High stakes for EFSF bond sale


The European Financial Stability Facility will next week have to grapple with widening spreads and a volatile backdrop for its third and potentially most difficult bond sale of the year.

The eurozone bailout fund, Aa1/AA/AA, sent out a request for proposals for a deal scheduled for the week of February 20. But the trade is coming at a tricky time for the issuer after a 1.5-billion-euro 26-year priced at the beginning of February struggled to gain momentum.

EFSF and ESM have benefited from favorable market conditions in recent times, buoyed by the European Central Bank public sector purchase program and a benign backdrop for eurozone sovereigns.

However, escalating concerns around Greece and the European political backdrop have taken their toll, in particular on EFSF’s spreads given its larger funding requirement.

The 57-billion-euro funding target for the two issuers is the most they have had to raise since 2013.

The initial target for 2017 was 50 billion, but this was increased by 7 billion after the eurozone agreed to provide Greece with short-term debt relief.

The toing and froing between Greece and its creditors has had an impact too.

“With details about the implementation of the Greece deal still unclear, uncertainty and thus the repricing probably still have further to go,” wrote Rainer Guntermann, rates and SSA strategist at Commerzbank, in a note.

Bankers are agreed that the safest trade for EFSF to do would be a 10-year maturity.