It seems like the EFSF can do no right to its detractors: it was criticised by some two weeks ago for printing a one year deal, when it lends up to 30 years. And it will no doubt attract criticism this week for paying up for ultra-long dated funding. But in exploring unusual parts of the curve the funding team is doing exactly what it should be: making sure that it has access to as broad a range of investors as possible.
The EFSF is no normal capital markets beast. Its success in the bond market is inextricably tied up with the future of the eurozone project.
Despite fears that even with a 30 year maturity, a deal would fail to hit the 2.5% yield bogey that gets real money investors hot under the collar, the deal flew out of the door with a sub 2.4% yield.
The issuer had to offer a decent new issue premium — bankers away from the deal put it at close to or in the double digits, although one of the leads had fair value at 27bp-28bp over swaps, and the deal was priced at 31bp over.
But without a 3% coupon, or even a 2.5% coupon to offer, it is more imperative than ever to leave something on the table to have investors biting your hands off. And bite they did, books topped €6.1bn and the EFSF attracted new investors to its programme.
It’s hard to recall the dark days of late 2011, when the supranational only limped over the line with a 10 year in November that it had to postpone earlier in the month — a situation that risked giving already nervous market participants brown trousers over the outlook of the sovereign, supranational and agency funding market.
This issuer’s first and foremost duty is to make sure that market participants have confidence that it can fund at any time. A 30 year print is another step to solidifying its access to all parts of the curve.