THE FIRST bond issue by the European Financial Stability Facility (EFSF) in its new form was slightly oversubscribed yesterday.
Raising €3bn (£2.57) to fund Ireland’s refinancing needs, the EFSF paid 104 basis points (bps) above mid swaps, implying a yield for investors of 3.59 per cent.
The last time such a 10-year bond was offered, investors snapped it up at 17bp above mid swaps, and it was nine times oversubscribed. Germany and the EFSF both have triple-A credit ratings, yet German borrowing costs are down at 1.78 per cent on 10-year debt.
Analysts believe the spread is linked to German debt being seen as the most secure in the Eurozone, while France also guarantees the EFSF – and may be at risk of losing its coveted triple-A rating, damaging the EFSF as a whole and illustrating the higher risk investors are taking by lending to the fund.
Yet Stephen Gallo of Schneider FX believes Eurozone leaders should stay confident. “There is demand for EFSF paper because the market wants an alternative to investing in the US dollar in the medium term, and this can be seen as a precursor to a common Eurobond,” he told City A.M.
The sale was originally due to go ahead last week but the EFSF suspended it in the face of market turmoil caused by doubts over whether Greece would stick to the euro debt rescue plans agreed late last month.