INVESTORS FLOCKED to buy new bonds of the euro zone rescue fund yesterday on the back of improved sentiment around Europe and the single currency.
The European Financial Stability Facility sold €1.5 billion in 20-year bonds, the first time it had issued debt of this maturity, with order books rising to €4.5 billion.
Strong demand meant bankers could price the bond at yields of 3.96 per cent, or 115 basis points over mid-swaps, the European reference point for funding bond issues. This was 5bp lower than initial price guidance.
The healthy interest follows the success of other long-dated transactions from public sector issuers. Last week, Belgium sold a €4 billion 20-year syndicated issue that attracted €6.4 billion of demand from accounts across Europe. Previous EFSF bonds had struggled because of worries for the health of the euro zone.
It is also impressive as it is considered harder to sell longer-maturing bonds. The EFSF had not sold bonds beyond 10 years in maturity before this. The money is to be used for the bailout of Ireland and Portugal.
Bankers involved in the transaction said there was interest from funds and banks across Europe, with a small amount of demand from Asian funds.
“This has been easy to sell, it is so different to the end of last year,” said one banker on the deal. “Everyone is happy to buy this debt. There has been such a sea change of opinion in Europe since the European Central Bank’s emergency loan injections [longer-term refinancing operations].”
Another banker said: “Nobody thinks the euro zone crisis is necessarily over but few people think the euro zone will break up, which makes this debt seem pretty safe to most investors.”
The 20-year bond, which matures in March 2032, is priced with a coupon of 3.87 per cent, an issue price of 99.89 per cent of par and a yield of 3.96 per cent.
The EFSF mandated BNP Paribas, Commerzbank and DZ Bank. It had been contemplating a 30- year deal but settled for the slightly shorter maturity.
The lead managers went out with guidance in the 120bp area over mid-swaps, which would have given a coupon of about 4 per cent, a yield which is a key target for insurance companies which tend to be big buyers of long-dated issues.
It is the second bond deal of the year from the rescue fund, which successfully sold €1.5 billion of debt in January despite being downgraded from its top-notch triple-A credit status in that month.
However, the first deal was for six-month bills, which are considered far easier to sell. The EFSF had been downgraded one notch to AA+ by Standard Poor’s only days before. – Copyright The Financial Times Limited 2012
