ESM-EFSF

The European Financial Stability Facility, which sent out a request for proposals for €3bn of funding last week, is most likely to pick five years for the upcoming benchmark, said SSA bankers on Monday.

The European Financial Stability Facility may have picked strange timing for its latest benchmark, but in doing so it has made an important point.

Demand and pricing for the latest deal from the European Financial Stability Facility (EFSF) has made a strong case that the region's SSA sector has put the sovereign crisis behind it — for now, at least. After a first quarter that has been characterised by robust demand and diminishing new issue premiums on bond issues across the SSA market, Europe's bail-out vehicle priced on Wednesday a €4bn five year trade that was more than three times subscribed with a miniscule new issue premium.

The European Financial Stability Facility (EFSF) made light of a one notch downgrade from Standard & Poor’s to print €1.501bn of six month paper on Tuesday.

The European Financial Stability Facility closed books on is debut three year benchmark on Thursday morning, having received orders well in excess of the €3bn planned deal size. The deal is set to leave the SSA market in a healthier state than many predicted after a hectic opening week to the year.

Sovereign, supranational and agency issuance planning for 2012 lay in tatters after last week’s Eurogroup summit left issuers and their advisors riddled with uncertainty. Although funding volumes are known, plans of campaign are limited to taking a wait-and-see approach as issuers face up to increased scrutiny, wider spreads and smaller deal sizes.

The European Financial Stability Facility (EFSF) auctioned its first short term debt instruments on Tuesday morning. It achieved a yield in line with what the French have to pay for the same maturity. Meanwhile, fellow bailout borrower the European Union is understood to be poised to launch a new issue.

The European Financial Stability Facility is to brave the risk of failed offerings by starting to auction short term bills as early as next week.

This week’s Eurozone crisis summit is unlikely to satisfy investors and end the volatility that has paralysed markets in recent weeks, bond players said on Thursday afternoon. Key steps including committing to an aggressive European Central Bank buying programme, clarifying fiscal union and transforming the European Financial Stability Facility into a bank seem remote amid continuing political wrangling.

Standard & Poor’s placed 15 eurozone sovereigns on CreditWatch with negative implications on Monday. Six of those countries, including Austria, Germany and the Netherlands, are rated triple-A.

The positive tone to the European government bond market this week could be short lived if Europe’s leaders fail to tackle the continent’s fiscal problems at next week’s summit, warned bankers.

Italy successfully navigated its planned five year bond auction on Monday morning but any relief on the part of investors is tempered by scepticism over the quality of the sale. French yields rallied but that sentiment may be short-lived, said bankers, as investors targeted Spanish Bonos.