Worries over slow demand for EFSF debt

Tim Wallace
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THE FIRST bond issue by Europe’s bailout fund since it was given new powers was postponed yesterday on fears that there is not enough investor appetite for its debt.

Initially the fund, the European Financial Stability Facility (EFSF), had planned to raise €5bn (£4.3bn), before cutting the size of the issue to €3bn earlier this week and then postponing it entirely yesterday.

A banker close to the deal told City A.M. that the EFSF feared there was too little interest from investors, despite a spokesman blaming “market conditions”.

“Pension funds, insurers and other major investors are all very conservative. They may not want to invest in what is essentially a new product at a time like this,” the banker said.

“The EFSF is waiting until after the G20 summit and Greece’s confidence vote on Friday, hoping that markets will have calmed down enough next week. Otherwise there is a clear risk to the reputation of all parties involved if something goes wrong.”

A lack of demand would be a worrying sign, throwing into doubt the ability of the Eurozone to leverage the fund up to the slated €1 trillion it has promised. If there is little demand for its debt, leveraging the fund could prove extremely expensive.

Triple-A-rated sovereigns like Germany have seen yields fall this week, but the EFSF felt that confidence would not extend to its debt.

“Investors don’t buy debt when they cannot properly assess its value,” said the banker.

Recently, Eurozone governments voted to change the fund’s powers, enabling it to offer better guarantees to investors; to buy sovereign debt on the secondary market; and to buy bank debt.