Bonds without Borders: A History of the Eurobond Market

CHAPTER 11 Sinking Sovereigns 2011–2013

The year began on an optimistic footing with an anticipated €5bn bond issue by the European Union on behalf of the European Financial Stabilisation Mechanism (EFSM). The EFSM on-lent the money to the Irish Republic as part of its bailout. With price guidance of mid-swaps plus 12–15bps the deal attracted €20bn in orders in under an hour and so final pricing was at the lower spread. Approximately 25% of the offering was placed with Asian central banks and sovereign wealth funds. Within days the bond tightened by 7bps.

This deal paved the way for the eagerly awaited inaugural transaction for the European Financial Stability Facility (EFSF) itself. This €5bn five-year issue attracted €30bn of orders before the book was officially opened. The borrower eulogised:

The book was covered almost nine times. We received more than 500 bids for a total of €44.5bn. That, we think is the biggest order book ever. The order books were officially open for only 15 minutes. All the big investors were present. There is no doubt that this huge investor interest is a vote of confidence in the strategy being adopted to restore financial stability in the Euroarea. It also shows that the EFSF's structure is suitable for it to execute its mandate. Particularly strong investor interest came from Asia. The Japanese government bought over 20% of the issue – they see this as a good investment and also contributing to European financial stability.¹

The initial price ...