The protection of the cash buffer is required because only six of the euro zone countries are triple-A rated – Germany, France, Austria, Finland, the Netherlands and Luxembourg – and because the EFSF guarantees both the principal and the interest on the bailout loans it issues.
The EFSF sources said the “loan specific cash buffer” linked to the €5 billion bond was less than forecast when the Government requested the loan because the bond was raised at a low price. Japan’s finance ministry subscribed for more than €1 billion of that issue, with Asian investors generally taking up 38 per cent of the issue.
German investors are believed to have taken 12 per cent of the issue, Nordic investors 9 per cent, French investors 7 per cent, Benelux-based investors 6 per cent and north Americans 2 per cent.
It is believed central banks bought 43 per cent, fund managers 31 per cent, commercial banks 13 per cent and insurers 6 per cent. Pension funds took 3 per cent.
The EFSF’s next bond issue for Ireland will be in the second quarter of the year, and it plans to tap the markets again in the third quarter.
Subject to market conditions, the fund may issue a 10-year bond between €3 billion and €5 billion when next it issues a bond.
The market for 10-year money is smaller than the five-year market.
Source: http://www.irishtimes.com
Showing posts with label European. Show all posts
Showing posts with label European. Show all posts
Monday, January 31, 2011
Monday, January 24, 2011
Demand sky-high for EFSF debt
Europe’s bail-out fund is expected to be flooded with orders for the eurozone’s debut bond issue on Tuesday as investors around the globe rush to buy the debt in spite of the region’s crisis.
The European financial stability facility will raise the maximum allotted amount of €5bn in five-year bonds. On Monday investors had already placed initial bids of more than €20bn before order books opened early on Tuesday.
Order books were expected to open at 8am London time and some bankers said the books for the issue could fill up in less than an hour.
The landmark issue, which could pave the way to a common eurozone bond, is proving even more popular than a European Union deal, which priced this month and saw order books rise to €20bn.
One banker said: “Investors love these bonds because they offer the safety of a triple A credit, while at the same time they provide a bit of extra yield over German Bunds.”
A leading investor said: “We are buyers of this debt as it is a simple way to get exposure to the eurozone. It is also as safe as houses as it is backed by Germany and won’t ever default.”
The strong demand means the bond, which will mature in July 2016 and is being managed by Citigroup, HSBC and Société Générale, is likely to price at lower yields than the EU bond, which was sold at 70 basis points over German Bunds. This is much lower than Italian and Spanish debt.
The lower-than-expected yields have prompted some strategists to urge policymakers to consider lowering the cost of bail-out loans to countries that need them. These are currently charged at about 300bp over Bunds.
Strategists hope a successful auction will ease tensions further in the eurozone bond markets, which have seen an improvement in sentiment on hopes that the EFSF will be reformed and possibly increased in size to ensure enough money is available in the event of a deepening of the crisis.
The bond is likely to be bought mainly by European funds, though Asian and Middle Eastern investors are expected to buy about 30 per cent of the paper.
More than 400 sovereign and private funds dialled into a conference call with Klaus Regling, head of the EFSF, in advance of Tuesday’s issue, and many signalled that they would be buyers of the bond.
Japan says it wants to buy 20 per cent of the issue, while sovereign wealth funds and central banks in Russia, China and other parts of Asia are expected bid, according to people familiar with the deal.
This month, some bankers expressed worries that the bond could suffer because of the structure of the EFSF, which is guaranteed by member states and has €440bn at its disposal.
But these worries failed to be borne out and investors have not let political uncertainty in Ireland damp enthusiasm for the bond.
The European Commission has said as much as €34.1bn will be raised for Ireland in 2011, €14.9bn of it by Europe’s two financial aid funds.
Source: http://www.ft.com
The European financial stability facility will raise the maximum allotted amount of €5bn in five-year bonds. On Monday investors had already placed initial bids of more than €20bn before order books opened early on Tuesday.
Order books were expected to open at 8am London time and some bankers said the books for the issue could fill up in less than an hour.
The landmark issue, which could pave the way to a common eurozone bond, is proving even more popular than a European Union deal, which priced this month and saw order books rise to €20bn.
One banker said: “Investors love these bonds because they offer the safety of a triple A credit, while at the same time they provide a bit of extra yield over German Bunds.”
A leading investor said: “We are buyers of this debt as it is a simple way to get exposure to the eurozone. It is also as safe as houses as it is backed by Germany and won’t ever default.”
The strong demand means the bond, which will mature in July 2016 and is being managed by Citigroup, HSBC and Société Générale, is likely to price at lower yields than the EU bond, which was sold at 70 basis points over German Bunds. This is much lower than Italian and Spanish debt.
The lower-than-expected yields have prompted some strategists to urge policymakers to consider lowering the cost of bail-out loans to countries that need them. These are currently charged at about 300bp over Bunds.
Strategists hope a successful auction will ease tensions further in the eurozone bond markets, which have seen an improvement in sentiment on hopes that the EFSF will be reformed and possibly increased in size to ensure enough money is available in the event of a deepening of the crisis.
The bond is likely to be bought mainly by European funds, though Asian and Middle Eastern investors are expected to buy about 30 per cent of the paper.
More than 400 sovereign and private funds dialled into a conference call with Klaus Regling, head of the EFSF, in advance of Tuesday’s issue, and many signalled that they would be buyers of the bond.
Japan says it wants to buy 20 per cent of the issue, while sovereign wealth funds and central banks in Russia, China and other parts of Asia are expected bid, according to people familiar with the deal.
This month, some bankers expressed worries that the bond could suffer because of the structure of the EFSF, which is guaranteed by member states and has €440bn at its disposal.
But these worries failed to be borne out and investors have not let political uncertainty in Ireland damp enthusiasm for the bond.
The European Commission has said as much as €34.1bn will be raised for Ireland in 2011, €14.9bn of it by Europe’s two financial aid funds.
Source: http://www.ft.com
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