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EU offloads €5bn in bonds to pay for Irish bailout

The European Financial Stability Mechanism is inundated with offers to buy bonds, at rates only a third of what Ireland will pay.

Image: kozumel via Flickr

THE EU has completed the auction of €5bn in European bonds, in fundraising moves ahead of the first payout of bailout funds to Ireland.

AFP says that demand for the special-issue European Financial Stability Mechanism (EFSM) bonds heavily outstripped supply, with about €19bn worth of bids to acquire the €5bn for the five-year bonds, which were sold off at an average yield of about 2.5%.

That comes compared, the Irish Times adds, to the 5.83% average rate being asked of Ireland to borrow the €67.5bn funds from the EFSM, the European Financial Stability Fund (comprising of contributions from other EU states), and the International Monetary Fund.

By comparison, however, the current price for a five-year Irish bond is about 7.78%, according to AFP.

Further bailout fundraising will come from a bond issue from the EFSF itself later this month, while the EFSM itself is to hold another four or five bond issuances this year to fund its bailout contributions.

The Wall Street Journal’s Richard Barley notes that the EFSM is seen as an “attractive prospect for yield-hungry investors”, with the EFSM bonds having previously been used to underwrite loans to Hungary, Latvia and Romania.

That positive market attitude to centralised European borrowing should send “a powerful signal”, he believes, to European politicians about the appetite of the world’s investors for a sort of common European bond, or ‘E-bond’, which are favoured by Italy but opposed by Germany and France.

The bonds were sold off through Barclays Capital, BNP Paribas, Deutsche Bank and HSBC Holdings.

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Gavan Reilly

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